Tag: Gucci

The closures of a number of retail and luxury brand giants on China’s e-commerce platforms indicate that retail competition is no less fierce online than offline.

It is old news that the Chinese market is highly competitive and unlike any other market in the world. What may sell on the high street in London is not guaranteed to sell in China. The rainbow-lensed promises of e-commerce seem to be an easy way to access China’s 770.4 million working population, 0.2 per cent or over 1.5 million of which have an average income of US$500,000.

Political concerns and falling sales: Lotte

In 2015, Lotte Group Retail opened a Tmall store, hoping to widen its reach in China, where over 60 per cent of its overseas stores are located. The large South Korean multinational conglomerate has had a presence in China for over 20 years, with 115 supermarkets and five shopping malls.

But on January 12 this year, Lotte closed its Tmall store – along with three brick-and-mortar stores in Beijing – after rising political tension between China and South Korea. In December, Lotte’s China headquarters admitted that the company was facing investigations for tax, fire control and safety issues. However, the closure of its Tmall store seems to have stemmed also from the fact that China is Lotte’s only international market where growth is stymying. Sales fell during the last three months of 2016, year-on-year.

While Lotte remains in the market through its physical shopping malls and supermarkets, and on the JD.com website, the company has not announced whether it will be reopening its Tmall store at any future date.

Heavy local competition: Asos

Asos, the UK’s largest online fashion retailer, entered China in 2013 with high expectations. The company announced it was investing RMB 100 million (US$14.5 million) towards the market, importing British styles and developing a sales force. Its business model relied exclusively on e-commerce, with its own website, as well as a Tmall store.

However, Asos failed to attract enough customers and was running a loss of GBP 4 million (US$5 million) by April of 2016, when it announced that it was shutting down its China operations.

Asos faced a number of problems in the Chinese market, from operations to marketing. When it first started, the company encountered issues with shipping though China Post, with customers paying import taxes on clothes. Eventually, Asos obtained a local warehouse, but then it encountered complex clothing trade regulations in China, particularly in regards to correct labelling. As a result, Asos had to spend additional funds on restitching to comply with local code, contributing to higher than expected start-up costs.

Effective marketing was also a major issue for Asos, with the company failing to distinguish itself from local, more affordable brands. While it may be a major player in the US and Europe, Asos was relatively unknown to Chinese millennials, its target consumer base.

Tmall concerns for luxury brands: Coach

Coach was one of the first US luxury handbag brands to launch a Tmall store, creating a pop-up store from December 2011 to January 2012, and then an official one in 2015. However, citing a shifting operational strategy, Coach announced that it was leaving the platform just one year later in September 2016.

China is a critical market for luxury goods, as sales in the US and Europe steadily decline. Many brands see e-commerce as a way to directly access customers and receive greater exposure, which is why many have moved onto online platforms en masse. Despite this, online platforms have always been a concern for luxury brands, who fear appearing too mass market. Moreover, Alibaba has been criticised by brands for not doing enough to remove fake goods, despite a counterfeit removal program. In 2016, Gucci and Michael Kors quit the anti-counterfeit coalition as protest against the program’s inefficacy.

Coach still remains in the Chinese market through its WeChat account, an avenue that is growing in popularity amongst luxury brands. Cartier, Longchamp, and Montblanc all have WeChat shops with WePay functions. Some companies believe that WeChat offers a more personalised shopping experience, as well as greater control over its brand.

For many luxury brands, online platforms are more for marketing and building brand image, rather than sales. However, official Tmall flagship stores do not receive priority listing on searches. In fact, according to a 2016 study by L2, only 12 per cent of first page Tmall search results were through the official Coach shop. The only luxury brands that controlled more than 80 per cent of first page search results were Ports 1961, Burberry, Tommy Hilfiger, Calvin Klein, and Tumi.

Key Takeaways

E-commerce is a high-growth sector, with online retail sales totaling US$581.61 billion in 2015, and it is estimated to grow 20 per cent annually by 2020. China is now the biggest online retail market in the world, and Chinese consumers make up almost half of all online sales globally.

Companies looking to take advantage of China’s market size and sell to Chinese consumers often mistakenly believe that e-commerce offers a shortcut to success. While a misconception, this idea is understandable. There are fewer licensing requirements to operate through e-commerce, and customs clearance is faster.

However, as has been demonstrated through high-profile store closures in 2016, e-commerce requires extensive pre-entry knowledge of current regulations, a realistic logistics plan, and a local marketing strategy. Those who enter the market blindly do so at the risk of expensive learning curves and wasted efforts.

• This article was first published on dezshira.com.  Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. For inquiries, email info@dezshira.com.