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.
Avid users of Chinese social media apps are familiar with a certain type of content that has become even more prevalent in the wake of the pandemic. Customers boasting about hard-to-find luxury purchases now feel compelled to share their sense of triumph over the shopping experience — almost as if they had a narrow escape.
“Today my sales associate sent me a WeChat message saying there was only one more left in stock so I bit the bullet and grabbed it,” wrote one Xiaohongshu user, under a photo of Louis Vuitton’s petit sac plat bag, during the first year of the pandemic. In the second, another user was more matter of fact when they posted a photo of Chanel’s iconic quilted flap bag, fresh out of its box. “I [only] got the bag [after] I connected with the store sales associate on WeChat,” they wrote.
For many of these clients, the post is about more than just showing off an enviable relationship with a retail gatekeeper. At a time when shopping abroad is impossible for most Chinese and long queues often form outside local boutiques for those fortunate enough to not be in lockdown, luxury goods’ perceived scarcity feels more tangible than ever. Though shoppers’ real intention may be to earn brownie points with their sales associate by stroking their ego in a public forum, they often inadvertently promote something else when recounting their luxury haul online: the growing power of WeChat as it adapts to the customer journey.
It’s no secret that WeChat has fared well in recent years. Even as it plays second fiddle to Alibaba in terms of sales channels, the super-app continues to rise in importance as a marketing channel for fashion and beauty brands. As the digital infrastructure that makes everything from messaging to group-buying groceries possible, the platform has never been more top-of-mind for shoppers and marketers alike. But some of the credit to WeChat’s ongoing success goes to parent company Tencent, which has been busy launching and fine-tuning features throughout the pandemic.
From personalising CRM (customer relationship management) to upping traffic in an open ecosystem, here’s what brands should consider as they update strategies for China’s most popular app as it, in turn, evolves in double time.
Next Level Clienteling
As China’s ‘zero-Covid’ policies continue to disrupt the country’s logistics sector, and companies prioritise getting everyday essentials (rather than luxury goods) to residents of Shanghai and other cities, clienteling remains an essential tool for brands looking to stay top-of-mind with homebound shoppers. It is also increasingly important for those who aren’t living in cities under strict restrictions and can still visit physical stores across the country. One way WeChat has bolstered brands’ ability to do clienteling is through upgrades to its sister service WeCom.
Though WeCom, Tencent’s dedicated business communications platform, was officially launched in 2016, it has seen several rounds of updates and risen in prominence over the last two years to become one of WeChat’s main assets, says Michel Tjoeng, senior vice president of sales and marketing at ChatLabs, a WeChat-focused marketing, e-commerce and data management firm.
“[WeChat] is really the only platform that can facilitate these online to offline synergies.”
Though WeCom is technically separate to WeChat, in practice the two are integrated: A WeCom update in January 2022 upped visibility and access between employee and client channels. Crucially, it centralised communications by allowing sales associates to carry out brand-supported engagement through an official corporate channel, rather than selling via their own private messaging accounts. Until this happened, a sales associate who left their brand for a competitor could easily take their list of VIP clients — the “gold dust,” as Tjoeng calls it — with them.
Now, brands use WeCom to share official marketing material, conduct event management, and set up private sales via mini programmes. When customers book appointments to see items in-store, sales associates can more seamlessly access the pieces they’re eyeing and prepare them in advance. “[WeChat] is really the only platform that can facilitate these online to offline synergies,” says Tjoeng.
While WeCom has until recently been the preserve of bigger brands, Tjoeng says that smaller brands are now coming on board. The platform is extremely malleable, meaning brands can invest in personalising their CRM (customer relationship management) systems. Many beauty players, for example, use chatbots to answer frequently asked questions on their official accounts, but for hard luxury players that benefit less from impulse buys, connecting prospective customers to real salespeople is key.
Tjoeng cites British jeweller Graff, a ChatLabs client that used WeCom to build an auto-response function that, after establishing a customer’s city and preferred store, has them scan a QR code to assign a salesperson to take over the relationship.
The Perks and Downsides of an Open Ecosystem
WeChat has long been a comparatively open ecosystem thanks to its mini-programmes. It is also known for allowing brands wider and more creative control over the user experience as well as greater access to data and analytics than other content-centric channels. Tjoeng raises the example of Burberry’s Chinese New Year campaign, which included giving out points to users after they interacted with the brand’s content, allowing them to buy Burberry outfits for their online avatars.
“Not leveraging the full potential of WeChat is where most brands fall short.”
But in order to take advantage of this malleability, brands need to take matters into their own hands when driving traffic to their e-commerce mini programmes and other WeChat touchpoints. Unlike on Alibaba’s Tmall or JD.com, where users can search for items across the whole platform and discover brands they’ve never heard of through an algorithm, the way WeChat works means brands need to work harder for their traffic.
“Traffic has always been WeChat’s weak spot,” says Tjoeng — the platform last year moved to bolster traffic to luxury brands by way of Huiju, an e-commerce platform that aggregates mini programmes to drive traffic to brands’ WeChat storefronts, but it’s too soon to say whether it is a success.
The breadth and multifaceted nature of WeChat also means that unlike content-focused channels including Douyin, content is much less likely to go viral. This remains the case despite the platform’s efforts, through its 2020 launch of the Channels feature, to challenge the TikTok sister app and other short video players. “Channels still has a long way to go; I still don’t think it’s a competitor to Douyin,” says Rui Ma, host and founder of the Tech Buzz China podcast and partner at Synaptic Ventures. The average time spent daily on Douyin, 107 minutes, dwarfs the 35 minutes users typically spend on WeChat’s Channels.
That said, Tencent isn’t giving up. With Channels pushing branded live entertainment since Q4 2021, with performances by musicians reaching 40 million viewers, it’s only a matter of time before fashion and beauty brands with deep pockets play a bigger role in these celebrity experiences.
Playing the Data Game
The most sustainable way for brands to take an initiative on WeChat is still to focus on data insights. “Not leveraging the full potential of WeChat is where most brands fall short, whether it be through minimal targeting efforts, poorly monitored followings or simply underutilising the app’s features,” says Kim Leitzes, brand performance firm Launchmetrics’ managing director of APAC.
Leitzes urges brands to create clear and tailored plans to leverage data to inform future campaigns. This pertains to both official accounts as shoppers’ first port of call, as well as mini programmes, where greater opportunities for user interaction will result in more accurate insights.
How a brand structures their framework should be tailored to their target audience. According to an October 2021 report released jointly by Tencent Marketing Insights and Boston Consulting Group, brand-run mini programmes are especially popular among post-90s generation shoppers and are expected to see sales grow almost 30 percent in 2022. The report adds that while post-90s users prioritise an innovative shopping experience, older users place more stock on efficient, personalised services.
When it comes to attracting users to the account to begin with (and collecting data as they make their way there), creating small incentives is key. Tjoeng sees the likes of Coach and Calvin Klein tap into what he calls the reverse loyalty approach, where rather than giving out loyalty points post-purchase, customers earn points by scanning QR codes, starting conversations with sales associates and watching videos.
The Regulation Question
Though Tencent doesn’t break down revenue figures, WeChat’s slower pace of growth after exceeding the 1 billion monthly active user (MAU) mark in Q3 of 2019 isn’t undermining its hegemony as China’s communications giant, says Ma. “There’s still no alternative to WeChat,” she offers.
In recent years, officials and government agencies have made clear their intentions to do away with China’s digital “walled gardens” — closed loop ecosystems, like WeChat, intended to restrict user value to single apps and thereby limiting users’ abilities to move between apps as well as brands’ cross-platform insights. While some links are now interoperable, progress has been slow, says Ma. “It hasn’t really happened; I expected a faster push.” Even so, she believes that it’s only a matter of time. “The government is very serious about walking down this path; I don’t think they’re just saying it.”
“There’s still no alternative to WeChat.”
But stricter regulations won’t necessarily affect the ecosystem’s screen time or standing as a one-stop-shop for China’s personal digital needs. “[WeChat] has a very unique position in peoples’ lives,” says Ma, who reckons the ubiquity of its core communications service will insulate it while platforms with a narrower range of services, such as Alibaba’s luxury behemoth Tmall, face a greater danger of losing their dominance.
A threat to WeChat could come by way of newer, innovative players — but even that seems implausible. “Some things are just sticky because of crazy network effects, and [WeChat] has a strong network effect that will be here for the foreseeable future,” says Ma. Indeed, it wouldn’t hurt brands to experiment with planting their flags in buzzy new platforms like metaverse social media app Zheli, but WeChat is going to remain a high priority for most brands. Those who continue to allocate significant resources for the platform and strategise well for it will likely continue to be rewarded, especially considering its lower acquisition costs.
Of all the major tech players, Ma worries the least about WeChat when it comes to Beijing’s regulatory agenda. “No one, I think, has the capability right now of overturning WeChat’s 1 billion user lead. The more they become an ecosystem, the harder it’ll be for other people to disrupt it.”
FASHION & BEAUTY
Adidas, Under Armour Lower 2022 Expectations Amid China Lockdowns
German sportswear giant Adidas lowered its expectations for the year following a Q1 decline owing in part to Covid-19 curbs in the Greater China region, where sales dropped 35 percent during the period which saw cities like Shanghai go into strict lockdowns under Beijing’s ‘zero-Covid’ policies. Overall Q1 currency-adjusted sales fell 3 percent to $5.58 billion, it said May 6. Now, Adidas predicts it will hit the lower end of its annual forecast, meaning an 11 to 13 percent rise in sales and net income from continuing operations between €1.8 and €1.9 billion ($1.9 and $2 billion). It’s not the only sportswear maker feeling the heat: rival Under Armour has forecast its 2022 profit below Wall Street estimates due to challenges in China and supply chain disruptions. (Reuters)
Chinese Netizens Boycott Lululemon
The Canadian activewear brand set Weibo alight on May 5, after it was fined over $12,000 and had $3,500 in “illegal income” confiscated by Beijing’s Xicheng District Market Supervision Bureau for selling allegedly poorly made products. Hashtags reporting on the incident and demanding apologies quickly went viral and have drawn over 200 million views since. The brand soon released an apology on its official Weibo account, but it remains to be seen how long it will take to recover from the incident, which could dent its rapid expansion in the mainland, as well as the 70 percent growth rate it has enjoyed locally since 2020. To be sure, many other brands, including H&M, Nike, Zara and GAP have been fined for the same reason, and emerged relatively unscathed. (Jing Daily)
K-Beauty Giant Amorepacific Group’s Q1 Profits Slump on China Troubles
The South Korean beauty conglomerate says its global revenue fell by 9 percent to 1.3 trillion won ($1 billion), with operating profit down 13.4 percent year-on-year to 171.2 billion won. Market instability in China — which accounts for 70 percent of the group’s sales in Asia — resulted in revenue declining by 10 percent as stores in multiple cities were temporarily closed due to Covid-19 outbreaks. The company expects China sales will continue to be impacted by Covid in the second quarter with government movement restrictions not yet relaxed in Shanghai. (Khanh Linh for BoF)
Eileen Gu Goes Viral at the Met Gala
The 18-year-old Olympic gold medallist and Louis Vuitton ambassador was trending on Chinese social media after she made her second appearance on the Met Gala’s red carpet. Clad in a black leather mini dress by the Parisian luxury giant, Gu became a hot topic on platforms like Weibo within hours, with hashtags about her hitting over 300 million views since. Netizens praised her supermodel-like stature and confidence, comparing her to Wonder Woman. Having spent the months after her Winter Olympics win in Beijing, American-born Gu has returned stateside ahead of enrolling in university this fall. But just a week before the star-studded event, Gu’s farewell post to China on Weibo drew backlash; commentators criticised the athlete for departing the country during a health crisis. (CNN)
SUPPLY CHAINS & TECH
Xinjiang Cotton Found in Adidas, Puma and Hugo Boss Clothing
Researchers from German universities have found traces of Xinjiang cotton in T-shirts by Puma and Adidas, as well shirts by Hugo Boss, after conducting isotope analysis to trace the geographic origin of substances. This is despite the German brands renouncing the alleged use of forced labour in the Chinese region, which makes up a fifth of global cotton production. In response to requests for comment by The Guardian, Puma reiterated that it does not “have any relations — direct or indirect — with any” Xinjiang cotton suppliers, while Adidas maintained it “sources cotton exclusively from other countries.” Researcher Markus Boner told local broadcaster NDR’s investigative programme STRG_F that the isotopic fingerprints found “are unambiguous” and could even be differentiated from cotton sourced from other Chinese regions. (The Guardian)
After Cracking Down on Big Tech, Beijing Needs Them More Than Ever
Since late 2020, regulatory moves have trimmed as much as trillions of dollars off the market value of China’s biggest tech players. But in April, the government promised to support the “healthy growth” of platforms. Is Beijing’s stance softening amid lockdowns that have devastated the country’s supply chains? The likes of Alibaba and JD.com have set up the digital and physical infrastructure to deliver and source products from groceries to electronics, and according to the Shanghai authorities, internet firms have fulfilled an average of 2.5 million grocery orders a day since the city went into full lockdown on April 1. These delivery services were likely carried out at a major loss, which can be seen as making up for the generous tax treatment tech companies enjoyed for years. It remains unclear whether an easing of regulatory crackdowns is in the cards or just a mirage. (Bloomberg)
Chinese Tech Giants Don’t Want to Miss Out on NFTs
April wasn’t a good month for non-fungible tokens (NFTs) in China, with industry associations warning against the financial risks of trading digital assets, and the country’s banking, internet finance and securities associations urging policymakers to impose further restrictions on NFTs. While many in the crypto world saw this as a deathblow for the lucrative industry’s hopes in the mainland (where crypto trading is already banned), China’s leading tech firms suggest otherwise and are moving to release digital collectibles on blockchains managed and sold on their own channels. Existing regulations require that these collectibles are separate from global NFT marketplaces and aren’t easily traded for cash, so many are centred around cultural and historic artefacts: Take Ant Group’s digital collectible service, Whaletalk, Tencent’s Magic Core, and JD.com’s platform Lingxi. (Techcrunch)
CONSUMER & RETAIL
Alibaba Targets Value-Oriented Shoppers to Boost Sales Growth
After spending years focusing much of its efforts on affluent and middle-class shoppers in top-tier Chinese cities through its Tmall and Taobao platforms, Alibaba has switched gears. Now, the firm is shifting focus to the estimated 930 million shoppers in lower-tier cities in an effort to amp up growth. It’s doing this largely through Taobao Deals, which it launched in 2020 as a bargain-hunting haven and has since turned into a “powerhouse in new user acquisition,” according to chief executive Daniel Zhang in February. This is proving crucial for the group, which has lost around 60 percent of its market value since authorities began their regulatory crackdown on China’s tech sector in 2020. Research firm eMarketer estimates that the group’s share of Chinese e-commerce sales declined to 50 percent in 2021; in February 2022, the company posted its slowest quarterly sales growth since its 2014 IPO. (The Financial Times)
Chinese Economy Growth Forecast for 2022 Is Cut by Fitch
The American credit rating agency has trimmed its forecast for China’s GDP growth for the year to 4.3 percent, down from 4.8 percent. Meanwhile, it has changed its 2023 forecast from 5.1 percent to 5.2 percent, to reflect an expectation that Beijing will slowly phase out its “dynamic zero-Covid” policy over the next year. According to Fitch, traffic congestion, subway passenger volume and other indicators in April were at their weakest since Covid-19 broke out in early 2020. The firm predicts disruption will ease this month, with the country’s infections declining after spiking mid-April and Beijing signalling a goal to balance controlling the pandemic with boosting China’s economy. (Fitch)
Hong Kong Retail Sales Plunge Again in March on Virus Curbs
The city’s sales plunged 13.8 percent in March — its first consecutive contraction in over a year — due to ongoing Covid-19 restrictions stifling the economy and dampening spending. The drop was more severe than predicted by surveyed experts, while the 16.8 percent fall in sales volume was in line with expectations. The February-March stretch was the first time retail sales declined for two months straight since 2021. And since the data doesn’t cover spending on services, including entertainment and medical care, it likely doesn’t capture the full impact of the restrictions on consumer sentiment. But there are early signs of a rebound: Hong Kong is escalating its plans to ease curbs, and its government is once again distributing vouchers to boost growth. A similar effort conducted in 2021 saw monthly sales increase by double digits. (Bloomberg)
POLITICS, ECONOMY, SOCIETY
Beijing Moves Ahead With Covid-19 Curbs as Resentment Builds in Shanghai
Though the Chinese capital reported only 51 new cases on May 4, authorities are following in Shanghai’s footsteps to crack down on Covid-19 transmissions. Some malls, gyms and cinemas have been closed, while schools were ordered to end classes on April 29. In the last week, more subway stations, residential compounds and businesses have shut. But China’s two largest cities aren’t alone: financial services firm Nomura estimates that 46 other cities — amounting to around 343 million people — are in full or partial lockdown. In Shanghai, residents were filmed banging pots and pans while shouting from their windows to protest against an extended city-wide lockdown. Many accounts of struggles to access food and supplies have been shared on WeChat before being reposted on global social media, while others have protested against being evacuated from their homes to quarantine centres. (Reuters)
Some Nationalist Influencers Are Posting From Abroad
Residents enduring lockdowns and other restrictions in the mainland were outraged after user location data was made public by top social media firms, revealing that some of China’s most patriotic KOLs (key opinion leaders, as influencers are known locally) were posting from abroad. Blogger Zhong Xiaoyong, for example, who has famously said that unpatriotic Chinese should emigrate, was identified as posting from a Japan location, according to WeChat data. Meanwhile, Wu Jing, the actor who starred in 2017′s nationalist blockbuster Wolf Warrior 2, was logging in from Thailand. This comes after China’s cyberspace regulator proposed requiring social media platforms make user locations public, and Weibo began doing so in March to ensure the authenticity of content. (The Financial Times)
China’s April Export Growth Slows to Single Digits
The country’s export growth declined to its slowest since June 2020 as wider Covid-19 curbs suspended factory production, upended supply chains and hit consumer demand. Exports grew 3.9 percent in April year-on-year, down from 14.7 percent growth in March. Restrictions in dozens of cities have forced local and global businesses to suspend operations, with a foreign trade manager in commodities trading hub Yiwu estimating that only 20 to 50 percent of stores are open amid restrictions. A prolonged slump in the property sector, ongoing risks stemming from the invasion of Ukraine, and unemployment are also having an impact on growth, with some analysts warning of recession. (Aljazeera)
US Begins Chinese Tariff Review
Washington is kicking off the process of reviewing tariffs on over $300 billion in Chinese imports, which were introduced during Donald Trump’s presidency and will begin expiring automatically at their four-year anniversary in July. Around 600 representatives of US industries that benefit from these duties — including footwear and clothing — are being notified of their potential expiration, and have the opportunity to request that they remain in place by July 6, in which case they may be maintained as the US Trade Representative’s office reviews them. (Bloomberg)
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