JIAXING, China — “The year 2013 will be remembered as the one in which China surpassed the US as the world’s largest digital retail market,” wrote the author of a report released by Bain & Company, a consulting firm, in August 2013, noting the country's 564 million Internet users and 242 million e-shoppers. “Online retailing already totals 6 percent of all purchases,” continued the report. Meanwhile, in the apparel sector, e-commerce sales make up an even greater slice of the overall pie: around 13 percent, according to estimates by iResearch.
But for the most part, Chinese e-commerce is dominated by a few domestic giants, including Taobao, Vancl, M18 and JingDong. Indeed, the top five players control 65 percent of China's online retail market, according to Atelier Paribas. In fact, Taobao alone — which consists of Taobao Marketplace, a consumer-to-consumer marketplace that is China’s answer to Ebay, and Tmall, a business-to-consumer retail site on which brands can open and operate their own e-commerce stores — accounts for over 50 percent of all online retail spending.
In the face of this reality, are medium-sized brands and retailers condemned to nibble at the edges of China's growing e-commerce feast?
Chinese casualwear company Metersbonwe recently failed to launch an independent e-commerce platform, despite investing several million dollars in the initiative. Meanwhile, MecoxLane, a formerly pure play apparel and accessories e-tailer is planning to launch an offline network of 400 stores just to survive.
Indeed, many of Chinese fashion and apparel brands see their e-commerce options as binary: launch with one of the major players, or wait. Some have decided to wait for a more favourable market context, but the vast majority of fashion retailers have aligned themselves with the giants of Chinese e-c0mmerce — to positive results.
Being present on major sites like Tmall, which hosts over 50,000 branded stores, enables retailers to tap into the site's the several million daily visitors. “On November 11, 2012, a special shopping day like Cyber Monday in the US, Tmall had more than 250 million visitors, almost the entire online shopping population of China,” said Florence Shih, head of international public relations for Taobao Group. By the end of the day, sales sales across Taobao Marketplace and Tmall had exceeded $3 billion. By comparison, sales for the whole of the United States on Cyber Monday, in 2012, were less than $2 billion. Moreover, launching on large-scale platforms like Taobao, with their millions of users, is certainly a good way for brands and retailers to gain deeper knowledge of online consumer behaviour.
In fact, as it turns out, rather than stunting growth, China's e-commerce goliaths provide plenty of opportunity for highly profitable, medium-sized online fashion business to take flight on their platforms, evidenced by the success stories of companies like Justyle and Angel Citiz.
Founded by Xu Qun in 2007 with English partner Dr Martin Shoben of the London Fashion Research Center, Justyle designs and sells menswear apparel for China's mass market. Through charm and vision, Mr. Xu, who goes by the nickname "Runzhi" (borrowed form Chairman Mao himself), has raised $15 million in investment from Zhixin Capital, DFJ and Balderton Capital.
The company has no physical or traditional e-commerce stores. Instead, everyday on its Tmall boutique, Justyle pushes a large selection of fashion basics such as down jackets. Prices are low — about RMB 100 ($16) for a tee-shirt or RMB 300 for a jacket — but volumes are high: up to 50,000 units for a top seller. With approximately 300,000 frequent shoppers, Justyle generated $80 million turnover in 2012 and has an annual growth rate of 400 percent.
But it's not been all smooth sailing for Justyle. When BoF met Mr Xu in Jiaxing, last winter, optimising his supply chain was a major concern. Indeed, Justyle has had trouble correctly planning purchases of fabric and yarn to match the scale of consumer demand.
Angel Citiz (天使之城)
In 2004, founder Li Jing, also known as Miss “A,” left a job at an insurance company to launch a fashion boutique on Ebay, which quickly gained popularity. To avoid Ebay’s increasing fees, Jing moved the store over to Taobao Marketplace and today her online womenswear brand Angel Citiz is one of Taobao's best performers and, in 2010 and 2011, was voted a customer favourite.
From 2006 to 2009, Angel Citiz's sales grew steadily at a rate of 300 percent per year. Success came from the store's selection of products — sourced from Japan, Korea and Europe — that were otherwise hard to find in China. Miss “A” also modeled all of Angel Citiz's products herself, which was not only cost-effective, but made for a funky and distinctive shopping experience.
In 2012, Angel Citiz’s revenues reached $38 million and, in search of even greater growth, Miss "A" sold 80 percent of the company's shares for $16 million to Liebo, yet another successful online fashion business which was started modestly on Taobao Marketplace. The company, launched with an initial investment of RMB 1000 ($163), has since gone on to raise venture capital funding from Matrix Partners and Sequoia Capital, and now drives annual sales of RMB 500 million.
Genevieve Flaven is CEO of Style-Vision Asia, a trend agency based in Shanghai.