E-commerce in China: The rules of the game for starters
31 Mar 2020
In a world of sluggish fashion sales and retail insolvencies, China’s apparel market may just by its sheer size appear as the promised land. But fashion brands looking to sell online need to understand the rules of Chinese e-commerce that are often set by online giants such as Alibaba and JD.com.
Marie-Amélie Rolin Jacquemyns, co-founder of Brussels-based company Storytoline, has helped 46 brands – many of them emerging Belgian designers – on their way into China’s e-commerce market. Her fascination began when she was still working at US fashion house Diane von Furstenberg. While ordering the collections for the next season in New York, Rolin discovered that buyers for the Chinese market made rather daring choices. She turned her initial curiosity into a consultancy and, in a conversation with FashionUnited, shared her advice for fashion brands that are looking to set foot into an immensely innovative albeit complex market.
China’s fashion retail sales are no longer growing like they were in the past. Many say the market has become saturated and highly competitive. Why might it still be a good time to enter into the market?
Millie Rolin: In China, you have the new generation of millennials who have the spending power to purchase luxury goods. It is the perfect timing. Also, because digital purchasingis increasing.
It is a high potential market but you have to keep in mind that it is difficult to penetrate. It is very complicated because the country is huge. The Chinese customer is very picky and very demanding regarding the e-commerce process.
So what’s the best way to approach Chinese consumers online as a brand?
The Chinese market is led by social media, which is not Instagram or Pinterest; it is Weibo and Wechat, so you have to work with a company that helps you to build your brand reputation. The reputation of your brand is very important. Chinese customers will never buy something they have never heard about before. When they discover your product online, they will first check on feedback from friends or they will read comments from other customers.
China has its own social media and also its own rules for foreign companies. What do brands need to be aware of?
If you work in e-commerce, you're obliged by the government and by the top players to work with an intermediary third-party agency (TP). This marketing agency, which will manage your social media accounts, is mandatory to serve as the link between you and the partners in China. This agent costs about 8,000 euros per month. And on top of this fee, they take a five percent commission on average.
E-commerce in Chinese: Four platforms to know
T-mall: Biggest Chinese marketplace for foreign brands to sell to Chinese consumers directly. Launched in 2008, owned by Hangzhou-based Alibaba Group, the platform offers more than 22,000 brands.
JD.com: JD has a direct sales model which sources directly from brands. It also started JD Worldwide, an e-commerce platform allowing brands without presence in China to sell to consumers, in 2015.
Kaola: Launched in 2015, China’s second-biggest platform selling imported brands with focus on reasonable prices. Acquired by Alibaba from parent company Netease in Sept. 2019. Number of Brands: 5000
Little Redbook: Founded in 2013, this social commerce site is dedicated overseas luxury goods. Users can share photos, videos and posts that are linked to product listings.
That’s for the costs of marketing. What do companies have to take into account when they want to start selling on the country’s e-commerce platforms?
If you have a partnership with one of the e-commerce players - Tmall, JD or the Little Red Book or all of them - you have to take into account that you have an entry fee of about 10,000 euros (around 11,000 US dollars). Even if you've found your agent and build your social media account, it's not guaranteed that your product will be accepted by the top e-commerce players. They can ask you to lead a marketing campaign for six months with a TP and still refuse your product. A big American brand that we have been working with was refused by Kaola because their turnover wasn't high enough.
Could you give us a sense of what’s considered big or small in China?
If you are a small brand, have a small production and generate less than 1 million euros of turnover a year, you're a nobody for Chinese e-commerce players. We have a brand that is very successful in Europe, which is already sold on Net-a-Porter and Farfetch, for example, but when we showed this to a Chinese e-commerce player, they absolutely didn't care.
How can smaller fashion brands still have a chance in China’s online market?
If you're not a big group, you must be buzzing. Buzzing means much more than 300,000 followers on Instagram. If you're by yourself, you need to have lots of money in your pocket and you need to have the right partners. Otherwise, your business is done. Very often, we have brands based in Europe explaining to us that they want to go to China because the market in Europe is not responsive.
But you have to understand that niche brands suffer from the market in general, even in Europe, it's very tough. They don't have any expertise about the new algorithms of Google and Facebook, it's not just about posting pictures with captions and attracting followers. This is so five years ago. Now, if you're having difficulties in your home market, I can tell you, it will be difficult to penetrate the Chinese market. The culture is different, tastes are different, the ways to purchase are different. First, be an expert in your own market.
Let’s say I’ve got a good grasp of my home market. What should a brand be aware of when it starts with the Chinese market?
Chinese customers love exclusivity. But at the same time, they're looking for a discount. So, what do you do? You have to increase your retail price to cover for your import taxes, you have to cover your marketing agency, you have to cover the commissions which are around 20 percent including the commissions for the e-commerce platforms and the agency. So how can you be competitive? How can you be exclusive and at the same time discount your collection? That's why it's a very long process and takes a lot of work.
That sounds like a hard market to crack. How long does it take for a brand to notice the first signs of success?
You have to be patient because you need to build your brand reputation and that takes time. We have been invited by JD to Paris and they have explained that breaking even in Chinese e-commerce takes around three years. During those three years, you have to pay the agent, the marketing, a one-shot entry fee. So you can pay thousands of euros before thinking about the break-even point.
Social Commerce: Online shopping with Chinese characteristics:
Social media has become an indispensable part of daily life in China. On these platforms, consumers are looking for product information, share experience and increasingly looking to make purchases, said a study by Fung Business Intelligence.
There are three major types of social commerce platforms: Content sharing platforms such as Little Redbook (Xiaohongshu) or Tiktok (Douyin), membership platforms like Yunji, and team purchase platforms like Pinduoduo.
China’s social commerce market is set to reach 2,419.4 billion yuan (344 billion US-dollar) in 2022, according to iiMedia data compiled by Fung Business Intelligence
Is there a favorite e-commerce platform that you would recommend to European brands?
The ‘Little Red Book’ is perfect because the consumers are aged between 18 and 35 years old. It's an e-commerce platform mainly focused on European brands. It received an investment of 300 million US dollars from T-mall a year ago. They have very, very strong and powerful expertise in the e-commerce process. The business model is very innovative. It combines e-commerce with social media.
If you're a Chinese girl and saw your friend posting something on Little Red Book on her last purchase, then, you're sure that you can buy it, and you can purchase the product on the same platform. Then as a Chinese girl, you love taking photos and sharing your pictures, so the purchase will continue to make its round. That means that the e-commerce platform has an 8 percent conversion rate. The conversion rate of Net-a-Porter or Farfetch is just 2 percent, which is the usual figure.
Why wouldn’t you advise smaller European apparel brands to sell on the other platforms?
JD and Tmall aren't focused enough, because that's also where you can buy a bottle of water or rice. And there is the problem with counterfeits - even young designers are copied, but that is the game in China, you have to live with it. Kaola is too focused on discounts and JD and Tmall on big brands.