Online ambitions could elude mid-level brands (2)

The potential of e-commerce is huge in China, where traditional retail store networks are less developed and many young consumers like comparing products online and having goods shipped directly to their homes.

E-commerce sales in China rose 30 percent in 2011, as 200 million Chinese purchased 588 billion yuan ($94.36 billion) worth of products online, according to government figures. New data showed growth continued to rise 33.5 percent in Shanghai, China's commercial capital, over the just-concluded Chinese New Year holiday.

But the rapid growth and relatively low barriers to entry have also led to intense competition among e-commerce site operators, forcing many into the red, with every indication the competition is spreading to brands that sell online. The inevitable spread of competition to those brands will mean that mid-tier names like Cherokee will have to spend heavily on advertising and other promotions to attract attention in a market where brand awareness is key to winning sales.

That will force them to go head-to-head with the much bigger global names with more resources, and also with the other mid-tier names, to get noticed. The result could be that many smaller Western retailers may flock to China's e-commerce market in the next few years, but also many may quickly be forced to close up their Chinese shops when they discover how crowded and competitive the market has become.

The author is a former company news reporter from Reuters. He writes about China's company news at www.youngchinabiz.com.