E-Commerce Is So Huge Now in China, Some Brands Skip Opening an Actual Store
When British fashion retailer Topshop debuted in China, guests at the Beijing launch event tried on outfits and posed for selfies with red London buses or telephone booths as a backdrop. But the venue wasn’t a shop, and there were no checkout counters. To order, people scanned QR codes with their smartphones, turning an offline event into mobile commerce.
Topshop, a fixture in British high streets, launched on the mainland in late September through e-commerce alone, via the ShangPin.com online retail platform. Then came Costco’s announcement that it was debuting in China without any of its signature big-box stores, via Alibaba’s TMall marketplace, just in time for the e-commerce giant’s annual Nov. 11 sale that is bigger than Black Friday.
It has been common for small niche brands to launch online-only in China to reach the country’s growing middle class without massive risk. But e-commerce in China has gotten so huge that even big brands have to consider whether doing market entry with actual brick-and-mortar stores is worthwhile. Xiaomi, arguably the hottest local brand, developed into China’s top smartphone maker by selling its products online. Its offline stores came later.
On China’s e-commerce platforms, people in any corner of China can buy everything from toothpaste to the latest Tesla model. And people are buying.
In 2009, e-commerce represented 3% of total retail in China, and in 2014 it’s projected to hit 15.4 %, at $409 billion, according to the Mintel research firm. The size of the Chinese e-commerce sector surpassed that of the U.S. last year, Mintel said.
In e-commerce, “China is a global laboratory for experiments, and it’s leapfrogging a lot of other countries,” said Can Huang, Mintel senior research analyst.
If brands like, say, Zara and Gap, (which are well-established in China) were launching today, given the maturity of the e-commerce market, they might consider the same strategy as Topshop and Costco, he said.
Launching on ShangPin, a full-price retailer for current season goods, Topshop can reach shoppers across China and get a sense of what consumers are looking for, said M. Claire Chung, VP for international business development for ShangPin.
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“That’s something you can learn very quickly online, and that you can learn from before ever deciding whether to open a store,” she said. (One global fashion trend that Chinese women haven’t embraced, for example, is midriff-baring crop tops, she said.)
Entering the market online-only isn’t risk-free. Neiman Marcus sold its stake in a local e-tailing website after shoppers in China snubbed the department store’s online offerings. Fakes and copycat brands are common online in China and can lure customers looking for cheap products.
And on the internet, too, brands and retailers still need to make a big marketing push. Topshop is currently on Shanghai buses, with ads featuring Cara Delevingne.
About 5,000 people attended Topshop’s launch in Beijing, where guests were required to check in by mobile phone. The event was attended and blogged about by celebs including actress and singer Wang Luodan, who has 34 million followers on Weibo, China’s version of Twitter.
In 48 hours, 250,000 people checked out the shop’s mobile presence, Ms. Chung said. About half of ShangPin’s business is on mobile devices, where consumers are shifting to. For Alibaba, that number is about one-third.
Costco, meanwhile, is tapping into Chinese consumers’ growing desire for imported food and care products. There’s no membership requirement for its virtual shop, unlike in the U.S.
On Costco’s shop on Tmall, customers are putting in deposits for discounted products ahead of Tuesday’s massive Nov. 11 sale, known as Double Eleven. Among all the shampoos and vitamins and nuts, the hottest item, oddly, is Craisins dried cranberries from Ocean Spray.
Entering online, of course, brings fewer risks than with brick-and-mortar. Rents are skyrocketing in China, and competition is tough for good locations. Cautionary tales abound. Big-box stores seem to have fared especially badly. Best Buy closed its nine branded stores in China in 2011, partly because it wasn’t offering low enough prices for China’s price-sensitive consumers. In a completely different category, Mattel launched a six-story Barbie megastore in Shanghai, but shut it down two years later, in 2011, after poor sales.
Brian Leong, general manager for Lowe Profero in Shanghai, recalled a client (which shall remain unnamed) that came in with big retailing ambitions.
“They started with brick and mortar and told us they would invest in 30 stores in one year, while we were saying, ‘no, go with e-commerce,'” he recalled. The retailer eventually did some e-commerce but “by then it was too late. They had to pack up and go.”