SHANGHAI, China — A boom in new e-commerce solutions and a loosening regulatory environment is making it easier than ever for independent fashion brands to reach China’s massive consumer base.
International direct-to-consumer (DTC) brands, in particular, seem to think the time is now to try their hand at the China market: Everlane is launching this week, Allbirds began its China roll-out in April and Rothy’s also made its way to the country in the first half of this year.
These brands offer something rather new and fresh to the China market, a market in which the idea of DTC is subtly different to that in the West.
The DTC business model has a very distinctive history — and aesthetic — in China. Many local DTC brands are led by a designer with manufacturing connections (eg. their parents or relatives are apparel or footwear manufacturers), such as youth-focused streetwear brand Babyghost.
Some are known as “Taobao brands” in China, a term traditionally used to mean low-quality, low cost and highly trend-driven. The Taobao-first model is changing that reputation by offering items with a wider range of quality and price points. As the “Taobao brands” moniker suggests, these kinds of Chinese DTC brands almost always start by selling on Alibaba’s Taobao platform before eventually adding other sales avenues.
Another type of local DTC brand sees influencers, commonly called KOLs in China, partner with manufacturers to sell direct-to-consumer through platforms and their own social media channels, with the most famous example being super-influencer Becky Li of “Becky’s Fantasy” who moves millions of RMB worth of inventory for her own brand through her own WeChat store (after years of moving inventory for other brands).
The Aesthetic Comes First
But aside from being digital-first and rooted in a reliance on — and fluency in — social media, none of these examples offers a perfect comparison for what Western consumers have come to think of as a classic DTC brand template — minimalist, lifestyle-oriented, technical, ethical, transparent.
Aesthetically, the minimalist offering from these international DTC brands finds parallels in Japanese brands already deeply embedded in the Chinese market, including Uniqlo or Muji. Domestic brands, such as Icicle (at a higher price point) and Feiyue’s canvas sneakers also appeal to a certain demographic of Chinese consumer for whom less is more.
Humphrey Ho, managing director of Hylink Digital, an agency that helps US brands market to customers in China, points to consumers aged in their late 20s and early 30s (the post-85 generation, in the Chinese lexicon) who came of age as only children and the recipients of "lots of stuff." These consumers are being primed for a “minimalist movement” and a “decluttering mindset".
The reach of Marie Kondo to mainland China consumers — and a local Chinese super-organizer named Han Yien — only sharpens their focus.
“As a result, they now seek simplification, they seek simpler design, less colour, less logos. Someone who is post-85 is definitely likely to fit into that demographic,” Ho added.
Given this confluence of factors, it makes perfect sense for international DTC brands to look to China. It’s not only an enormous market, but it’s also one that is diversifying in a way that makes room for niche brands from home and abroad to gain a foothold.
Chinese Consumer Values
In addition, brands such as Everlane and Allbirds believe the values that have resonated with their consumer base in the West are also, now more than ever, being embraced by a significant subset of China’s 400 million middle-class consumers.
“People around the world are increasingly paying attention to how their choices impact the environment, and our values of transparency and high quality are resonating with the Chinese consumer,” Everlane Founder and CEO Michael Preysman told BoF ahead of his brand’s official launch on Alibaba’s Tmall Global cross-border e-commerce platform.
According to Allbirds’ President of International, Erick Haskell, a 15-year China veteran and former APAC Managing Director of Under Armour, the brand doesn’t lead with a message of sustainability when marketing to Chinese consumers, but it’s one of the brand values he sees sparking interest.
“I’ve been selling shoes in this country for a long time and Chinese consumers place a huge value on comfort, obviously, that’s one of the shining brand pillars we have,”said Haskell. He added that a simple design aesthetic is — somewhat surprisingly in a market more known for a love of fashion-forward luxury and logos — another brand value that has resonated with Chinese customers discovering Allbirds’ cult wool shoes.
Rothy’s Meghan Markle-approved, 3D-knitted flats, which sell online in China through an official Tmall storefront, as well as their own WeChat mini-program, likewise focus on their San Francisco heritage and technical elements in their Chinese marketing materials.
According to Humphrey Ho, technical details are particularly important to Chinese consumers.
“They open the Tmall page of any brand and they will get deep into the fabric and the glue on the soles of shoes,” he said, adding that for American consumers, fly knit sneakers are thought of as being light and comfortable, while in China, fly knit is about the technology and flexibility through innovation. “It’s a totally different way of marketing from the brand point of view.”
As to why now is the ideal time for these brands to make a mark in the Chinese market, Ho points to slower growth in consumption in the US, coupled with an ease of entry into China that wasn’t available to brands even two years ago, especially through platforms such as Tmall and JD.com.
Big Platforms Win Again
These platforms have grown their cross-border e-commerce operations rapidly in response to the government’s opening of limited tariff-free imports for personal use — something that was first implemented in 2016 as part of a broader crackdown on once rampant “daigou” grey market imports, and gradually opening with updated regulations in the years since.
In 2018, cross-border e-commerce generated 7.6 trillion yuan ($1.1 trillion) in sales, according to iiMedia Research, a Chinese market consultancy. By 2020, market research firm eMarketer projects that a quarter of the Chinese population will be shopping online for overseas products via cross-border e-commerce websites.
The most updated cross-border law, which came into effect in January of this year, required daigou agents to register and pay taxes, further cementing the dominance of big platforms, such as Alibaba’s Tmall Global and JD’s Jingdong Worldwide as the destinations Chinese consumers turn to for their internationally-sourced brands and products.
Until recently, China’s internet giants would approach brands not selling on their platforms on an individual basis, trying to get them to sign on. What was missing, according to Ho, was any post-agreement assistance in the form of customer service, payment options or logistical support. Today, as cross-border takes off and platforms quickly become more sophisticated, these extras become standard for new international brands joining up.
“It’s much more comfortable for a brand to step foot into China and say, ‘Okay, I’m going to do e-commerce’,” Ho said.
According to Preysman, Everlane’s experience shipping directly through their own site to China over the past year has been “subpar”, prompting the partnership with Alibaba as a next step in their evolving China plans, especially given the advantage major platforms in China have with integrated payment platforms and logistics partners with superior coverage of China’s vast geographic area.
“Long term, we want to take our learnings and make the Tmall experience even better and test new platforms like WeChat and optimizing our local site,” he added, with a China-based retail store a possibility, but not in the immediate future.
Unlike Everlane and Rothy’s, both of which sell exclusively online in China through Tmall and (in Rothy’s case) their own WeChat mini-program, Allbirds is aiming for a 50-50 split between online and offline retail in the country, already opening storefronts in Shanghai and Beijing, with Guangzhou and Chengdu stores due in the next few months.
Eventually, Erick Haskell sees the brand opening stores in every provincial capital in China, a broad coverage of Tier One and Two cities, with multiple locations in Shanghai and Beijing.
“This is such an important market; we don’t just want to ship product in without telling consumers what this product is. We needed the retail stores so they can feel the product and materials because it’s such a different and unique product,” Haskell explained.
There is a certain buzz surrounding these international DTC brands, which has emanated from their home markets into the orbit of China’s increasingly informed and international-looking middle class. But brand awareness is far from ubiquitous, Haskell says, which increases the need for major investments in marketing and, in Allbirds’ case, storefronts to introduce what are unusual products for the Chinese market.
It may be easier than ever for DTC brands to enter the Chinese market, with a consumer eager to try new things further encouraging expansion, but brands should not mistake “easier” with “easy”, which the Chinese market is not.
FASHION & BEAUTY
Mo&Co Celebrates 15 Years with Shanghai Show
The Chinese fashion brand, known for fashion-forward looks at a bridging price point, celebrated 15 years with a major show in Shanghai, featuring a performance by Willow Smith, as well as appearances by international models and It girls. Designer Xander Zhou acted as the show’s creative director, along with local accessory brand Yvmin. The message seemed to reflect the evolution of the Chinese fashion market over Mo&Co’s lifetime: while formerly China would look West for creativity and design cues, now the country incorporates international aspects into a creative atmosphere that is all its own. (BoF China)
Male Beauty Searches Continue to Surge
The number of searches related to male beauty in China increased by almost 170 percent from January to July, on a year-on-year basis, maintaining the high growth seen over the past several years. Post-95 consumers accounted for the largest percentage of searchers, with 32.4 percent, followed by the post-90s with 25.8 percent and post-00s with 22.4 percent, demonstrating this is a trend overwhelmingly impacting younger male consumers in China. In 2018, the volume of male makeup sold increased by 136 percent compared with a year earlier, with the most popular products searched for and purchased by men including BB and CC creams, lipsticks and eyebrow pencils. (Financial Street)
TECH & INNOVATION
Gentle Monster and Huawei launch smart glasses series
The eyewear series jointly developed by Korean eyewear brand Gentle Monster and Huawei announced earlier this year has officially been unveiled. The series features Huawei's smart technology, with a large number of tactile-sensitive electronic components placed within the thin frame of the glasses. Users can play music, enable a voice assistant, as well as pause and resume playback, with wireless charging automatically through the glasses case. Two models will be available from September 6 in the China market, priced at 1,999 yuan ($212) and 2,499 yuan ($354) respectively. Huawei may have its troubles internationally, but at home, it continues its move into different product categories, including fashion and accessories. (Fashion Business Network)
Pinduoduo Expands to Tier One Cities
When Pinduoduo IPO’d in July 2018, doubts swirled about whether the platform could maintain its meteoric growth, with the majority of its market share coming from lower-tier cities in China. One year later, Pinduoduo has grown 178 percent in terms of gross merchandise volume (GMV). This growth includes an impressive Singles’ Day performance, but also continued growth in the first two quarters of 2019, with growth driven by an increase in active buyers, up 41 percent on the year from 344 to 483 million. But more important than the user increase is where they are coming from and how much they are spending, with most new users acquired coming from Tier One and Two cities, and the average yearly spend on the platform per user jumping 92 percent. (Walk The Chat)
Mogu data shows revenue boom in first quarter
Influencer-led, e-commerce platform Mogu saw live-streaming commission revenue in its first quarter of 1.315 billion yuan, an increase of 102.7 percent compared with the same period last year. It was a bright spot in a quarter that saw total revenues decrease by 2.8 percent to 248.9 million yuan ($36.3 million). Over the same period, the company, which also launched its IPO last year, narrowed net losses to 42.3 million yuan from 74.9 million yuan a year earlier. The Tencent-backed platform has struggled to convince investors it can compete in China’s highly competitive and increasingly concentrated e-commerce market, but CEO Qi Chen says the company will continue to focus more on the successful live-streaming model that sets it apart. (Mogu)
Prada to Close Hong Kong Flagship
Due to a continuous decline in-store foot traffic, obviously not helped by recent demonstrations, Prada has decided to close its largest flagship store in the world, located on one of the most expensive retail streets in the world — Russell Street in Hong Kong — according to landlord Early Light Group. The store’s seven-year lease will expire in June next year, with Prada deciding not to renew its contract. Rental on the 15,000 square feet space is estimated to be about 9 million Hong Kong dollars ($1.15 million) each month. Prada’s recently released financials show Hong Kong as a particular sore spot for the company, with the retail environment and unfavourable exchange swings blamed for dragged down growth. (Winshang)
K11 Musea Retail and Cultural Development Opens in Hong Kong
In happier Hong Kong retail news, the new K11 Musea has opened. The 10-floor culture and retail concept complete the $2.6 billion Victoria Dockside development in Tsim Sha Tsui. K11 Musea alone comprises 1.2 million square metres of floor space, and the project boasts an occupancy rate of 97 percent. In a tougher retail environment than Hong Kong has seen in some time, the focus of this project has been on culture-focused tenants in order to attract the attention of experience-seeking millennials. (HK01)
Takashimaya department store drops plan to close its only China outlet
Major Japanese department store chain Takashimaya Co has withdrawn a plan to close its only outlet in China after its renegotiating with its landlord. In June, Takashimaya announced the August 25 closure of its Shanghai store and the liquidation of its Shanghai subsidiary, citing a breakdown in rent reduction negotiations as well as a decline in sales amid fierce competition.
According to the company, its prospects for profitability have improved now that the landlord has agreed to accommodate “a better business environment”. Since opening in 2012, the Shanghai store has suffered net losses due to competition from online retailers and other local stores, with sales markedly slowing in the past year. (Japan Times)
POLITICS, ECONOMY, SOCIETY
Chinese Government Rolls Out New Stimulus to Boost Consumption
China’s State Council has issued a policy package which includes 20 measures to beef up consumption. Included in the package are infrastructure improvements to commercial pedestrian zones, the promotion of “smart” convenience stores, the further promotion of e-commerce to rural areas and a further expansion of special customs regulation zones will be introduced to help satisfy the demand among Chinese consumers for high-quality international products purchased through cross-border e-commerce platforms. As China’s economy increasingly relies on domestic consumption for growth, in particular as its trade war with America drags on, the central government has no shortage of levers to pull in order to continue the growth of spending at home. (State Council)
Chaos Shuts Down Costco Shanghai
In spite of analyst doubts about the financial feasibility of a big box international retailer entering the China market after a slew of exits from foreign food chains, US retailer Costco had no shortage of interest from Shanghai consumers when it opened its first mainland store on August 27. On the contrary, the store was forced to cut short its opening day after huge crowds of bargain-hunters swamped the suburban Shanghai store — elbowing one another to snap up bargain milk, meat and giant teddy bears. (Channel News Asia)
The Roots of China’s Quest for Technological Supremacy
Until recently, foreign perceptions of Chinese technological innovations have tended towards the dismissive, with a persistent perception that Chinese culture lends itself more to copying than innovation. That perception has largely been erased with giant leaps forward in areas such as 5G, artificial intelligence, biotechnology and quantum computing, but within China and the Chinese government in particular, this “ganchao” (catch up and surpass) policy has long been a part of their planning framework. For Chinese leaders, technological progress is not only a means to economic and military prowess but also an ideological end in itself — irrefutable proof of China’s restoration as a great power after decades in the wilderness. (Foreign Policy)
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