Foreign Fashion Behind the Great Fire Wall: China eCommerce Channel-Scape
Why are there so many channel options for buying foreign brands in China? There are a myriad of factors; the main three are:
It’s a huge industry: according to McKinsey’s 2016 iConsumer survey in China – 20% of all digital shoppers bought something from a foreign website (AKA Haitao shopping). The overall market size for B2C Haitao is expected to top 50 Billion USD in 2017.
While TMall and JD are the clear market leaders, there is still lots of room for upstart platforms to carve out a piece of the industry. Both are marred by poor brand relationships, pricing premiums compared to US dot com offerings, and ever present authenticity concerns.
There are many different pain points for selling foreign brands in China: high customs and tariffs, authenticity concerns, costly domestic supply chain, and the extremely unfavorable business climate created by China’s increasingly protectionist ruling body. Each of the six camps below will focus on different pain points.
The sales channels for foreign brands can be divided into roughly two main camps; each with various sub-categories.
CHINA BASED OPERATION
These are sales channels that are entirely Chinese owned and based in China or are local business units of larger multi-national brands that are based in China. Consumers pay more and choose from fewer products but have ease of shipping, Chinese payment options (less than 1% of Chinese have Visa, Master Card, or Amex), and Mandarin language site navigation.
1. DOT CN WEBSITE This category refers to brands that choose to create a stand alone Chinese language site that is both hosted in China and has purchase functionality. To date the only brands who’ve engaged in this direct eCommerce strategy have predominantly already opened China offices and use the .CN website as a compliment to their existing China brick & mortar strategy. Examples includes the likes of Sephora.CN or ASOS.CN. Some brands like Ralph Lauren have a .CN website without purchase functionality. This is somewhat counterintuitive as eCommerce is King in China even for premium and luxury segments.
2. FASHION MARKETPLACE These websites and apps act like any other multi-brand brick and mortar retailer. They purchase wholesale supply and warehouse in China. Some of these sites, such as 5Lux, will operate on a consignment model. However, they often have a pricing premium compared to foreign websites and don’t offer the full-product selection.
3. C2C MARKETPLACE This concept is similar to an eBay for fashion products. Often the seller has a representative buyer abroad who can help them get product (aka a “Daigou”). For the consumer there is no guarantee of authenticity.
4. LARGE MARKETPLACE These are the two giants that everyone knows about. These marketplaces offer the most eyeballs but rarely have the same pricing as abroad and never have the full SKU selection (TMall and JD both discourage long-tail product listings). Consumers deterred by the price markups, limited selection, and distrust for items warehoused in China will turn to cross-border to fulfill their needs.
DUAL HEADQUARTERS (US & CHINA)
These options all have bilingual teams based in both countries and typically have direct relationships with the US or European HQ for a given brand or retailer. These platforms help US or European based dot com websites sell product directly to China. These are all pure “Haitao” (cross-border eCommerce) plays.
5. LINK-OUT DEAL SITES These sites all provide Mandarin language portals that direct consumers to deals and sales from a large consortium of US and European retailers and brands. They attract very few full-price customers and it is up to the customer to find a drop-shipper. Due to the lack of ease for shipping and Chinese payment options these sites are primarily used by overseas Chinese and resellers (in China or the US).
6. CROSS-BORDER MARKETPLACES These are Haitao Marketplaces that automate the “Daigou” process of having a friend in the US use their English skills and credit-card to help them buy a product and forward it to them in China. These apps partner directly with brands and retailers to offer full-service for the Chinese market: content marketing for a Chinese audience, enabling Chinese payment, and China logistics.
– McDavid Stoddard, BD Manager @ Beyond App