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China’s Online Giants Get Physical

In this month’s China Edit, the battle between China's e-commerce giants is heating up as adversaries wage war offline.
Source: Shutterstock
By
  • Gemma A. Williams

SHANGHAI, China — "'New Retail' is [about] putting even more influence in the hands of the consumer so fashion houses will need to ensure that production, supply chains and their overall business is ready for such a marketplace," cautions Tom Griffiths, strategy director at Qumin, a Chinese digital marketing agency based in London.

Griffiths is right to invoke a retail concept that was coined two years ago by Alibaba founder Jack Ma. The integration of China's online and offline retail space has been accelerating fast in recent months and December was a particularly intense one. A number of announcements were made by the country's e-commerce giants demonstrating just how aggressive the battle has become to launch physical stores, experiential spaces and pop-up locations in a bid to close the loop around omnichannel strategies.

“[It] has affected fashion and luxury in many ways with fashion houses pushed to speed up production and shorten the time from runway to rack. The luxury industry is, however, well suited for a shift to [more] consumer-centric thinking.”

Several Chinese companies active in the fashion sector are looking to innovations in their non-fashion portfolio in order to better use their online business to leverage offline activity. This includes initiatives such as mobile apps that recognise customers’ arrival, which can in turn be used to provide in-store information. The December opening of Starbucks’ largest smart store in Shanghai with Alibaba is an example of Alibaba applying its 3D object recognition capability as its technology adapts to the real world.

Meanwhile, JD.com has opened a succession of experiential spaces to complement their online offering, including JD Worldwide in Chongqing’s Fortune Finance Plaza, which gives locals access to global products. The retailer also opened luxury fresh food business, 7Fresh, last month. 7Fresh is exploring ‘new retail’ by offering high-tech, high-end experiences in the fresh food sector such as autonomous hands-free shopping carts.

The first Beijing store will be followed by a further 1,000 more to follow in the next two to three years. Josh Gartner, head of corporate affairs at JD.com explained how this might impact JD.com’s fashion strategy: “Right now we are interested in looking at what model makes the most sense for fashion and luxury in terms of experience stores. Something like this 7Fresh experience is going to be informative in terms of what we ultimately decide.”

While Alibaba and its arch rival JD.com may dominate the headlines, there are other major players experimenting with omnichannel initiatives, including some pure play fashion sites. Richard Rixue Li's luxury e-commerce giant Secoo, which sells everything from Versace accessories to Burberry childrenswear and listed on the Nasdaq late last year, is planning to launch five experience centres in Tier 1 cities including Xiamen and Qingdao.

How long will it be before fashion and luxury brands start using something similar to increase visitation?"

“Providing an effective supply chain and payment resources to smaller brands means that the Chinese market is open to brands even without the huge budgets,” explains Qumin’s Griffiths. “Online fashion companies such as Yoho! have also taken steps to establish offline spaces in order to provide something different for its consumers.”

However, many market observers continue to look to Alibaba for some of the most future-leaning online to offline initiatives. In November, during the November Singles Day shopping festival, Alibaba tested a number of these when it converted nearly 100,000 stores in 31 provinces and 223 cities throughout China into pop-up smart stores. These featured technologies including interactive cloud shelves to identify product information and enable consumers to browse for additional stock. Alibaba’s Tmall used virtual fitting rooms to combine the physical with the virtual, enabling the consumer to see Tmall brand offerings on personalised avatars.

Last month, Alibaba again showcased its dexterity by joining with China Unicom, the country’s second-largest telecom operator, to create a smart experiential store, which was backed by Alibaba’s Taobao app. Products can be bought online and collected in-store or delivered.

“Integration means partnerships across different categories to deliver greater value to their target customers,” Javier Calvar, managing director at IPOS, a Chinese marketing company told BoF. “For example, alongside Hema’s (supermarket) dining areas, Alibaba is now working on what it calls the three kilometre ideal living community concept, which creates communities that are empowered by convenient online-offline services.”

Alibaba’s Home Times, a furniture and home decor retailer launched in late 2017, is an example of this living community. It analyses the behaviour and preferences of users within a five-mile radius of the shop and handpicks products from these users’ top preferred categories that are then added to store shelves. Fashion store Injunior operates in a similar manner, leveraging Alibaba’s big data to recommend products.

“Not only does such an approach help update store offerings possibly every ten to 15 days, giving customers a reason to go back to check out what is new, but it also cuts the time required to source products worldwide for traditional retailers down to a single day. How long will it be before fashion and luxury brands start using something similar to increase visitation?” says Calvar.

In other news…

Alipay holds Double 12 festival in the lead up to Christmas

Taking place on December 12, Double 12 is a new end of season sale primarily hosted by Taobao and Tmall. Pushing Alipay expansion globally, the festival is billed as profiling the small and medium sized brands that may have been overshadowed by Singles Day the month previously. Participating countries included India, Thailand and the Philippines as well as Hong Kong.

H&M closes stores yet expands on Alibaba’s Tmall

The chief executive of Swedish brand H&M has announced that while some physical stores will close, the H&M Group will extend its collaboration with Tmall into 2018. Having opened its first store in China in 2007, H&M Group, along with Monki, and H&M Home are now all selling on Tmall and it is rumoured more of the group’s brands will soon follow suit.

Vipshop is now the third biggest e-commerce platform in China

Vipshop has managed to carve out a space between the online e-commerce giants of Alibaba and JD.com, and accounted for 3.2 percent of the market share according to local analysis of the third quarter of 2017.  JD.com and Tencent have now decided to invest $863 million in the business.

Chinese Millennials and Gen-Z are set to dominate future luxury spending

According to the 2017 Chinese Luxury E-commerce Whitebook report from Secoo and Tencent, found that China came a close second to the US, accounting for 21 percent of luxury sales globally. In addition, just less than half of luxury shoppers in China were under 30 years and by 2025 their luxury spending is forecast to increase by 50 percent.

Top Headlines from BoF

The JD.com founder and chief executive talks to BoF about the rapidly changing tastes and preferences of Chinese fashion and luxury consumers.

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The deal represents a major alliance in China’s e-commerce market, where competition for retail brands between JD.com and Alibaba  has grown increasingly fierce.

The global trading and sourcing group is selling off its sweater, furniture and beauty product verticals to further simplify its business.

While Swiss watch exports to the US fell 0.4percent in November, sales surged 40 percent for the month of China, amid changing perceptions of luxury.

China’s largest commercial property company is betting that retailers will thwart the advance of e-commerce competitors by adding entertainment experiences in stores and mini-theme parks.

Regional malls, dominated by local retailers and family-run stores, with larger brands such as Puma, Uniqlo and Giordano, are insulated from the whims of Mainland Chinese tourists and competition from online shopping.

Chinese reality shows are becoming a powerful platform for brands like Victoria’s Secret. But the market has its challenges.

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