This interview is part of BoF’s State of Fashion 2018 report, published in partnership with McKinsey & Company. For more insights into the challenges and opportunities that lie ahead for the global fashion industry, download the report here.
BEIJING, China — Richard Liu is the founder and chief executive officer of JD.com, one of China’s largest e-commerce platforms, currently worth $57.6 billion.
BoF: What is the biggest challenge facing the fashion industry in 2018?
Richard Liu: In the past, one brand could cover a large number of consumers, like a Zara or a Uniqlo could cover a lot of people easily. Now, people are looking more and more for niche brands, and I think it is a challenge for them. One brand cannot cover most people. You need a lot of brands to cover different groups.
BoF: Does this reflect that the tastes of the Chinese consumer are evolving?
RL: No one wants to take a bag, and put it on a table when a lot of ladies have the same bag with the same style. They want to find something special. Something you cannot find in your circle. And [in the] lower-tier cities, in the past, some people with less income didn’t care about fashion, they just wanted to buy something they need. But if you look at China, there are more and more young people, and their income is relatively very small, but they want to spend time to find fashion, maybe not as expensive as luxury brands, but still very fashionable. Maybe not big brands, [but rather] small brands, or niche brands.
BoF: How does an e-commerce platform like JD.com factor into reaching consumers with their own tastes and preferences?
RL: The most important thing for the brand: they need brand building. So media, including social media, obviously is a very important channel, but if you ask any brand why they spend so many resources — time, events, fashion shows and marketing dollars — on the brand, it’s because they need sales. Commerce platforms for them are the best way to convert their customers to buying. And at the same time, for JD, we are not just a sales platform; we are a brand-building platform. We spend more and more resources to help build the brand — to strengthen the brand is as important as the sales side.
BoF: How do you see that working alongside the brand’s own e-commerce or stores?
RL: We don’t want to only be a sales platform for brands. We want to create a system that can cover multiple channels, including the [brand’s] official website. This is true for JD as well as other platforms and their distributor channels and offline chain stores. We are upgrading our whole platform and CRM system [so brands] can use it to do marketing for different channels. It will all be a single tool, so we call it “Three Ones” — one inventory, one brand, one price.
BoF: One inventory, one brand and one price.
RL:Yes. So online and offline prices are the same, inventory is the same, the brand is the same. In the past different brands online and offline were not the same. And in the past distribution channels — their official website, their offline chain stores and e-commerce platforms — all had different inventory. Even in-store, the same brand might have a different selection in different stores. We want to use the whole system to strengthen their supply chain. I’ll give you an example: in the past they had to deliver from Beijing or Shanghai to Urumqi, 1,000 km away, but today, we can ship from the offline chain stores in Urumqi, so it’s travelling within the same city. The customer experience is better than before; I also think the brands can save some money.
BoF: I’m keen to understand more about the “White Glove Service” that you launched recently and why you think that’s an important part of the service offering for JD.com as it also goes after the luxury space.
RL: Over the past 10 years we spent a lot of time on consumer brands including FMCG; we set up a very strong, complete supply- chain service for the brands. But [in] the luxury market, everything is different. So [I thought] we should set up [a] special service for luxury, because luxury is not the same as consumer brands. The service should be different to make sure luxury is special and has a unique experience. It’s very important for brand building.
“More and more people are looking for niche brands. No one wants to take a bag, and put it on a table when a lot of ladies have the same bag with the same style. They want to find something special. Something you cannot find in your circle.”
BoF: How is it different, exactly?
RL: First, from the warehouse, we use a very small, special space, only for luxury goods. In this space, we use a lot of technology to protect against even a little bit of dirt. In a huge warehouse you cannot protect against every tiny piece of dirt, but we will use a very small space for luxury products. Second, we use a five-star-rated delivery man, based on customer feedback.
BoF: So you only work with the people that have 5-star ratings?
RL: Yes. We pick them and train them. Today in China most delivery men will ride three-wheeled electric bicycles, which is cheap, fast and convenient. But we ask our white-glove deliverymen to wear a luxury brand suit and drive a luxury car to make sure that we can protect the packages and the experience — they even wear white gloves. Imagine getting this kind of delivery service to your office or home, it’s a very different experience. We are even thinking about bringing multiple sizes and colours and letting the consumers choose, just like in a physical store.
BoF: Another big thing that JD was involved with this year was the investment in Farfetch. How does Farfetch fit into your larger fashion strategy?
RL: Farfetch is obviously the most successful and largest platform today for boutiques. On Farfetch you can find many SKUs, even [ones] you cannot find in the official stores. This is just the beginning of people liking niche, special, limited versions, so I’m sure in the future Farfetch will be more popular and more Chinese consumers will love them. We [wanted] to invest in them and introduce them to [our] consumers. Farfetch has a huge space to grow, I know they are talking with a lot of brands and more and more brands will collaborate with them directly.
BoF: Finally, what about your plans for JD outside of China?
RL: In the past several years we have spent a lot of resources bringing foreign brands to China, and to the Chinese consumer, because Chinese consumers increasingly love international brands. So that’s our first step. Second step: we also have global sales channels – in the future we will sell more and more China local brands to outside of China.
We will use two different ways to cover the entire globe. The first is our South [East] Asian channel. We will set up [a] subsidiary there and copy the Chinese business model. Build a local team, buyer team, logistics system and last mile delivery team, everything the same as in China. In Indonesia we have been operating for almost two years, and we will go to Thailand very soon.
But for Europe and [the] US we will use a cross-border business model. We have been thinking about this for many years. If you just copy another model or local players do exactly the same thing as them, you cannot find an advantage. So we will cooperate with Chinese local brands and bring them to the US and Europe. They need us, and we also need them, because the brand quality is very good and price is not as high. We will choose them, pick them up and bring [them] to the US and Europe. I think people will love these kinds of Chinese brands.
This interview has been edited and condensed.