Five Ways China’s E-Commerce Landscape Is Changing | BoF Professional, China Decoded, News & Analysis

Brahm Buck

The rapid pace at which China’s e-commerce industry evolves has always been a major concern for global fashion and beauty brands. From the arrival of new media formats to the super apps and retailers pushing them to the fore, the country’s elaborate digital ecosystem was hard enough for some local […]

The rapid pace at which China’s e-commerce industry evolves has always been a major concern for global fashion and beauty brands. From the arrival of new media formats to the super apps and retailers pushing them to the fore, the country’s elaborate digital ecosystem was hard enough for some local players — let alone foreign brands — to keep up with.

Having seen further innovation during the pandemic, this already obstacle-laden playing field has only gotten more crowded and lucrative as China reaches its next milestone of economic recovery. Camps are converging as top players expand their offerings: while content-forward platforms like Douyin and Kuaishou moved into commerce to convert traffic to revenue, marketplaces like Tmall and JD.com invested in content. Meanwhile, lockdown boosted already high levels of digital penetration in untapped areas and audiences.

According to a new eMarketer report, over 52 percent of retail sales will take place online in China this year, which makes it the first country where e-commerce accounts for at least half of overall sales. “All other markets are in minus mode right now,” says Phil Lai, Shanghai-based partner at PwC Consulting. “China is really the only market to invest in.”

While this is good news for consumers, who will find a plethora of options online to suit their needs and improvements in both speed and convenience, it makes things harder for brands. “Lines are getting completely blurred between social commerce, traditional e-commerce and communications channels,” says Sandrine Zerbib, founder and chairwoman at consulting firm Full Jet. “The more blurred it is, the more you have to be prepared to occupy a lot of spots in the journey of the consumer and connect these different touchpoints in a way that was less difficult before.”

The moves that China’s social media platforms — like Douyin, Bilibili and Xiaohongshu — either have made or are making towards commerce could disrupt the current, marketplace-first strategy many brands are just getting comfortable with.

Last year was a banner year for people starting brands.

But it’s far from the only shift currently underway in a country which eMarketer predicts will spend around $2.7 trillion online in 2021 (for comparison, South Korea, a highly digitised market and the Asia Pacific region’s runner up, is forecasted to hit $120 billion). From thinking beyond Single’s Day to targeting lower-tier cities, here’s what brands need to know in China’s rapidly changing e-commerce landscape.

Racing Against Ultra-Fast Competitors

While there will undoubtedly be Chinese entrepreneurs working to create the next big platform, the focus now is on building brands atop existing platforms’ digital infrastructures. This means global brands will face an even larger cohort of digitally native fashion and beauty competitors. “Last year was a banner year for people starting brands and we’ll probably be seeing more,” says Rui Ma, host and founder of the Tech Buzz China podcast and partner at Synaptic Ventures.

Besides adapting their presence to an ever changing online ecosystem, global brands face the challenge of competing with homegrown players boasting strong data capabilities.

Ma raises the example of ultra fast fashion player Shein, which targets markets beyond China but represents a new wave of brands harnessing the wealth of data made available by platforms to optimise local supply chains. Other highly data driven and digital-first companies include beauty players Perfect Diary and Florasis.

“Your decisions are going to [have to] be a lot smarter because the time between assessing the market demand and [making the product] is so compressed. That loop is really tight and the learning is really quick,” says Ma, adding that many new brands are being helmed by people with experience in the internet sector. Whether or not they work with local suppliers, global brands will need to get on the same level to compete.

A Reckoning for Livestreaming

2020 was dominated by talk of short videos and livestreams, which Vincent Qiu, chairman and CEO of Chinese brand e-commerce service provider Baozun, calls “rich media.”

Though these formats have become popular among brands from Burberry to Nike, players need to rethink their use of rich media and livestreams in particular. “I don’t think livestreams are going to be the primary way people shop in the future,” says Ma, referring to the high commission fees brands have to pay platforms — Kuaishou, she says, takes a 50 percent cut. KOL-led livestreams are particularly costly because brands also have to pay experienced influencers who command high fees in this space.

Digitally adept businesses in China — especially those in livestreaming — have fared well during Covid-19. Getty Images.

“They aren’t a sustainable marketing method,” echoes Qiu. “No brand can afford it forever.” Qiu adds, however, that in-store livestreams (where store staff showcase products in brand boutiques) and short videos are more cost efficient and have more staying power.

Beyond costs, brands navigating the livestream format will have to deal with the logistical challenges it creates, says Phil Lai, Shanghai-based partner at PwC Consulting. Creating an inventory system that caters to marketplace partners, in-store sales as well as online events like livestream commerce is complicated. Moreover, luxury players have to preserve their premium brand positioning while moving at “hyperspeed,” Lai adds.

“All this [e-commerce growth] is good, but people tend to ignore the operational complexities that happen behind the scenes,” Lai says. “The market is evolving so fast, so there’s no best practice.”

Rethinking Lower-Tiered Cities

Where the pandemic has accelerated digitisation — particularly in lower tier cities, where most of China’s population resides — brands need to re-evaluate their approach.

In the past, apps like Kuaishou were known for their popularity among netizens in less urban parts of the mainland. But the distinction between platforms that target first and second tier cities and those that engage with lower tier cities no longer stands.

Where the pandemic has accelerated digitisation… brands need to re-evaluate their approach.

Major platforms have grown to the point where they ultimately represent China’s entire population — not just urbanites in cities like Shanghai, Beijing and Guangzhou. “First tier cites shouldn’t be more than 10 percent of your user base,” says Ma.

Brands need to use the same platforms to address different consumers, says Full Jet’s Zerbib. “You need to be more, for more people.” This extends to a brand’s messaging, as well as the way they merchandise and distribute their products. Brands also need to take the downstream operations of their supply chains into account. “Penetration into lower tier cities is not difficult for sales or marketing,” says Qiu. “Right now, the biggest barrier keeping brands out is the supply chain.”

Rather than segmenting their audience by the platforms they use or even the cities they live in, PwC’s Lai recommends brands make the most of social media algorithms to reach customers across the country by targeting more specific traits, while refining and localising their messaging without undermining the brand’s positioning — a tricky, but not impossible balancing act. “It’s not as easy as choosing [between] Douyin or Kuaishou … the algorithm will dictate that.”

When Every Day Is a Shopping Holiday

Last year, events like 618 and Single’s Day bolstered confidence in China’s recovery — the latter racked up $74 billion in gross merchandise value in 11 days for Alibaba alone and brought in over 100 million yuan in GMV for the likes of Nike, Adidas, Lancôme and Estée Lauder Companies. But a growing number of shopping festivals will continue to redefine China’s increasingly digital-led shopping cycle.

Once you get to hosting a key event every month, that’s a saturation point.

KOLs like Viya, the top livestream host whose broadcasts draw an average of 20 million views, has already launched her own recurring events. “She’ll have shopping events she calls holidays for specific categories,” says Ma. Brands even tried to ride off Viya’s publicity by launching their own promotions to coincide with hers. As more major KOLs pile into an already crowded shopping festival calendar with their own events, brands will have to become even more creative when it comes to developing e-commerce marketing strategies that work well with them.

Moreover, the top events are outgrowing their promotion periods. “The major shopping festivals haven’t changed much,” says Elijah Whaley, vice president of marketing (APAC) at Launchmetrics. Rather, the biggest change is the time when sales begin. “For the Single’s Day shopping festival, brands have started promoting their discounts one and half months early with strategies that lock customers into buying when the time comes.”

But more isn’t necessarily better, particularly when brands are often expected to slash prices or boost marketing budgets to coincide with promotions. The same goes for consumers. “Once you get to hosting a key event every month, that’s a saturation point,” says Lai, referring to the especially promotion-dense period spanning Single’s Day, Christmas and Lunar New Year.

Tapping into the occasional festival can boost brand awareness but fostering loyalty and desire to purchase without promotions are sustainable strategies that will help brands maintain sales without relying on KOLs and marketplaces. “Consumers are getting more and more aware, they’re not worried about buying everything at a particular event as they know something else will come around the next month or the month after,” Lai adds.

To Outsource, or Not To Outsource

As a growing number of brands expand their e-commerce channels beyond major marketplaces like Tmall and JD.com, doing so with a local partner is a tempting fix.

Demand for e-commerce SaaS (software as a service) is on the rise. Domestic third-party business-facing software firms like Youzan, WeMob and Weidian have room to grow, says Ma, who sees bigger potential for small to medium sized fashion and beauty brands. These platforms are currently focused on WeChat e-commerce facilitated by mini programs and none of the firms are direct counterparts to Shopify; Youzan, for one, helps over 100,000 businesses set up and operate stores on WeChat, in addition to managing subscribers and customer service. But it also offers services to merchants that manage brick-and-mortar stores in addition to software solutions targeted at specific businesses models, like beauty salons.

Employees pack boxes in a Cainiao warehouse  in Wuxi, China's eastern Jiangsu province, ahead of Singles' Day 2020. Getty Images.

Employees pack boxes in a Cainiao warehouse in Wuxi, China’s eastern Jiangsu province, ahead of Singles’ Day 2020. Getty Images.

And unlike markets like the US — where Shopify helps brands navigate the space with services that players like Amazon don’t provide — China’s tech retail giants are providing their own data, inventory and clienteling solutions to rival partner agencies. WeChat’s e-commerce backend and Alibaba’s marketing technology and media buying platform, Alimama, are just two examples. “There’s a lot of disagreement about whether a model like that will take off in China like Shopify has [in the west],” says Ma.

But not all brands should opt in. For some, the answer will be to opt out of partnerships and hire people to manage these capabilities locally. “A lot of luxury brands started out testing the waters [by] outsourcing everything to Tmall partners,” also known as TPs, says Lai. As e-commerce makes up a growing share of their sales in China, brands need to consider whether they should optimise by consolidating operations.

Outsourcing marketing and sales, while convenient and effective, has its disadvantages: for one, local partners can end up knowing a brand’s clientele better than the brand itself. “Brands need to be really close with their customers,” says Lai. “A lot of them are thinking, how do I bring these capabilities in house?”

时尚与美容

FASHION & BEAUTY

Eve Lom products. Eve Lom.

Eve Lom products. Eve Lom.

Yatsen Holdings To Acquire Eve Lom

The owner of top direct-to-consumer makeup brand Perfect Diary has agreed to buy British premium skincare brand Eve Lom from Manzanita Capital in an acquisition expected to be completed in the next few weeks. The New York-listed Chinese group has steadily expanded its portfolio over the past year by acquiring beauty brand Little Ondine and French skincare player Galénie. Eve Lom serves to boost its high end offering; Yatsen’s founder, chairman and CEO Jinfeng Huang said the brand has maintained resilient sales and profitability in spite of the pandemic. Manzanita Capital will retain a minority stake in the business and serve as a strategic partner. (BoF)

Chinese Superstar Lu Han Secretly Founded a Fashion Brand

The singer and actor revealed in an interview with i-D Magazine this week that he is one of the founders of the three-year-old fashion label Un Garcon Charmant (commonly called UGC). The brand, which has shown its collections during Paris Fashion Week and also hosted a pop-up in Tokyo’s Shinjuku district, is a high-end streetwear proposition that has proven popular with China’s Gen Z consumers, even without any official public affiliation with its high-profile idol founder (Lu has often been photographed wearing the brand). “Three years have passed, Un Garcon Charmant now has its own style and language, and I think it’s the right time to have an official introduction,” he told i-D. (BoF)

Chinese Fashion Giant JNBY Sees Revenue Climb 8.4%

In the first half of fiscal year 2021, ending December 31, JNBY’s total revenue was 2.3 billion yuan ($356 million), an increase of 8.4 percent over the same period last year. Net profit for the group, which encompasses the main JNBY line, as well as adjacent brands Croquis and childrenswear line jnby by JNBY, rose 7.8 percent year-on-year. Over the reporting period, the total number independent physical retail stores operated by JNBY increased from 1,855 to 1,931. JNBY attributed the revenue increase to an upgrade of its retail networks and a concurrent increase in sales from online channels. (East Money)

科技与创新

TECH & INNOVATION

A Farfetch campaign. Farfetch.

A Farfetch campaign. Farfetch.

Farfetch Officially Launches on Alibaba’s Tmall

The luxury retailer unveiled its flagship store on Tmall Luxury Pavilion today on the back of last November’s mega deal with the retail giant and Richemont. The move aims to help Farfetch plug into Alibaba’s 779 million consumers — and through it, thousands of designer brands. Despite Tmall’s proven popularity with luxury brands and retailers, which has produced partnerships with both Farfetch and Net-a-Porter, the launch proves there is still a major opportunity to capture brands that don’t have individual storefronts on its platform. Farfetch has kicked off its localisation efforts by launching big promotions, shopping gifts and collaborating with celebrities Song Zu’er and Fei Qiming. These activations have already helped the retailer draw over 25,000 followers. (BoF)

Bottega Veneta Deletes Weibo Account

After deleting all the posts on its Weibo account, which boasted 270,000 followers, the Italian luxury house has deleted the account altogether. The brand still has a presence on WeChat, another critical platform in China, but it hasn’t published any new posts since February 9. Bottega Veneta declined to comment on the move, which aligns with its global communications strategy. The Kering-owned brand deleted its Facebook, Instagram and Twitter accounts last month. (BoF)

Pinduoduo’s Daily Active Users Outpace Rivals

The group-buying platform (and China’s second largest e-commerce player after Alibaba) saw users surge over February’s Spring Festival period, with daily active user (DAU) figures trumping the likes of Alibaba, JD.com, Douyin and Kuaishou on the first and second day of the new year, QuestMobile data shows. Though a consumer boycott — in response to the company’s response to the death of an employee — made the news ahead of the holiday and stripped Pinduoduo of its status as the spring festival gala’s top sponsor, this didn’t deter users. Pinduoduo’s average time spent on the app during the period grew 26 percent year-on-year — the fastest rate among China’s top apps. (East Money)

消费与零售

CONSUMER & RETAIL

A Louis Vuitton store in Hong Kong. Shutterstock.

A Louis Vuitton store in Hong Kong. Shutterstock.

Louis Vuitton, Fendi Close Stores in Hong Kong Mall After Rent Row

LVMH has closed two boutiques in the city’s Times Square mall after a reported rent dispute with its operator, Wharf Real Estate Investment Corporation. Spokespeople from both brands have confirmed the news. Louis Vuitton was reportedly in negotiations with Wharf to lower the rent on its prime second-floor space, which cost it an estimated $5 million HKD ($650,000) per month. The brands aren’t the only luxury players rethinking their footprints in the city, which was a luxury retail mecca before pro-democracy protests and Covid-19 dealt harsh blows to tourism flows and sales: Prada, Valentino and Chloé have also closed boutiques in its major shopping districts. (SCMP)

SKP to Expand Into Inner Mongolia

China’s leading luxury mall operator will open a new flagship store in Hohhot, Inner Mongolia. The move fits into the city’s plans to build two large commercial complexes, unveiled on February 22. The store will span of 500,000 square meters and is expected to create 10,000 new jobs. SKP, which is owned by Beijing Hualian Group, currently operates locations in Beijing and Xi’an. The business has accelerated its expansion in the broader domestic market in recent years, with new stores under development in Chengdu, Kunming and Hangzhou. (BoF)

Lagardère Travel Retail Reports 60% Drop In Global Revenues, but China Outperforms

The French travel retailer, which counts Bottega Veneta, Gucci and Tiffany among its brand partners, saw annual revenue decline 59.7 percent on a consolidated basis to €1.72 billion (around $2 billion) last year as the pandemic halted international travel. While the company’s divisions in countries like France and North America reported contractions of over 59 percent respectively, China’s domestic travel rebound boosted revenues by 18.2 percent over the year. (The Moodie Davitt Report)

政治、经济、社会

POLITICS, ECONOMY, SOCIETY

A farmer harvests cotton in Hami, Xinjiang Uighur autonomous region of China. Getty Images.

A farmer harvests cotton in Hami, Xinjiang Uighur autonomous region of China. Getty Images.

Indian Cotton Boosted by Xinjiang Sanctions

Cotton prices in India grew between 7 and 10 percent in January, compared with a month earlier, due to strong export demand for cotton yarn, according to India Rating and Research (Ind-Ra) data. India’s cotton exports increased by 27.5 percent year-on-year during December 2020 and by 96 percent for the October-December quarter, compared with the same period a year earlier. This higher demand for Indian cotton yarn is attributed to global supply chain curbs on cotton sourced from the Xinjiang region, which is likely to continue benefitting Indian spinners. (BoF)

Jack Ma Loses Title as China’s Richest Man

The Alibaba founder, who held last year’s top spot among China’s wealthiest people in the Hurun Global Rich List, now trails in fourth place “after China’s regulators reined in Ant Group and Alibaba on anti-trust issues,” Hurun’s new report reads. Now, China’s top three are bottled water maker Nongfu Spring’s Zhong Shanshan, who also controls vaccine maker Beijing Wantai Biological Pharmacy Enterprise, Tencent Holding’s Pony Ma and group buying digital platform Pinduoduo’s Colin Huang. (Reuters)

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