The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Hello BoF Professionals, welcome to our latest members-only briefing. China’s colossal size and dynamism makes it a top priority for any global business, but it remains opaque to many in the fashion industry. Leveraging our rare access and local knowledge, the BoF China team demystifies the Chinese market with weekly industry analysis and the wider socio-cultural context you need to sharpen your focus.
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Singles’ Day: The Next Ten Years
Fresh from the tenth anniversary of the gargantuan shopping festival, complete with record-breaking sales figures and demonstrations of China’s robust appetite for consumption, experts weigh in on the future of Singles’ Day.
SHANGHAI, China — Record-breaking sales have become a requisite part of the confident, congratulatory headlines that chronicle Singles' Day. Ten years of ever louder and ever bigger promotions have led to the normalisation of this spectacle of consumption — one that is driven in part by Alibaba's own initiatives and strategy. But quietly, some market experts are beginning to wonder whether China's so-called "shopping orgy" could become a victim of its own success.
Not that Alibaba seems worried, speaking to media just at the close of Singles’ Day, executive vice chairman Joe Tsai pointed to forward-looking demographic trends as a friend of the festival’s continued growth.
“I think you have to understand Alibaba and what Alibaba’s doing in the context of the long-term secular trend that’s developing in China, which is the rise of the Chinese middle class,” he said.
“That trend is not going to stop, trade war or no trade war.”
Top line gross merchandising value [GMV] growth was something that both Alibaba executives and market observers expected to nail this year — and on the surface the festival didn’t disappoint with total sales reaching almost $31 billion (compared with $27 billion in 2017). But what not all media picked up on was the fact that the growth rate of 27 percent was actually one of slowest on record.
Not only does 2018 mark the 10th anniversary of the event, originally conceived as a sort of alternate Valentine's Day for single consumers to treat themselves on the 11th of November (the 11.11 festival is most commonly called shuang shiyi, or 'Double 11' within China), but also the last incarnation before Alibaba founder Jack Ma's anticipated retirement next year.
“Alibaba’s Singles’ Day festival was programmed to set again another record this year, [but] the trend will slow down in the near future,” predicts Patrice Norday, CEO of Fabernovel Asia, pointing to the slower growth in e-commerce more generally in China off a more mature market base.
This year’s event was also held directly after the high-profile China International Import Expo [CIIE] in Shanghai. A symbolic synergy the Chinese government is no doubt hoping will send a strong message about the health of China’s economy and the resilience of Chinese consumers.
"Alibaba's Singles' Day festival was programmed to set again another record this year, [but] the trend will slow down in the near future."
“November has been about sending a particular message to the global economy,” explains Jerry Clode, the Shanghai-based head of digital and social insight at Resonance, adding that he would realistically categorise Alibaba’s Singles’ Day results as a plateau, rather than blockbuster growth, given the outsized investment in communications and branding, especially as the sales window creeps outwards from its original 24-hours of sales, to its current month-long promotional period.
“They’ve just had to invest so much more from an organisational or brand perspective, whereas two years ago that kind of growth would have been a given,” he says, suggesting that the record-breaking growth is coming at a disproportionally higher cost, thereby reducing Alibaba’s ROI (return on investment).
Though it is understandable to see Singles’ Day spending as a barometer of consumer confidence in China, some of the factors slowing year-on-year Singles’ Day growth are a deliberate strategy on the part of Alibaba to introduce festivals and events throughout the year, lessening its own reliance on Singles’ Day. In other words, Alibaba sees the risk of putting all of its eggs in one basket.
Unlike in years past, Alibaba’s platforms of Tmall and Taobao now ask for a deposit for many products in the weeks leading up to 11.11 (with balances automatically paid through Alipay on the big day), and deals are increasingly taking the form of coupons that reward cash back after consumers reach a certain spend, rather than simple discounts on individual SKUs. This reduces the logistical nightmare placed on brands and Alibaba’s logistics arm, Cainiao, which must fulfil the one billion-plus Singles’ Day orders, but also increases barriers to frenzied spending by consumers.
At the same time, platforms and brands themselves utilising their own online and offline retail properties have further diversified consumer spending during Singles’ Day, experts see the event evolving over the next decade to become an all-in event, like Black Friday, rather than an Alibaba-driven festival.
“Over the last couple of years Singles’ Day has become a truly national festival with JD, Kaola, Pinduoduo and tens of thousands of brick and mortar retailers taking part,” Michael Zakkour, vice president of China/APAC strategy and global digital practices at Tompkins International says. JD.com also boasted record-breaking figures for its Singles’ Day promotional period, with reported transaction volume of $23 billion (up from a little over $19 billion over the same period in 2017).
While Zakkour sees cross-border e-commerce, alongside expansion to Southeast Asia and India as major continued drivers for Singles’ Day growth in the future, Clode sees the international potential of the festival playing out rather differently.
“There’s no reason Amazon won’t be a key player in the Chinese market in ten years,” he says, as recent discussions with search giant Google have shown more of a willingness from the country to open up its local online market to international competition, as long as those competitors are willing to play by China’s rules.
FASHION & BEAUTY
Tisci’s Burberry Buzz Boosts China Sales
Chinese shoppers are responding well to Riccardo Tisci's debut collection for Burberry, as well as the brand's new 'drop' release model. According to the brand, a drop of £376 T-shirts in China sold out in four hours, and in a pre-sale event for Alibaba's annual Singles' Day shopping festival, limited edition wool scarves rapidly sold out. On November 9, the British brand's financial results for the year ended September 29 revealed that its revenues were down 3 percent since Tisci's debut, but nonetheless ahead of forecasts with same-store sales up 3 percent. Due to a boost from Chinese consumers, Burberry recorded single-digit growth in the Asia Pacific market, but only time will tell whether the brand's new buzz is sustainable. (The Standard)
Shiseido’s Chinese and Tourism Channels See 30 Percent Growth
Japan's largest cosmetics company has seen impressive growth for the first three quarters of 2018. The Shiseido group — whose brands include Shiseido, Clé de Peau, Nars and Bare Minerals — reported cross border e-commerce and rapid growth in China has made up for shortcomings in its local market, while net profits for the year are expected to triple that of 2017. Shiseido says it remains focused on strengthening its business portfolio in the Chinese market, accelerating openings of Nars and Ipsa stores, as well as strengthening investment in e-commerce channels and digital marketing — pointing to China's continued importance moving forward. (Luxe.co)
HLA, Peacebird and La Chapelle’s Q3 Revenues Demonstrate Market Slowdown
Though last week's Singles' Day success revealed a consumer confidence boost, major Chinese retailers' newly released financial results for the third fiscal quarter leave much to be desired. Menswear giant HLA saw its revenues drop 6.09 percent year-on-year, and Ningbo-based Peacebird saw growth slow to 49.95 percent, after 115.31 percent and 748.62 percent booms earlier this year. Shanghai-based La Chappelle's third quarter revenues fell by 6.58 percent while its net profits plunged by 94.10 percent, resulting in a loss of 75.53 million yuan ($10.8 million). Only time will tell if the retailers can find their footing and pick up the pace. (Retail Insider WeChat)
TECH & INNOVATION
Collage by Zoe Suen for BoF
Tencent-backed Mogujie Files $200 million IPO
Social fashion e-commerce platform Mogujie has filed for a $200 million IPO on the New York Stock Exchange, underwritten by Morgan Stanley, Credit Suisse and China Renaissance. Mogujie was founded by Alibaba alumni in 2011 as a Pinterest-esque social media site for users to share wishlists and purchases from Alibaba-owned marketplaces Taobao and Tmall. After Alibaba blocked external links from Mogujie to its own platforms, Mogujie began to develop its in-house e-commerce business and acquired rival Meilishuo in 2016. Meilishuo investor Tencent — now Mogujie's largest shareholder with an 18 percent stake — then became a major shareholder of the merged company after an additional investment, and the IPO marks yet another development in the ongoing rivalry between Tencent and Alibaba for China's e-tail throne. (Sina Finance)
Luxarity Merges Blockchain With Vintage Fashion
Though few in fashion have come to terms with the implications of blockchain technology, China is proving to be a fertile testing space. Hong Kong-based luxury retailer Lane Crawford's latest pre-loved pop-up Luxarity encouraged customers to make donations by utilising blockchain technology, providing transparency and traceability to transactions. Luxarity partnered with flash sale organiser OnTheList and Ethereum blockchain solutions provider ConsenSys, to raise over $63,000 to support sustainability research and education projects. ConsenSys' blockchain technology allowed shoppers, who selected a charitable cause post-purchase and activated a unique PIN to track how their contributions were allocated. (SCMP)
China’s Short Video Fever Worries WeChat
Power dynamics in China's tech world are shifting. Short video platforms such as Douyin and Kuaishou are taking China by storm, and clips viewed on such apps are consuming almost nine percent of the Chinese population's time online. Super app WeChat's parent company Tencent owns a stake in Kuaishou, and though Douyin doesn't directly compete with WeChat, statistics suggest that usage of communications services has dropped due to the hype surrounding the video platforms: latest figures saw WeChat take up 30.5 percent of the population's time online — a 3.6 percent drop from last year. Additionally, in launching its own e-commerce platform Zhidian, Douyin's operator Bytedance is looking to break free of its ties with Alibaba and challenge China's BAT (Baidu, Alibaba, Tencent) trifecta on its own. (Techcrunch)
CONSUMER & RETAIL
Collage by Tamison O'Connor for BoF
Alibaba and JD.com Lower Commissions in Luxury Arms Race
In the latest battle for Chinese e-tail dominance, arch-rivals Alibaba and JD.com are appealing to luxury brands looking to break into the Chinese market. Not only are the retail giants' respective luxury e-commerce platforms Taobao and Toplife offering brands messaging and pricing control on their respective channels, as well as valuable customer data, local news site Huanqiu says the retail giants are lowering commissions, and that Alibaba will only charge up to 5 percent for sales of luxury goods on its B2C platforms. This figure is a fraction of the cut taken by Western e-commerce platforms, which average 12 to 15 percent. Alibaba and JD.com are hoping to attract up to 250 luxury brands to their platforms, meaning more brands will be forced to choose sides when entering the lucrative market. (Ladymax)
Influencer Incubator Ruhan Eyes $200M IPO
According to multiple sources, China's top influencer incubator Ruhan plans to raise up to $200 million in a US IPO scheduled for 2019. Established in 2001, Hangzhou-based Ruhan Holdings Ltd. pioneered China's KOL (Key Opinion Leader) incubator business model, and found success after partnering with 'wang hong' celebrity Zhang Dayi to launch her own fashion brand on Alibaba's Taobao marketplace. Zhang and Ruhan established an e-commerce company in 2016, with that year also seeing a 300 million yuan (approximately $45 million at the time) in investment from Alibaba in Ruhan. If Ruhan does indeed go public, it will be the first of China's estimated 200 influencer incubators to do so, suggesting that China's 'wang hong economy' is still in full swing. (Jiemian)
China’s Lifestyle Copycats Are Going Global
China's popular discount retailers are adopting Japanese and Korean culture and aesthetics to sell locally produced goods. Discount chain stores Miniso, Mini Good, Mumuso, Yoyoso and Yubiso are taking the world by storm from outposts in Vancouver to Seoul by selling bargain lifestyle goods with Japanese and Korean branding. Miniso — an amalgam of Japanese brands Uniqlo and Muji — announced in September it received $143 million in funding from tech giant Tencent, spurring a new wave of cultural copycats to set up shop across the globe. Though the trend has incited protest from organisations such as the South Korean embassy of Guatemala, Laura Wen-yu Young, a managing partner at San Francisco-based law firm Wang and Wang, say IP laws cannot be applied to Miniso and other similar brands. (SCMP)
POLITICS, ECONOMY & SOCIETY
The public and handwritten apology letters by the daigou seller of 'TShow Womens' Apparel'. Collage by Zoe Suen for BoF
Daigou Merchant Faces 10 Years in Jail and $790,700 Fine
A daigou (overseas luxury retail agent) that operated on Alibaba's Taobao marketplace for three years ignited controversy last week. In a letter, the seller of 'TShow Women's Apparel' apologised for her absence and claimed that she was in a women's prison in Guangzhou, after receiving a 10-year prison sentence and fine of $790,700 for crimes relating to her online business. Netizens soon discovered a court judgement finding the seller guilty of smuggling goods valued at over $1.6 million, and evading over $432,000 in taxes. Online commentators remain dubious due to the extreme length of the court sentence, and many believe that the news has been released as a deterrent in line with Beijing's efforts to clamp down on daigou activity. (Sohu)
China Gives American Express the Green Light
China's Central Bank announced on November 9 that American Express had received approval to open up card-clearing services across the country, and set up payment-clearing operations in the country. American Express is the first US card network to gain this permission, and will partner with mobile payments firm Lianlian Group in a joint venture to set up its services in China. This approval is part of Beijing's effort to open its markets ahead of a meeting between Xi Jinping and Donald Trump at the upcoming G20 Summit, and comes more than a decade after the government first promised to open the sector to foreign investment. However, challenges await: the venture will still require separate approval for a business operating license; American Express will have to break into a market with over seven billion bank cards in circulation, most of which is used via WeChat Pay wallets; and Western rivals are plotting their plans to tap into Chinese e-wallets — Mastercard's joint-venture application is pending while Visa aims to form a wholly owned entity in the country, though its application for direct access to the card-clearing market has been pending since last year. (The Wall Street Journal)
Free Trade and Diplomacy Take Centre Stage at China’s Import Expo
A day before the US midterm elections, Chinese president Xi Jinping hosted the first China International Import Expo (CIIE), or what Beijing has heralded as its most important diplomatic event of the year. Xi's speech, which criticised "countries…[who] point fingers at others to gloss over their own problems", also featured a rare admission of the difficulties plaguing China's economy. Above all, Chinese leaders touted the event as a demonstration of the country's commitment to opening its doors to trade, in spite of trade tensions with the US. Though many have criticised the CIIE for prizing style over substance, it may still serve as a significant symbol of Beijing's shift from self-reliant domestic manufacturing to welcoming foreign imports. (Nikkei)
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