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.
SHANGHAI, China — As business leaders track momentum in the world's largest fashion and luxury market, e-commerce festivals have become an increasingly important barometer for China's spending recovery.
More than usual, this week's 618 shopping festival is being used as a referendum on consumer sentiment, and the country's major e-commerce platforms are holding nothing back in their attempts to boost business several months after China's retail market re-opened.
Although 618 was originally conceived by JD.com as a festival to celebrate the anniversary of the company’s founding on June 18, 1998, the event has since been embraced by all of China’s major platforms, with this year’s sales widely tipped to top last year’s record-breaking haul.
E-commerce festivals have become an increasingly important barometer for China's spending recovery.
Promotions relating to the festival kicked off in earnest on June 1, with activities running throughout the month of June. Discounts are a major driver of this and most other e-commerce festivals in China, with pressure on brands to dramatically drop prices in order to participate and have a chance of being promoted by e-commerce partners.
This raises a distinct dilemma for international luxury brands, for whom discounting is anathema. But these are extraordinary times and, with coronavirus interrupting traditional business models and depressing foot traffic in China's luxury malls, the temptation to potentially reach hundreds of millions of consumers via Tmall or JD.com is undeniably strong.
A look back at previous years’ results puts this temptation into focus. In 2019, JD saw 201.5 billion yuan ($31.53 billion) of 618 sales, a year-on-year increase of 26.6 percent over 2018 and Pinduoduo, with its high-growth, lower-tier consumer base, said its gross merchandise volume, or GMV, surged 300 percent in 2019 over 2018.
Alibaba’s Tmall did not disclose overall GMV numbers for last year’s 618 festival period, but did reveal that GMV on its Luxury Pavilion for the period more than doubled between 2018 and 2019, mostly driven by growth in second and third tier cities — with sales of Versace jumping 20 times year-on-year.
Data from the beginning of JD.com’s 618 festival this year showed the luxury category growing 400 percent in the first hour of June 1, with sales for the first day of last year’s 618 surpassed within two hours this year. President of International Business at JD Fashion Kevin Jiang says more than 60 brands increased their sales by over 500 percent from the beginning of the promotion period, compared with the same time last year.
Interestingly, the 618 festival — and indeed the pandemic — comes at a time when there are calls to reduce levels of discounting in the fashion and luxury industries. But do brands really have any choice in the matter?
There is little appetite among the platforms to change. Not only is it in their self-interest to continue these discounted shopping sprees, they are also under pressure from Chinese authorities to do their bit to bolster China’s slowing economy, which is increasingly dependent on domestic spending for growth.
The 618 festival comes at a time when there are calls to reduce levels of discounting in the fashion and luxury industries.
A mass return to overseas spending in the short-term is definitely off the agenda for Chinese shoppers, who according to Bain & Co. estimates, will account for nearly 50 percent of the global luxury market by 2025.
Retail sales have been gradually recovering but, with a renewed outbreak of the virus in Beijing over the past week infecting dozens of people and leading to lockdown conditions in parts of the capital once again, a no-holds-barred return to brick and mortar shopping also seems unlikely for many Chinese consumers. E-commerce sales, conversely, continue to grow, with estimates from research firm eMarketer this week predicting a 16 percent boost for 2020 over 2019.
Luxury brands, then, will have little option but to bow to pressure from platforms such as JD.com and Tmall to support an array of consumption-boosting, discount-focused festivals. But that doesn’t necessarily mean short-term gain for long-term pain.
While it may seem like an impossible task to make a splash with an offering that rises above the din of 100,000 brands (the number participating in Alibaba’s 618 promotions this year), there are still ways to make China’s e-commerce festivals work for you — without sacrificing brand equity along the way.
1. Use limited editions rather than discounts, if you are a top luxury brand.
Perhaps just as important as the sales growth being recorded for luxury brands this 618 festival are the drivers of that growth. According to Kevin Jiang, younger consumers, those born post-95, are the fastest-growing customer segment and purchases from lower-tier consumers have also received a boost. These consumers are spending money online that they would normally have spent on regular luxury shopping trips to Shanghai, Beijing, London and Paris and are driving sales for top luxury brands, such as Prada and Delvaux, which have focused their promotional activities on limited edition products, rather than discounts for 618.
“For Delvaux, they launched their limited collection which is a rainbow design for spring and summer, [and] at JD we are their largest channel for selling that collection in China. I think we probably sold more than 50 percent of that collection in China,” JD Fashion’s Jiang claims.
2. Take advantage of China’s newly flexible omnichannel environment.
Inventory has become a major problem for many fashion brands, some of whom relocated seasonal items to Chinese stores as they re-opened after doors around the rest of the world closed due to the pandemic. Major e-commerce platforms in China have not only expedited the process for opening stores this year, but some are offering more flexible options for partnerships and inventory management.
Jiang says, after discussions with brands, JD.com has started to offer wholesale options to smaller brands, like buzzy leather goods player By Far, that don't have a dedicated e-commerce team in China. JD.com has also introduced omnichannel options for retailers, so brands can choose whether goods ordered on JD.com are shipped from their physical stores, or a dedicated warehouse. At a time when inventory management is more important than ever, this flexibility has proven popular with brands, 40 of which have joined the platform since the outbreak of Covid-19, including Church's, Sergio Rossi, Christopher Kane and A-Cold-Wall.
3. Consider experimenting with China’s “blind box” craze.
Chinese promotions for products in a number of categories are increasingly leaning on the idea of a “blind box”. For its 618 promotion, Chinese mobile internet company, Mi (best known for mobile phones and “smart” home appliances) has been selling “Unknown Suitcases” with surprises within each suitcase purchased, a clever way of stimulating suitcase sales at a time when not a lot of travel is on the agenda.
A Tmall X China Joy report from August 2019 showed nearly 200,000 consumers spent an average of 20,000 yuan ($2,827) on blind boxes. According to Kadri Karolin Kõuts from insight-based marketing agency China Skinny, this is an "ideal" strategy for beauty brands in particular, and has already been used by fashion and beauty brands in countries like Japan, which has annual fukubukuro (or "lucky bag") promotions in order to help department stores get rid of stock. Charlotte Tilbury and Fenty Beauty have also utilised "mystery boxes" for promotional activities in recent years, including Cyber Monday.
"Even if the consumer ends up getting a 'wrong' shade of nail polish or a lip gloss, the excitement of unboxing the product makes it worthwhile. If there are any exclusives hidden in the mix, even better. Discounting can have negative connotations on the product whereas blind boxes create ongoing value for the brand," Kõuts says.
4. Think about jumping on the vouchers bandwagon to stimulate spending.
Following on from a raft of local government initiatives, distributing vouchers is a way to stimulate consumption in the post-pandemic recovery period. Tmall is working with brands to release 10 billion yuan ($1.41 billion) worth of coupons and subsidies as part of its 618 activities.
Getting involved with these kinds of platform-wide voucher programmes can be a good move for international brands, who can parlay their involvement into increased promotion from Tmall during 618, and also offer an incentive for consumers to buy their products, without resorting to deep discounting. However luxury players may find the idea hard to swallow.
According to Ben Cavender, managing director of China Market Research Group, it can be “dangerous for brands to offer big, broad-spectrum discounts [or] price dropping on stock to move it because that trains the consumer and they don’t ever want to pay full price [again].”
5. Big brands should consider tapping executives as livestreaming hosts.
Over the course of Tmall's 618 campaign, more than 300 performers will take to Taobao Live, with stars including Kris Wu, Liu Tao, Zhu Yilong and Ouyang Nana all getting involved. But more surprisingly, Taobao Live will also feature broadcasts with more than 600 top executives from brands including Huawei, Lenovo and L'Oréal. These "boss livestreams" are trending in China, with more and more executives joining the ranks of livestreaming KOLs. Dong Mingzhu, chairwoman of Gree, China's biggest air-conditioner maker, famously sold 310 million yuan ($43.8 million) worth of products via the short video app Kuaishou back in May.
From a consumer point of view, seeing company founders and executives explain the attributes of their company’s products – whether air conditioners, lipsticks or handbags – gives weight to the information. It is a tactic that, so far, has proven popular when featuring executives from big brands.
6. Dedicate whatever resources you can afford to an amazing livestream.
For smaller brands, the best way to draw a crowd is still to partner with a high profile KOL or celebrity, with real value to be gained from aligning with the right people to execute a high-quality livestream. JD.com's Jiang points to the example of children's luxury brand Bonpoint, which saw a recent livestream convert ten percent of its viewers into customers as the stream went to air.
“[Bonpoint] did their livestreaming in their flagship stores with two celebrities [who] have become mums, so they know about the products and the brand story,” Jiang explains. “This was a very successful and gained thousands of new followers for the brand through the livestream.”
To compete with Alibaba’s powerful Taobao Live platform, which has access to more than 700 million consumers, JD.com recently announced a long-term strategic partnership with short video platform Kuaishou (both companies are backed by Tencent) to create a “short video e-commerce livestreaming ecosystem.”
FASHION & BEAUTY
Dior products available on Tmall | Source: Screenshot from BoF China
Dior (Finally) Dips a Toe into Tmall
Though it has proven itself to be an early adopter of social media in China, Dior was one of the very last major luxury companies yet to join one of China's major e-commerce platforms — until this week when it made a quiet debut on Tmall. Dior was the first luxury brand to use WeChat marketing and Weibo stories, and also among the first to land on Douyin and Bilibili. But when it came to third-party e-commerce platforms, even e-commerce laggard Chanel beat Dior onto Tmall. Both Chanel and Dior only sell beauty and skincare items on the platform, a fuller offering of Dior's ready-to-wear and accessories is found on the brand's own WeChat store. (Sharon Zhou for BoF China)
London’s Digital Fashion Week Sees Muted China Reception
Chinese designers Xander Zhou and Pronounce were both notable in their attempts to make the most of this unusual edition of London Fashion Week, experimenting by showing new collections via a futuristic digital presentation (in the case of Zhou) and an illustrated flipbook based on the Chinese myth of Ne Zha (for Pronounce). The event itself failed to garner much impact on social media in China. The lack of physical attendees from China undoubtedly impacted negatively on netizens' attention, with so much traffic on sites such as Weibo concentrated on celebrity-led news. (Jing Daily)
TECH & INNOVATION
Tencent Video and iQiyi logos | Source: Courtesy
Netflix-Like iQiyi Sees Shares Soar on Tencent Takeover Speculation
The stock price of major streaming player iQiyi, a major competitor to Tencent Video, rose as rumours gathered steam that Tencent Holdings is planning to become its controlling shareholder. Based on the Beijing-based target company's market cap on June 15, Tencent would need to pay $8 billion for the controlling shareholder's stake. Tencent's video platform and iQiyi each had 110 million paying users as of March, while competition is becoming increasingly fierce with emerging sites such as Bilibili. (Yicai)
Tax Authorities Move in on E-Commerce Order ‘Brushing’
Chinese e-commerce shop owners reliant on "brushing," a practice of falsifying sales numbers, may now be required to pay taxes based on the inflated figures with the implementation of a new tax law. Wider application of big data technologies has brought more transparency to the e-commerce market, enabling taxation regulators to compare their data with that from the e-commerce platforms. Chinese taxation authorities began sending alerts in late May to merchants on various e-commerce platforms like Tmall and JD.com, warning about risks of unpaid taxes from 2017 to 2019, local media reported. (Technode)
CONSUMER & RETAIL
Central Hong Kong | Source: Shutterstock
World’s Most Expensive Shopping Street Loses its Lustre
For years, Russell Street in Hong Kong's Causeway Bay was the world's most expensive shopping street, drawing rents higher than its rivals in Paris, London and New York. Today, where shoppers once browsed Prada bags and Swiss watches, luxury tenants are moving out and more humble retailers are taking their place. The coronavirus pandemic, following a year of political unrest in Hong Kong, has hit retail rents hard. One shop on the strip that used to house the Swiss watch maker Tissot is now home to a mobile phone accessories vendor paying just 6 percent of what its predecessor forked out in monthly rent. (South China Morning Post)
Luxury Retail Executive Says China’s Mainland Market is “Back in a Big Way”
Adriel Chan, executive director of Hong Kong-based Hang Lung Properties, said the luxury sector has "come back in a big way". The company owns 11 high-end shopping centres in China and Chan was speaking as part of a webinar hosted by the Asia Society Southern California. "April (sales were) basically equal to last year," Chan added. "That's a little bit surprising in the magnitude of the recovery, so I think that if this continues, luxury retail, at least in the Chinese mainland, will continue to do very well." (China Daily)
POLITICS, ECONOMY, SOCIETY
A promotional Image from Sisters Who Make Waves | Source: Courtesy
An Old(er) Take on Idol Singing Competitions Has China Talking
China is once again abuzz over a new reality TV singing contest — but this one is significantly different. Mango TV's Sisters Who Make Waves swaps cutesy teens and 20-somethings for a cast of mid-career female celebrities who are all over the age of 30, with the eldest competitor aged 52. After debuting last weekend, the show has triggered a wave of discussion around ageist stereotypes and female empowerment. A hashtag tied to the show's Chinese name has already attracted 7.63 billion views on Weibo and after the first set of episodes aired on June 12, Sisters pulled in more than 370 million views in its first three days of release (Radii China)
Beijing Outbreak Keeps Residents Home, Grounds Flights
China's capital has raised its emergency level as dozens of new coronavirus cases emerged and residents were barred from any "unessential" travel outside Beijing following a new outbreak of the virus that is yet to be brought under control. Hundreds of flights were cancelled, schools suspended and residential compounds ordered to reinstate strict screening after authorities raised the city's four-tiered emergency response level from three up to two. All movement in and out of the city will be "strictly controlled", officials said at the briefing. (The Guardian)
China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to our Shanghai-based Asia Correspondent email@example.com.