Xiu.com screenshot | Source: Xiu.com

We continue this week’s focus on e-commerce by turning our attention on how to succeed in the rapidly expanding e-commerce market in China. 

BEIJING, China — According to a recent report by The Boston Consulting Group (BCG), China is set to become the world’s next e-commerce superpower, surpassing the United States to become the largest online commerce market in the world, with an estimated market size of $300 billion. In 2006, less than 10 percent of China’s urban population shopped online. By 2015, that figure is expected to have quadrupled, reaching 44 percent, while the total number of e-commerce shoppers in China will grow to 329 million.

What’s more, according to BCG, China’s massive geography, a middle class that is rapidly expanding beyond the country’s largest cities, and widely accessible, heavily subsidised high-speed internet — broadband in China costs just $10 per month, compared with $30 per month in India — make the country unusually fertile ground for e-commerce, with internet access far outpacing the reach of physical retailers. Indeed, up to a quarter of e-commerce demand in China is for products consumers cannot find in physical stores, with apparel and skincare amongst the fastest-growing online categories.

But for fashion companies aiming to crack the online retail opportunity in China, it’s imperative to understand that the country’s e-commerce market is very different to established markets in the United States and Europe and that online shoppers in China — much younger, on average, than their Western counterparts — have different expectations, preferences and patterns of behaviour.

“Chinese consumers’ recognition and preference for fashion brands is quite different from mature markets,” said George Wenhong Ji, founder and CEO of Shenzhen-based fashion e-tailer Xiu.com, which sells international luxury brands like Gucci and Chanel, and last year raised $100 million in a second round of funding from elite venture capital firm Kleiner Perkins Caufield & Byers and private equity firm Warburg Pincus.

“Fashion brands that are not so popular could be received very well in China and vice versa. [Chinese consumers] are still price-sensitive and have poor loyalty towards brands,” said Ji. “It’s important to study Chinese consumers’ income and expenditure – how much money they earn in different cities of China and how much they would spend on fashion; how much they would spend on fashion online,” he continued.

According to the BCG report, 7 percent of online shoppers are responsible for 40 percent of online spending. For fashion retailers, the importance of these “superheavy spenders,” each of whom complete over 50 transactions a year and have a preference for heavily branded goods, cannot be underscored enough.

To entice superheavy spenders, first and foremost, it’s vital for online retailers to get the product mix right, Morgan Tan, vice-president of e-business at Lane Crawford, told BoF. These high-spending consumers are looking for must-have seasonal items that aren’t available elsewhere, she said, noting a growing demand for niche labels. Indeed, Xiu.com, which last year recorded sales of approximately $150 million, plans to carry more international and Chinese labels that competitors do not offer, while The Corner, a luxury e-tailer owned by the Yoox Group, which operates a China-specific site at thecorner.com.cn, recently launched The Vogue Talents Corner, an initiative promoting less known emerging designers in collaboration with Vogue China.

Compared to their counterparts in the West, affluent consumers in China have a lower baseline knowledge of fashion products and are ravenous for information, an opportunity for retailers to engage them more frequently with content and advice. “It is about engaging her daily,” said Jeff Yurcisin, president of Shopbop.com, which recently launched a site in Chinese. “We send out daily emails to our customers, so she gets her fashion fix every day,” he continued. “The opportunity is for us to be a personal stylist, to spend more time telling stories and introduce her to brands that the American customer already knows.”

But despite their hunger for information, Chinese consumers are distrustful of online retailers. Amongst the world’s most highly social shoppers, Chinese shoppers trust information and recommendations from their peers on blogs, social networks and user review sites far more than official brand communications. In fact, according to BCG, only 19 percent of Chinese consumers even visit official brand sites, as compared to between 41 and 60 percent in Japan, the US and Europe.

“Online shoppers in China are much more wary than the US and UK,” said Fabienne Pellegrin, Asia business development director for Salvatore Ferragamo, who also oversees the brand’s digital development. “They need more information than the average online shopper. There’s so much abuse online, so they are programmed not to trust anything,” she continued, emphasising the importance of peer recommendations and user reviews. In fact, over 40 percent of Chinese shoppers surveyed by BCG had both read and posted online product reviews, nearly double the rate in the US. “Encourage [consumers] to write reviews about your product because so many people read them,” advised Ms. Pellegrin.

As in the West, a high level of customer service is another essential part of a successful China e-commerce strategy. “[Chinese consumers] will become loyal to an e-commerce company because of high quality service,” said Mr. Ji. “It’s about making the online shopping experience as convenient and risk-free as possible with reliable deliveries and free returns,” said Ms. Tan. “Unlike many other online retailers, we offer a multi-channel approach for customers that allows them to collect or return their order to our stores,” she continued.

While shipping costs are low, China has a poor delivery network dominated by local, independent couriers that are neither efficient nor reliable, a major hurdle for online retailers. To address the issue, The Corner has partnered with international shipping service Fedex to provide couriers who wait at customers’ doorsteps while they try on their purchases and facilitate on-the-spot returns. The Corner also leverages sophisticated RFID technology to seal packages with anti-counterfeit microchips (according to the BCG study, 45 percent of shoppers worry that their goods will be swapped for fakes while in transit).

Alongside delivery-related services that lower risk and make shopping more convenient, affluent Chinese consumers also expect rewards for their loyalty. As a result, VIP reward programmes or other special incentives are critical to success. For example, VIP shoppers on Xiu.com can view fashion shows and pre-order next season’s products months in advance of others. “We find that for more high-end customers, they value additional services, such as VIP sales alerts, pre-order, seasonal gifts,” said Mr. Ji.

But for international retailers targeting China’s fashion e-commerce market, consistently delivering a high quality experience that’s localised to the needs, behaviours and expectations of Chinese consumers often means investing in China-based operations. Indeed, while Net-a-Porter has long shipped to China, the company recently announced that it would open a distribution centre in Hong Kong this summer to better serve the Asia-Pacific region.

“Throughout 2010, we set up local operations — an office and logistics centre — in Shanghai to run the business locally,” said Federico Marchetti, founder and CEO of Yoox Group. “A local structure and local team ensures we provide Chinese customers with a unique online shopping experience characterised by completely localised, best-in-class customer service,” he added. “Although e-commerce enables brands to have an international distribution, the online shopping experience still works better at a local level.”

Ultimately, a successful China e-commerce strategy is composed of the same fundamental elements that matter in the West: engaging content, great customer service, dependable deliveries and easy returns are all critical. But in China, these elements count in different ways and weights, with editorial-style content, peer-to-peer persuasion, risk-free deliveries and rewards programmes carrying particular importance.

Divia Harilela is an associate contributor at The Business of Fashion.

Lane Crawford Autumn/Winter 2011 | Source: Lane Crawford

Are Chinese Models Putting An End To Asia’s Colonial Mentality? (Forbes)
“If we were to take our cues from the fall 2011 advertising campaign of luxury retailer Lane Crawford, it would seem that we Asians have come to love our own. The campaign features a stunning all-Chinese cast wearing the latest threads from New York, Milan, London and Paris… Is the Chinese luxury consumer now aspiring to be like the Chinese faces modeling her favourite brands?”

The Muddy Roots of Fine Linen (WSJ)
“Linen has become a high-end staple on the designer-clothing racks… Yet these thousand-dollar linens have humble roots. Two-thirds of the world’s linen originates in a narrow belt of farmland that stretches from northern France to the Netherlands… Fashion brands are telling consumers more about the origins of their clothes. Linen, because it comes from such a limited region, is able to ride this movement.”

Frida Giannini by Dave Gahan (Interview)
“Giannini has acquitted herself ably on all fronts, crafting a new chapter in the Gucci story by embracing her own ultra-feminine take on fashion, one that doesn’t so much wrestle with what was, or the iconographic power of those interlocking Gs, as display an unbridled enthusiasm for what is and what might be if we could only find a way to chill out and live in the now.”

Adding a Splash of Luxury to Swimwear (IHT)
“The French company Eres isn’t interested in runway shows or fashion weeks, and it has always shunned the annual Miami event, deciding to keep its beachwear firmly under wraps… Instead, major global buyers and journalists make a by-invitation-only pilgrimage twice a year to the company’s headquarters in Paris to discover in which direction the swimwear fashion current is flowing.”

Kanye West steps into stilettos (Telegraph)
“Women’s Wear Daily have revealed that Mr West – who has footwear ‘previous’ as a sneaker designer for Louis Vuitton – is beavering away on a line of stilettos with help from cobbling maestro Guiseppe Zanotti… ‘Kanye is always here in my factory. In the last three years, he has come here maybe every month… [Kanye] loves learning about shoes, both the design and construction, and we’ve tried to design something together.’”

Reiss Shola dress, worn by the Duchess of Cambridge | Source: Reiss

Kate Middleton: putting the regal into Reiss (Telegraph)
“‘The Reiss dress was perfectly pitched… Britain has the best high street in the world. No one exemplifies the strength of that better than the Duchess of Cambridge.’”

Knitting pretty (FT)
“As well as giving Pringle a youthful burst of creativity, the Archive Project provides the brand with a reputation for supporting new talent… ‘This makes them appeal to a younger demographic.’”

Ferragamo May Seek Higher IPO Rating Than Prada (Bloomberg)
“[Salvatore Ferragamo] may seek a higher valuation multiple than its bigger rival Prada SpA… [the company] may be valued at as much as 2.25 billion euros ($3.2 billion), or 26 times estimated 2012 profit.”

Phillips-Van Heusen first quarter beats; raises FY view (Reuters)
“Phillips-Van Heusen Corp raised its full-year outlook and posted first-quarter earnings that beat market expectations as revenue more than doubled on strong sales in its Tommy Hilfiger and Calvin Klein businesses.”

How To Sell Luxury To The Chinese (Forbes)
“[A] chat with Lane Crawford’s fashion director Sarah Rutson — a much-photographed street style blog star — on the evolving taste of the Chinese consumer, the brands they favor, and her role in the global fashion community.”

BEIJING, China – My first glance at Beijing’s brand new airport (BCIA) was also the first sign of China’s stylish transformation since my previous visit here 7 years ago. I couldn’t take my eyes off the ceiling, which seemed to go on forever, as I zoomed through immigration and retrieved my bag. I was in and out in less than 30 minutes.

When I commented on the airport’s breathtaking design and efficiency to locals, they proudly informed me that BCIA was completed in only 4 years and has run without a hitch from day one. This is particularly notable when compared to the disastrous opening of London Heathrow’s Terminal 5, which opened around the same time as BCIA, but took 6 years to build and is still not running as expected. And, the success of BCIA also provides the perfect analogue for China’s nascent fashion industry.

First, it must be noted that the Beijing airport was designed by the UK’s Foster and Partners. So, whereas the Chinese are in the midst of a full-on architectural boom, their own design aesthetic is still in its infancy. For now, they must borrow design-savvy from the West, and combine it with local resourcefulness and entrepreneurship.

The fashion business here works very much the same way. Well-run Chinese factories churn out beautifully made, high-quality garments that are designed and sold in the West by fashion brands that we all know. Local Chinese retailers hire European and American designers who act as consultants and bring an advanced design sensibility to their collections. And, department stores like Lane Crawford employ fashion-savvy Westerners who up the style and sophistication quotient, while also educating local staffers on how to achieve international standards in luxury customer service and experience.

Beijing’s new Lane Crawford emporium, for example, is amongst the most sophisticated, well-curated specialty stores I have seen anywhere in the world. Six hundred brands are creatively mixed together in a welcoming and innovative environment designed by Canadian design agency Yabu Pushelberg. American department stores in particular could take a page out of the Lane Crawford book to bring their stores up to this world leading standard.

And, while there are certainly logo-happy Chinese looking for Gucci and Louis Vuitton, there are also sophisticated locals who are willing to spend serious money on world-class design. To wit, at the Walpole Luxury Seminar held in London in May, Bonnie Brooks, President of the Lane Crawford Group, noted that the very first item to sell after the Beijing store opened was a $45,000 Alexander McQueen dress. The second item to sell was the only other $45,000 McQueen dress that the store had ordered.

The other highlight of my first 24 hours in China was a visit to Beijing’s Danshanzi 798 Art District, currently home to noteworthy exhibitions by Maison Martin Margiela and Nike, two brands which have smartly planted their flags in this fertile ground for local contemporary art and design. The budding creativity in Dashanzi shows the promise for fashion design from China in the years to come. I don’t think the Chinese will be importing designers forever.

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Lane Crawford (courtesy of Lane Crawford)

798 Art District – Martin Margiela

798 Art District – Nike