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Tag: Taobao

  • After Death of Thai King, Luxury Market Wavers

    After Death of Thai King, Luxury Market Wavers

    Following a decade of declining health, 88-year-old King Bhumibol Adulyadej of Thailand, the world’s then-longest-reigning monarch, passed away in Bangkok on October 13. The king’s untimely death concluded a reign that lasted more than seven decades and initiated a year-long period of mourning, bearing substantial consequences for the nation’s luxury and fashion sectors.

    As declared by Prime Minister Prayuth Chan-ocha, leader of the junta that has ruled the country since 2014 after seizing power through a bloodless coup d’état, civil servants will be expected to wear “sombre-coloured” attire for the duration of the mourning period, while the rest of the population has been ordered to “tone down” or cancel entertainment and “joyful events” for at least the next month.

    Though the first full week of mourning has yet to pass, the consequences are already being felt. “I think [the fashion and luxury sectors] are definitely going to suffer — there will be a drastic decline in consumers of fashion brands,” predicts Kullawit ‘Ford’ Laosuksri, editor-in-chief of Vogue Thailand. “For example, I have spoken to a distributor of Kate Spade and Valentino, and they said that they had to re-estimate their Spring/Summer orders … The tourist and retail sectors are going to see a decline in sales — that is something the whole nation is afraid of.”

    Indeed, many of these fears are justified. “Retailers and hotels cancelled all promotions and activities related to sales and events during October to November,” says Anisa Ngandee, an analyst from Euromonitor. “Generally, the last quarter is usually the peak tourism period and the months where retailers [see] festive spending [during the] holiday seasons; thus, it will have a short-term impact on the retailers and hotels sales.”

    Regarding his publication, Laosuksri says, “There’s nothing we can do for the November issue, [but] for December issue, we are definitely going to decrease the print run, [while] a lot of traditional advertisements will be — if not in black and white — condolence messages.”

    From a Western perspective, the extent of mourning may seem extreme, but King Bhumibol’s reign was unique. For most Thais, life under Bhumibol is all they have ever known. “I and all the Thai people view this passing of the king as something that is quite personal as if somebody from our family has passed,” says Laosuksri. King Bhumibol’s heir, Crown Prince Maha Vajiralongkorn, has delayed his ascension to join the Thai people in grieving for his father; however, the country’s general election will go ahead as planned in late 2017.

    In recent years, the Thai luxury market has shown tremendous promise, growing 8 percent year-on-year from 2015 to 2016, reaching a total value of nearly $1.6 billion, according to Euromonitor. This can partly be attributed in part to the country’s young, wealthy upper-middle class. According to Digital Luxury Group,a business intelligence firm headquarted in Geneva, 20.5 percent of consumers who earned $150,000 or more in 2014 fell into the 30-34 age bracket, while another 18.6 percent fell into the 35-39 bracket, giving luxury brands and retailers ample space to penetrate the Thai market.

    The tourist and retail sectors are going to see a decline in sales — that is something the whole nation is afraid of.

    Nevertheless, despite this wealthy domestic consumer base, tourism still plays a significant role in sales of luxury goods. According to Bain & Company’s 2015 Global Luxury Goods Report, “Thailand [is a] top performer [in the Southeast Asia market] thanks to Chinese flows with strong potential going forward.” Just two days before the death of the king, Thailand’s biggest retailer, Central Group, announced expectations of a 21 percent rise in revenue to 320 billion baht ($9.17 billion) for fiscal 2016; sales at Central stores to foreigners rose 15 percent while transactions with domestic consumers merely increased by 5 percent.

    Given the immediate decline in the domestic demand for luxury goods, the Thai government must now tighten their dependence on the tourism sector to offset regressions, as retailers scramble to compensate losses in sales. “[The fashion industry] is very much going to depend on tourism; therefore, I think the government will be trying their best to promote it … after the one-month period,” predicts Laosuksri.

    If Laosuksri’s forecasts are correct, the Thai government will need to amplify its current efforts to engage Chinese tourists. “Thai authorities are leveraging Mandarin websites and KOL (key opinion leader) representation in China to promote the destination,” says Thibaud Andre of Daxue Consulting, a market research firm based in China. “[They] are strongly pushing their domestic practitioners to be more educated on Chinese culture and basic Mandarin, as well as [to increase activity] on Chinese platforms such as Wechat, Weibo or Taobao.”

    Despite the negative image of Chinese tourists in Thailand and controversy surrounding the recent crackdowns on “zero-dollar” budget tours targeted at lower-income tourists from China earlier this month, according to the Siam Commercial Bank, the average daily expenditure per person amongst Chinese tourists has grown to 5,748 baht ($164.1) in 2015, from 4,425 baht ($126.4) five years prior. In terms of purchasing power, foreign shoppers, especially Chinese tourists, have become a cornerstone of the Thai luxury market.

    In data provided by Thailand’s Department of Tourism, from January to August of this year, approximately 6.6 million tourists from China visited Thailand — more than from Europe, the United States, Australia, Africa and the Middle East combined – with nearly two million arriving between January and February 2016 alone, an especially high-traffic period for the Lunar New Year.

    In the near future, Thailand’s luxury retail market may face several hurdles in sustaining recent growths in sales — particularly given the country’s strict lèse-majesté laws and the increasing risk of ultra-monarchist violence in the capital deterring inbound tourists from mainland China. “In the short term … we already lowered our expectations to 10.5 million visits for 2016 due to the mourning period,” says Andre. “Chinese agencies are already refunding their clients and tour operators are cancelling trips.”

    While the short-term forecast may seem turbulent, market analysts remain positive about the future. According to Ngandee, “In the long term, with the development of infrastructure, expected number of tourists are projected to be positive; [compounded with] the expansion of Thai middle-income population, industries are generally looking forward to more optimistic performances.” Nevertheless, Euromonitor suggests that stability still remains contingent upon next year’s government election.

    However, the country has shown resilience during previous political and social upheavals, and many Thai industry insiders like Laosuksri maintain a sense of hope in this period of uncertainty.

    “Euromonitor projects that more than 12 million incoming Chinese tourists at the end of 2020, [and] Thailand is expected to remain among the top destinations and might overtake the second hit destination [for outbound Chinese travellers] at the end forecast period,” assures Ngandee.

     

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  • Singapore Website Shutdown After Selling Fake Calvin Klein Products from Taobao

    Singapore Website Shutdown After Selling Fake Calvin Klein Products from Taobao

    Website SGbuy4u was found selling fake Calvin Klein goods after investigators successfully purchased imitation wallets and underwear from the website.

    Calvin Klein’s case against Singapore-based Global PSM marked the first reported suit that involved a summary judgment against a firm selling fake goods online in Singapore.

    Global PSM however, claimed that their business model was customer-to-customer service.

    2

    Users can search for and buy a variety of goods on the website and after a payment for an item has been made, Global PSM then passes on the order to Chinese shopping website Taobao. After the company has transferred payment, and the item has been delivered in China, it will then be shipped to the customer in Singapore.

    Calvin Klein filed cases and asked for summary judgment against Global PSM, freight forwarding company HS International and a Mr. Jeffrey Tan, the owner of the two firms, after two successful purchases.

    “The crux of the dispute lies in the proper characterization of the business and the involvement of each of the defendants in those business activities,” said Justice Chan Seng Onn was quoted as saying.

    Global PSM’s argument claimed that the company merely served as a courier, pointing the blame for the trademark breaches to original sellers on Taobao.

    Prosecution lawyers, however, countered that the SGbuy4u business does more than courier services as it collects payments, buys the fake goods on Taobao and has them delivered to their warehouse.

    While Justice Chan had expressed willingness to hold Global PSM accountable for trademark infringement, he ruled that some issues were needed to be clarified in relation to the involvement of the other defendants.

    “There is a pressing need for intellectual property law to keep up with technological advances in order to ensure that the law continues to protect intellectual property and rights owners in real and relevant ways,”the judge said.

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  • Coach Tmall flagship abandoned

    Coach Tmall flagship abandoned

    The official Coach Tmall flagship shop has been abandoned.

    Luxury bag brand Coach Inc says it will replace its shop on Alibaba Group Holding’s business-to-consumer sales site by selling directly through its own website and on its WeChat account, the social-media app run by Alibaba rival Tencent Holdings. Coach has offered coupons and launched a media campaign on WeChat.

    A Coach spokeswoman says the company wants to consolidate resources and will continue to look for innovative ways to leverage digital and social platforms.

    Alibaba says Coach products are still available on TMall from other merchants.

    Selling shoes, purses and accessories, Coach was one of the first US luxury brands to launch an official store on the TMall. It started with a temporary pop-up store from December 2011 to January 2012, opening a full store in 2015.

    Early this month, nearly a dozen trade groups wrote to Alibaba complaining that it was not doing enough to combat counterfeits. And the loss of Coach comes as Alibaba faces added scrutiny from a US trade agency as to whether it should be added to a list of marketplaces that are known for selling counterfeits.
    Alibaba’s Taobao consumer-to-consumer marketplace was on the list years ago, but was removed in 2012.

    Meanwhile, LVMH Moët Hennessy Louis Vuitton SE’s Guerlain has just opened a flagship store on TMall, and MakeUp Forever and Sephora, two other brands under the LVMH umbrella, also have TMall stores. Also, the cosmetics unit of Salvatore Ferragamo will launch its store later this month.

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  • Millennials driving force behind Taobao Marketplace

    Millennials driving force behind Taobao Marketplace

    Millennials are the driving force behind Taobao Marketplace, with more than 70 percent of buyers in their 20s and 30s, according to Chris Tung, chief marketing officer at Alibaba Group.

    “As users continue to engage with the platform in more meaningful ways, we are fostering next-generation consumption features, such as virtual reality, to transcend the overall user experience,” he said in a media statement during the Taobao Maker Festival held recently at the Shanghai World Expo Exhibition Center.

    The festival celebrates Taobao merchants by showcasing creative ideas and designs to the world, including gadgets, fashion and high-tech products. The festivities also include various performances by artists, music groups and celebrities from across Asia.

    Created in 2003 as an online shopping destination for Chinese consumers, Taobao Marketplace has evolved into an interactive lifestyle platform driven by a young consumer population who wants to do more than just shop.

    “It is a destination for innovators, entrepreneurs and creatives to showcase and experiment amongst a community of 423 million Chinese consumers on our China retail marketplaces that come to Mobile Taobao to explore, discover and be entertained,” explained Daniel Zhang, chief executive officer of Alibaba Group.

    In 2010, Alibaba Group launched the Mobile Taobao app to transition its flagship C2C shopping platform to more a interactive platform to explore opportunities in mobile commerce.

    Today, the Taobao platform supports millions of entrepreneurs across China with user engagement across e-commerce, digital media, travel, social and local services. On average , it has around 150 million daily active users on Mobile Taobao. Users launch the Taobao app an average of seven times per day and spend more than 20 minutes each day on the app. They browse an average of 19 products during a 24-hour period,

    Moreover, mobile Taobao users post more than 20 million reviews and comments every day.

    “We hope the Taobao Maker Festival will inspire young makers to continue innovating and reaching the world through the Taobao ecosystem,” Tung said.

  • Social Commerce blossoms on mobile Taobao

    Social Commerce blossoms on mobile Taobao

    On the way to becoming the world’s largest e-tailing market (US$590 billion in 2015), online shopping in China has become a highly social activity.

    Wary Chinese consumers don’t swallow advertising at face value and they don’t take vendors at their word – they check the internet for product reviews, swap links to favoured products and seek out third-party opinions, especially those of people they trust. According to a recent McKinsey report, two-thirds of China’s consumers cite recommendations from families and friends as the most important factor in purchasing decisions. In the US, only one out of three people say the same.

    In other words, in China, shopping is also sharing. So pronounced is this trend that Alibaba Group, owner of China’s largest online marketplaces, insists it’s not so much in the e-commerce business these days as it is in the social commerce business. And since more sharing equals more sales, the company is doing everything it can to make it easier for users to interact with one another when shopping online – going beyond offering the standard eCommerce fare of user-generated product recommendations and ratings by establishing online communities, encouraging shoppers to share photos of their latest online purchases and even adding monetary incentives to encourage greater social participation.

    The tip of the social-commerce spear is Mobile Taobao, Alibaba’s hugely popular mobile shopping app. With 369 million monthly active users, Mobile Taobao is “not only China’s, but the world’s largest social commerce platform,” according to Jiang Fan, who leads Mobile Taobao’s business at Alibaba.

    The app, which offers access to Alibaba shopping sites Taobao Marketplace, Tmall.com and Juhuasuan, generates up to 20 million product reviews every day, and involves 5 million users sharing content with friends. Users “like to share whatever they find- fun things, fun merchandise – with their friends through social media,” Jiang said last month during an investor conference at Alibaba headquarters in Hangzhou, China. “We don’t view ourselves [merely] as a shopping app,” he said. “Our community is not only about us serving the consumers, but consumers themselves helping each other.”

    To drive greater customer engagement, Mobile Taobao has been developing new social commerce features within the app. One such addition is the hosting of special interest groups calledquanzi(circles) where hobbyists and other like-minded individuals can talk about their pastimes and favourite products. Taobao says it now hosts more than 1000 circles covering interests such as wedding planning, fishing, infant care and many others.

    “We want to get people together to allow them to discuss and generate content that can serve more people,” said Zhang Jiehan, a Taobao product manager.

    Photo sharing is also a hit with users, said Jiang. “Every day after [mobile shoppers] complete their transactions they like to share what they’ve bought,” he said, “so we have a specific app for buyers to show off their products.” This feature currently generates about 1.5 million daily reviews, he added.

    One of the most popular social functions on Mobile Taobao is a Q&A feature called Wendajia (ask others) that lets shoppers with questions about a particular product get answers from members of the Taobao community. Wendajia helps free consumers from the drudgery of combing randomly through product reviews or resorting to asking sometimes biased and unhelpful vendors for answers. “The essence here is mutual assistance,” Zhang said. “The new feature builds a direct and effective communication channel between people who have purchased and people who want to purchase.”

    Crowdsourced Q&As have been around for a while, of course. But Wendajia is innovative in the way Taobao identifies and proactively reaches out to users who can provide feedback. When a buyer submits a question, Taobao employs big data and a sophisticated algorithm to spot members of the online community who are most likely qualified to answer the question, typically those who have recently purchased the product. After zeroing in on up to 12 potential candidates, the system then sends out messages to their smartphones soliciting responses.

    Wendajia has proven to be a boon to buyers because they don’t have to wait hours or days for fellow shoppers to stumble on their questions and provide answers. One-fourth of all questions are answered within one minute and 60 per cent of questions within 10 minutes, Jiang said.

    “This greatly optimises the pre-shopping decision process,” he said. Every day, it receives as many as 1 million questions, and 2 million consumers participated in answering.

    China’s widespread adoption of smartphones and the reach of the mobile internet has undoubtedly contributed to the growth of social commerce by making participation easy, ubiquitous and dynamic. Still, Mobile Taobao isn’t relying solely on user enthusiasm and social goodwill to foster greater user involvement.

    Last year, Alibaba rolled out a program to encourage bloggers, writers and noteworthy online expertsto post content on Mobile Taobao by paying them small sales commissions for product recommendations that lead to purchases. More recently, Taobao began offering similar incentives for the general public to encourage social participation.

    Through an upgrade to Taobao’s existing membership program, which previously awarded points only for online spending, users can earn additional points by posting product reviews and links, answering consumer questions and interacting with the Taobao community in other ways. While there are no cash awards, amassing points entitles users to benefits such as coupons for car-hailing app Didi Chuxing and service upgrades such as late check-out times at participating hotels.

    In social-media-crazed China, such perks may not be necessary. Just being part of the conversation seems to be enough to keep people involved. According to media research firm ComScore, the average Mobile Taobao user spends more than 25 minutes a day on the app, compared with Amazon Mobile’s nine minutes.

    As Taobao shopper Cici Wang notes, social-commerce features like Wendajia have value “because of the volunteer work offered by ordinary users, which makes it trustworthy.” Indeed, having armies of consumers keeping each other informed and vendors honest is seen as a positive development as e-commerce morphs into social commerce, says Zhang, the Taobao product manager. Digital word-of-mouth provides merchants with continuous feedback and compels them to maintain quality products and services.

    “In the long term, it drives healthy growth of the platform,” Zhang said.

  • The seven reasons for Alibaba’s success ; Alibaba’s development and framework

    The seven reasons for Alibaba’s success ; Alibaba’s development and framework

    Alibaba was initially founded in Jack Ma’s apartment in Hangzhou in 1999, before Alibaba.com was launched later that same year. In 2003, as the number of Internet users in China reached 80 million,[1] Taobao.com was launched as an online market. Shortly afterwards, both Alipay and Aliwangwang (instant messenger on Taobao) were launched to complete the purchasing process in Taobao. In 2007, the number of Internet users in China rose to 210 million[2] and Alimama was launched as an advertisement transaction platform. Taobao started to monetize that same year. Tmall was launched in 2008, as Alibaba ran both B2C and C2C platforms. In 2009, Alibaba Cloud computing was founded, illustrating Alibaba’s commitment to prioritize big data as part of its strategy. In 2010, the following three platforms were launched as part of Alibaba’s increasing focus on mobile payment: Juhuasuan (a platform for C2B); AliExpress (a global consumer marketplace) and Mobile Taobao App.

    Alibaba’s framework is based on the three following targets:

    1. Chinese customers: Taobao (online shopping destination), Tmall (brands and retail platform), Juhuasuan (group buying marketplace), 1688.com (Chinese wholesale marketplace).
    2. Customers abroad: AliExpress (global consumer marketplace), Alibaba.com (global wholesale marketplace).
    3. Support platforms: Alipay (online payment service); China smart logistic (logistic information system); Alimama (online marketing services); Alibaba cloud computing (platform for internal and third-party use).

     

    Screenshot 2016-07-19 09.20.09

    The three core factors that influence Alibaba are its Business model, Profit model and Credit model. In addition, there are four subsidiary factors namely considerate service, sensitive for business chance, new transaction patterns and completed system supporting Alibaba to gain its success.

    1. Alibaba’s unique business core to provide services mainly to small enterprises and individual defines a unique business opportunity which not only emancipates the productive forces of small enterprises but also offer much more diversified consumption choices for consumers.

    Alibaba’s service offer focuses on small enterprises. Whether we talk about 1688 – a B2B eCommerce platform specifically aimed at wholesale and procurement business – Taobao (including Tmall business shopping mall) – a B2C & C2C eCommerce platform gathering numbers of individual sellers – or YiDaTong (the largest Chinese professional import and export agent) which not only subsidizes small enterprises but also helps them accumulate credit through history data, all three of Alibaba’s core businesses mainly focus on providing services to small enterprises helping them create value which could not be accomplished by any of them individually (such as cost control). Additionally, the three core businesses represent a complete eCommerce ecosystem.

    The focus on small enterprises also leads to a phenomenon whereby a large variety of goods are available to a large variety of target consumer groups (age, profession, wealth, etc.) on the platform. In 2014, the Alibaba platform as a whole experienced a total transaction volume of 2.3bn CNY (close to 330 bn EURO).

    1. Alibaba’s profit model that Alibaba gets profits by charging services in marketing and technical supports rather than by charging admission fee contributes to a large and robust market share made up of loyal customers.

    Alibaba’s profits mainly come from advertisements and keyword bidding within platforms, which in total represents 57% of profits. The second most important source of profits is the variety of technical services based on big data of consumer behaviors, representing 25% of profits. One of the important reasons why Alibaba could beat eBay China can be found in their strive to cultivate the online transaction habit among Chinese customers by allowing sellers to register for free and by removing intermediate fees. EBay China, on the other hand, was in a rush to harvest the Chinese market by charging fees for all transactions completed on the platform. Taobao thus gathered a large number of sellers, thereby encouraging an even larger number of customers to purchase via the Taobao platform. Hence, Alibaba successfully developed a strong and loyal online customer base.

    Nowadays, the Alibaba platform represents more than 0.5bn registered users, among which there are more than 0.23bn active buyers and more than 8m active sellers. The Annual orders already exceed 11bn. [3]Thanks to the large number of customers on the platform, Alibaba can make use of advertisement, keyword bidding and customer’s data for profit. Advertisements on Taobao can generate thousands of clicks for a single brand; the bidding for keywords contributes to the higher ranking of brands in search results; technical services assist sellers in the management of their online store and relationship with customers through analysis of customers’ preferences and feedbacks.

    1. Alibaba’s accurate credit model, which builds a third-party payment platform as a bridge between consumers and e-stores to standardize payment process and to protect consumer’s rights, helps to develop a good and trustworthy reputation among customers.

     

    • All sellers on the eCommerce platform are requested to pass an online certification test to verify their identity information.

    Such certification ensures the supervision of sellers on the platform at all times and reduces the possibility of illegal transactions.

    • All transactions are recorded and can be traced back by both sellers and customers. Based on the records, Taobao set up a system to measure the degree of integrity of both actors.

    Such a system ensures that any fraudulent behavior is published for everybody to see and can lead to a significant loss in the number of future transactions because of the lack of the other party’s trust. The system protects the legitimacy of each transaction and helps customers chose more reliable sellers.

    • Alipay is an online payment platform, combining ease of use, safety and efficiency. Payments are first transferred to Alipay. Once the buyers have received their product and ensured they are not faulty, the payment is transferred to sellers from Alipay. If the product is faulty or does not meet the expectations of the buyer and returned, so is the payment.

    When eCommerce first appeared in China, the safety of online purchases was the most important problem that concerned customers. Alipay provides a reliable solution which has won the trust of Chinese customers. Because of its convenience, Taobao attracts more and more online shoppers. Nowadays, people can use Alipay to pay for any fees arising in their lives in general. Besides, Alipay allows customers to purchase goods on credit used in the current month and paid back the following month. Up to 2013, the number of users in Alipay approached 0.3bn while the number of transactions reached 900bn CNY (about 128bn EURO) and the active users of the Mobile terminal reached 0.1bn which exceeded the number of users on PayPal.

    • Online feedback is largely encouraged. The more comments a customer writes for products, the more discount coupons he receives.

    Word of mouth can strongly influence customer’s behavior, especially when all information concerning a particular product is more difficult to find. The large amount of comments can guide and encourage customers in their purchasing experience and help them pick out their preferred product, while reducing post-purchasing regrets.

    1. Alibaba’s considerate service offer provides a comfortable purchasing environment and a positive online customer experience leading to high user engagements.

    Based on the analysis of its large customer base, Alibaba always knows how to provide the most suited services for optimal customer satisfaction. It helps sellers to maintain positive interaction with buyers; it offers online business training for various stores; it introduced a special coding system to manage the large number of stores on the platform; it developed its own instant communication tool to improve seller-buyer communication exchange; it enables the reimbursement of any product ensuring payment return within the following seven days, and so on. Those support services help sellers grow their business while helping buyers to find their preferred products, thus generating more and more transactions.

    1. Alibaba excels at identifying and seizing unique business opportunities, thereby positioning itself as a leader and developing customer loyalty.

    In China, two festivals have a major impact on people all over the country: Spring Festival (the Chinese New Year) and ‘Double 11’ (a festival created by Taobao).

    The ‘Double 11’ festival falls on November 11th, just between Chinese National Day and Christmas when people would prefer physical in-store shopping (offline). Although most customers would typically be avoiding shopping during that period, Taobao developed a campaign encouraging consumption, so much so that the day became an actual shopping festival. On that day, various brands offer different discounts and even launch new products. Customers pick out their various preferred products and purchase them online on November 11th. In 2014, ‘Double 11’ generated over 1bn CNY in total trading volume for Tmall within the first three opening minutes. Within the first 14 minutes 2 seconds, volumes exceeded 5bn CNY. Total volume for the day reached 53bn CNY (approximately 7.6bn EURO)! In a single day, Taobao generated revenue of 1.5bn CNY and net profit of more than 0.5bn CNY (approximately 71m EURO).[4]

    The ‘Double 11’ day has successfully developed a new popular shopping event for the majority of customers in China. At such an event, the various Tmall sellers’ needs for advertisement and software services increase largely. Alibaba thus gains enormous profits from the event, while both sellers and buyers rely more on the open platform. Alibaba’s advantage in cloud computing also represents a valuable asset for the shopping festival.

    1. Always keeping an eye on customers’ evolving needs, Alibaba dares to challenge the traditional transaction patterns and explores new ways to create more value for customers.

    C2B transaction model: When customers are in particular predominance for a certain transaction, Alibaba deploys the C2B transaction model to reduce costs in the traditional supply chain and shortens the time required for product turnover, thereby increasing customer satisfaction. On the one hand, Alibaba gathers a large number of scattered customers who express the similar needs to form a powerful purchase group that can buy single products at a wholesale price. On the other hand, Alibaba takes advantage of its massive online customer behavior data to develop products suited to particular customer habits. For example, the analysis may show that customers based in south regions use their dryers more frequently on account of the wet weather and therefore need more resistant machines while other customers may not like vacuum cleaners which require the user to bend down when using it. In that case, Alibaba takes charge of 12 product lines in 12 brands and exerts total control over the production schedule to ensure the production of the selected products which are predicted to be in high demand within shortened production cycles. Lastly, Alibaba integrates the product the production with front-end sales to bring instant personalized products to customers. Within the single day of May 8th 2014, Tianmao sold 180,000 sets of the 12 products which equated the sales volume for a period of 3 months on the internet.

    O2O strategy: In Alibaba’s plan, customers can purchase a product by scanning two-dimensional codes and then receive products with another code which involves the interaction of the instruction and after-sales functions. Customers can also take part in various brand-run initiatives and receive targeted advertisements by scanning corresponding codes. In order to accelerate the plan execution, Alibaba is actively developing its expansion to mobile terminal areas – “Alipay Wallet” represents one such significant trial. “Alipay Wallet” not only provides different ways for payment such as code scan and direct cash-transfer, but also partners with different banks in order to provide an assistance service to customers for managing their many bills and coupons. Along with many other purchased Apps covering other domains including taxi services, maps, weather, music and travel, “Alipay Wallet” aims to transfer the content and activities of customers’ daily lives onto the O2O service.      

    1. Rather than positioning itself as a simple eCommerce company, Alibaba focuses on providing excellent service quality to both sellers and buyers, by introducing easier ways to do business for the former and developing a positive purchasing experience for the latter.

    In order to achieve its goal in terms of positioning, Alibaba keeps expanding its core business to many different domains such as advertising services, logistic network, financial services and mobile terminal services.

    1. Alimama: Alimama is an advertising platform which operates as Alibaba’s B2B system: owners of advertisement positions such as blog owners post the positions in Alimama and advertisers purchase their favorite positions according to their own criteria. Nowadays, Alimama focuses on three dimensions: Big Data, “Taobao Ke” (cost per sale mode) and the combination of video and mobile terminals. Through these dimensions, Alimama aims to help merchants find their specific target customers and help customers achieve their preferred products easily.
    2. Big Data: Besides the massive internet flow, transactions and database that Alimama represents, Ali also integrates comprehensive data resources that cover almost every aspect of customers’ daily lives through the acquisition of software companies in many other domains such as map, weather, taxi, music and travel. The accurate and diversified data can thus help advertisers select the most appropriate website advertising channels and reach customers effectively.
    3. “Taobao Ke” is a group of people dedicated to assisting merchants in the promotion of their products who receive a commission when a transaction is completed (cost per sale billing model). CPS is useful for eCommerce since people who successfully identify customers and convince them to complete a purchase are rewarded by commission.
    4. The combination of video and mobile terminal: In April 2014, Taobao bought 16.5% shares of China’s largest video site, intending to leverage the strengths of video in both PC and mobile to enable the interaction of an advertisement between the two terminals. When the audience watch advertisements during videos, Taobao will send the related information to the mobiles of people in the audience in various forms, including games and coupons to entice clicks from the audience.
    5. Ali micro finance: Ali micro finance mainly provides micro deposits and loans. It uses the data collected directly from the Ali platform: credit data and behavioral data. It translates the online customer behavior data into businesses and categorizes individual credit ratings by small enterprises according to their eligibility to apply for small loans from Ali micro finance (eg. small amount, short-term, momentarily borrow and return), as these small structures usually experience difficulty in obtaining loans in the traditional banking channels. Meanwhile, Ali’s small loan service also attaches great importance to the use of new technologies. It relies a lot on the cloud computing technology to determine whether there is a particular match between a certain buyer and a seller, whether they speculate credits, what rate the risk possibility stands at and so on. This not only ensures the safety and efficiency of the service but also reduces operating costs. In addition, the Internet makes it possible to provide a set of financial services, 24/7, 365 days a year, to large-scale small enterprises at the same time. This meets the major demand for capital resulting from the increasing number of small enterprises being founded in China.
    6. CSN (China Smart Network) project: CSN project was launched by Ali in collaboration with the four most influential logistics companies in China. Ali hopes to achieve the goal of enabling the delivery of products to buyers within 24 hours of ordering via the platform. Different logistic networks belonging to different logistic companies are integrated into forming the single most effective network in terms of parcel turnover for customer delivery. Different logistic companies focus and provide their expertise on specific portions within the network to maximize efficiency. Meanwhile, based on data analysis, Ali selects the most suitable logistic company for different portions of the network and allocates delivery businesses according to performance. As a consequence, logistic companies need to improve service quality and reduce costs, while ensuring continuous delivery. Moreover, customers can choose their favorite types of deliveries such as ‘fastest’, ‘cheapest’, ‘safest’ and ‘best service’ since the CSN can deploy the work capacities of the logistic companies.

     

    ALI’S FUTURE DEVELOPMENT

    Globalization

    In November 2014, Ali expanded its commercial transaction worldwide for the first time. Since that date, Ali’s global ecosystem consisting of its eCommerce platform, logistic network, cloud computing and big data has been developed further and communicated on publicly. On Tianmao International’s platform, Chinese customers can purchase goods of popular retail brands abroad directly and customers from other countries including Russia, Brazil, the US and Canada can also purchase products from China directly. Due to the reduced amount of procedures required in foreign trades without importers, Ali is able to transfer the profits from the importers to the merchants and thus cut down transaction costs. The CSN network represents a global coverage of countries to increase the convenience for parcel delivery to customers. For example, CSN developed a special supply chain in Russia allowing customers to receive products within 35 days. It also increases the cooperation with banks in other countries to improve the payment system.

    Besides the globalization of its eCommerce activities, Ali is also developing its finance business abroad. Recently, Ali has cooperated with Lending Club – the biggest online loan platform. The cooperation signifies that small American enterprises which get loans from Lending Club can now look for Chinese producers and supply sources on Alibaba’s platform.

    Taobao Village

    Focusing on eCommerce development in rural areas of China is one of Ali’s most important future strategies. In the same way that it always looks for business opportunities among small enterprises and individual customers, Ali fosters the online purchase forces in thousands of villages across China. Taobao village represents the village where active online shops reach more than 10% of local households and trading volume amounts to more than 10m CNY. The high concentration of online shops in these villages makes it possible to form an eCommerce chain made up of producers, suppliers, shops and logistics, thereby facilitating development and economies of scale. Moreover, Taobao village helps to address the problem of local unemployment (Taobao village brings about more than 280,000 jobs and the average income at Taobao village is 2.19 times higher than that found in normal villages); it contributes to the transfer of the environmental advantage into an economic advantage (since the natural and original product is welcomed by customers); and it helps to diminish the purchase gap between urban and rural areas. Up to December 2014, 211 Taobao villages were developed. Ali provides support through credit and loans, talent training and promotion.

    Develop more offers suited to more fields in customers’ daily lives

    Yulebao: An investment platform for television work with approximately 7% annual return on investment. Investors have the opportunities to meet with directors of various TV projects, take part in premieres, travel to the filming locations of certain TV programs, etc. The customer’s preference is better evaluated and will truly influence the Chinese entertainment trends. Besides, it helps high quality projects which do not necessarily have the matching high budget to get investment for production. Yulebao was launched in March 2014.

    Ali future hospital: In August 2014, Ali collaborated with a renowned hospital in Shanghai, installing Alipay to allow patients to complete their own registration process, payment and report-fetching online. Most importantly, Alipay is combined with medical insurance in order to deliver a fully automated service to customers.

    [1] The data comes from  Alibaba’s prospectus: https://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm

    [2] The data comes from  Alibaba’s prospectus: https://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm

    [3] The data comes from  Alibaba’s prospectus: https://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm

    [4] Data comes from “Le single day Chinois bat tous les records de ecommerce”:

    https://www.le-webmarketeur.com/2013/12/10/le-single-day-chinois-bat-tous-les-records-de-e-commerce/

     

    Author :

    Prof. Xavier Pavie

    Associate Academic Director, MSc in Management, ESSEC Business School

    Director of iMagination Center

     

    Yixuan Luo

    Master student at ESSEC Business School

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  • China online payments tightened

    Service providers and their millions of users are affected by a significant regulatory change to China online payments announced by the Chinese Central Bank.

    From July 1, third-party online payment service providers must ensure that all user accounts bear the real name of the account holder. In addition, accounts will be categorised into three types based on security requirements, capped with maximum annual payments.

    The policy was created with an aim of preventing large deposits of money into third-party payment accounts unprotected from bank deposit insurance.

    China’s third-party mobile payments market reached RMB9.31 trillion (US$1.4 trillion) last year, up 57.3 per cent from 2014. Analysts expect the industry will continue to grow at a fast rate in the coming years, reaching RMB52.11 trillion by 2018.
    Mobile payments have become a useful tool for companies in their China market strategy. The two largest third-party online payment platforms in China are Alipay and WeChat.

    Dominant player

    Dominating with roughly half of the market, Alipay is a subsidiary of Alibaba Holding Group, serving Alibaba’s B2B eCommerce network similar to how PayPal works with Amazon and eBay. Alipay co-operates with Visa and around 65 banks, including the Bank of China, China Construction Bank, the Agricultural Bank of China, and the Industrial and Commercial Bank of China.

    As well as being the primary payment method for Alibaba.com and Taobao, it serves more than 500,000 external merchants, covering online retail, gaming, communications, air tickets, commercial services and utility bill payments.

    Its international version, Alipay Global processes payments in RMB and automatically converts them to the merchant’s currency of choice. It supports 12 currencies, with exchange rates decided by either the Bank of China or China Construction Bank. Alipay Global’s transaction fee is 2 to 3 per cent.

    Account procedure

    To set up a service account with Alipay China, a company must first register an account, providing company information for verification. Once approved, an application can be made and a QR code issued.

    Applicants must provide a business licence, ID card information and public bank account details. If the applicant is not the company’s legal representative, a power of attorney must be provided.

    WeChat Payment was launched by Tencent Holdings in 2013. It is different to Alipay in that it serves as both a payment platform and an instant messaging service. It also differs from Tencent’s TenPay, which is similar to Alipay. WeChat Pay can be used to pay in stores, on websites, WeChat shops and third-party apps, with its payment procedure easier and for both customer and company alike.

    Paying through WeChat has revolutionised how retailers and customers interact, with a huge number of customers depending on its social media and instant messenger service.

    To set up a service account, a company first needs to apply for an official WeChat account, specifying reasons for the application and supplying the category or type of company.

    Applicants need to supply the full name of the contact person, phone number and email address; the website address of the company (not necessary for non-IT companies); full company name; description of the product; customer service number; and company bank account information.

    For non-financial entities such as Alibaba and Tencent to provide third-party online and mobile payment services in China, a payment business licence must first be obtained. Regulations stipulate that the business scope, qualifications and contribution ratio of foreign-invested institutions applying for the licence will be decided by the People’s Bank of China and State Council separately.

    Pile of documents

    Meanwhile, Apple Pay has entered the China market, partnering with China UnionPay and nearly 20 Chinese banks. In its first two days, more than three million bank cards were linked to its service, which uses Near-Field Communication (NFC) contactless payments as opposed to QR codes, which are used by Alipay and WeChat Pay.

    Apple Pay, along with Edenred and Sodexo, is among the few foreign-invested companies with a Chinese payment business licence.

    Applicants for the licence must be companies established in the China and must submit a pile of documents to a local branch of the People’s Bank of China – a written application specifying the name, domicile, registered capital and organisational structure of the applicant business, payment business being sought, a copy of the company’s business licence, articles of association, verification certification, financial and accounting reports audited by an accounting firm, feasibility study report, acceptance materials on anti-laundering measures, certification on technical safety testing and authentication, resumes of senior management personnel, certification that the applicant and senior management personnel are free of criminal records, relevant materials of major capital contributors, and an authenticity statement regarding the application materials.

    Entry into China’s lucrative third-party online payments can unlock huge market potential, but the requirements are strict and the application process and approval is by no means easy.

    In comparison, the process for obtaining an online payment QR code is relatively straightforward, but the recent restrictions imposed on payment account types and security checks might change both the way third-party online payment platforms work as well as consumer behaviour.

    • From China Briefing, published by Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and other ASEAN countries.
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  • Southeast Asian economies lure Alibaba

    Southeast Asian economies lure Alibaba

    Southeast Asian economies are reaching a stage similar to China’s at the end of the last decade, when eCommerce began to take off, according to Alibaba Group executive vice-chairman Joseph Tsai.

    “I don’t blame you guys for having some degree of excitement about Southeast Asia when you look at the economies here,” he has told a Singapore conference staged by Google and local sovereign wealth fund Temasek.

    For example, he said, the per-capita GDP of Indonesia, the world’s fourth most-populous country, was about $2900. “That’s roughly the same as China’s per-capita GDP in 2009 and into 2010, a period when Alibaba’s C2C marketplace Taobao began to soar, adding about $50 billion in gross merchandise volume.”

    This was one reason Alibaba had invested about $1 billion in Singapore-based Lazada Group last month. Launched in 2012, Lazada now has shopping websites in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. It began by selling inventory to customers from its own warehouses but now also runs marketplaces for third-party sellers, as well as using its own logistics networks for deliveries.

    “We’re very excited about our investment in Lazada,” Tsai said. “It is starting from a very small base, but the potential is very, very big.”

    By adding marketplaces in Southeast Asia, Alibaba can offer merchants already selling on its platforms a chance to sell into new markets. “It’s very, very helpful to be able to present something that is more of a geographically diverse platform,” Tsai said. Online healthcare and fintech companies such as Alibaba-affiliate Ant Financial, poised for rapid growth in China, could expand their services to Southeast Asia.

    Tsai said he sees promise in the wide use of the mobile internet in Southeast Asia, a trend that typically gives rise to greater engagement and more purchases by online shoppers.

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  • Alibaba fake fight targets Taobao vendors

    Alibaba fake fight targets Taobao vendors

    Alibaba is tightening the rules for traders selling luxury goods on its popular online platform Taobao.

    It’s one of several measures in the ramping up of the Alibaba fake fight, which is being conducted in conjunction with Washington, DC-based International AntiCounterfeiting Coalition (IACC).

    From May 20, vendors selling luxury products on taobao will have to upload an invoice or authorisation letter from the luxury brands, for examination by Taobao, as proof it has the rights to sell the products. Otherwise the goods will be removed from the website and Alibaba says payments received for such goods can be frozen.

    “To create a healthy shopping environment with a high level of integrity and to protect the legal interests of consumers and brand owners, Taobao is gearing up to regulate sales of luxury brands’ products,” the company said in a letter to traders on May 4.

    The letter coincides with reports that Chinese government agencies plan to clean up the eCommerce market, targeting counterfeit goods and trademark violations. A campaign will run from May through November with stiff penalties for offenders caught.

    Meanwhile, the IACC MarketSafe Program, an initiative started in 2013, is being opened up so that more brands and companies can participate. The MarketSafe program provides companies with an expedited process for working with Alibaba to target and take down online listings for counterfeit goods, reports Alibaba news site Alizila.

    Set to debut later this year, the expanded MarketSafe program will be free of charge to IACC members and non-members, according to Alibaba and the IACC. In addition, brands will no longer be required to provide evidence to support intellectual-property infringement complaints. The changes “will enable a greater number and diversity of rights holders to benefit from a fair, simple, and effective IP enforcement platform,” Alibaba said in a statement.

    Accused by some Western companies of not doing enough to keep listings for counterfeit products off its shopping websites, Alibaba has been trying to enlist greater industry support, arguing the problem is too pervasive and complex for any single company to fight on its own. The Chinese eCommerce giant has for several years been working with the IACC, which has members from a wide range of industries and includes brands such as Burberry, 21st Century Fox and Apple.

    Alibaba last month became the first e-commerce company to join the IACC as an official member. Its admission to membership prompted the walkout of Michael Kors and Kering-owned Gucci.

    IACC President Bob Barchiesi said the expansion of the MarketSafe program is the result of “significant contribution and commitment from both parties.”

    “Collaboration across industries is key to addressing the issue of counterfeiting at a broader level, and this is one of the first steps towards the IACC’s goal of creating a holistic model for tackling online counterfeiting around the world,” Barchiesi said.

    Since the MarketSafe program’s launch, nearly 5000 sellers’ storefronts have been closed and banned from Alibaba’s marketplaces, and more than 180,000 infringing product listings have been removed, even through a “limited number” of brands have been participating, according to Alibaba.

    “This program exemplifies the tangible and mutual success that can be achieved when brands, trade associations, governments and intermediaries work together to combat counterfeiting,” said Matthew Bassiur, VP and head of global IP enforcement at Alibaba Group, in a statement.

    “Alibaba and the IACC, together with the rest of industry, have a shared interest in building a safe and trusted internet environment and marketplace for consumers, rights holders, and sellers,” he added.

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  • China still driving Alibaba sales

    China still driving Alibaba sales

    In posting its strongest revenue growth for the past four quarters, Alibaba has rounded off its fiscal year on a positive note.

    Although growth at the international division picked up strongly, it is China that has underpinned the group’s success.

    Alibaba sales jumped 39 per cent to 24.2 billion yuan (US$3.7 billion) in the three months ended March. Net income rose 85 per cent to 5.3 billion yuan.

    Despite the more challenging economic headwinds in China, Alibaba’s revenue from its various retail platforms in the country surged by 41 per cent over the quarter. Part of this is down to the growing audience, with active buyers across the various marketplaces growing by 16 per cent to an astonishing 423 million customers. Mobile platforms also saw growth with the number of monthly active users rising by 17 per cent to just over 410 million.

    This uplift was boosted by the rise in average revenue per buyer which increased by almost 11 per cent over the same period in the prior year. For mobile users the increase was even sharper, up by just under 109 per cent on the prior year.

    Much of this success can be attributed to three main factors:

    The first is reach. Here, Alibaba’s investment is allowing it to reach large swathes of the Chinese population – including in rural areas through its Rural Taobao platform – in a way that other eCommerce firms struggle to do. That it now has a presence in over 14,000 rural villages is a major advantage when it comes to growing its user base.

    The second factor is customer engagement and understanding. While many of its platforms are based around eCommerce, they are much more than just distribution systems. Taobao, for example, has a strong community element where consumers can look for news, understand trends, and interact with brands. This helps to drive up activity and user engagement which, in turn, aids sales conversion.

    The third factor is the group’s continued success with Western brands expanding into China. Arguably Alibaba is now the Chinese partner of choice for foreign firms, both because of its distribution network and its capability in providing intelligence and insight into consumer trends and habits. This ability to attract Western brands has made Tmall the destination for many Chinese shoppers. It is notable that in March alone, more than 100 new international brands joined the Tmall Global platform.

    As successful as Alibaba is in China, it has found international more challenging. However, the group is now taking a more selective approach to expansion, focusing on embryonic or underdeveloped eCommerce markets where its expertise can drive growth. The stake acquired in Lazada, an eCommerce platform in Southeast Asia, is typical of this strategy. Expect more such investments over the coming year.

    Despite its dominance in China, Alibaba’s growth prospects remain good – especially as it builds its content and entertainment business, and expands into services like cloud computing.

  • K-beauty spreads worldwide

    K-beauty spreads worldwide

    The ‘K-beauty’ market is expanding its sphere of influence beyond Asia, and reaching out to other global markets.

    According to Aju News, a Korean newspaper, Korean cosmetics brands are exploring new markets worldwide. As the global interest in K-pop and K-dramas is rising, women all over the world are now looking at K-cosmetics.

    Amore Pacific has been eyeing the international market since the 1990s. After establishing factories in France and China, the company continued to expand its influence worldwide, with products now being sold in the U.S., Malaysia, Indonesia, Vietnam, Canada, Thailand, the Philippines, Singapore, Myanmar, and Japan, generating global sales of 1.26 trillion won.

    Able C&C’s cosmetics brand Missha is following the lead, spreading K-beauty all over the world. Missha stores can now be found in Brazil, Germany, Mexico, Venezuela, Turkey and Spain. The Brazilian market in particular is expected to generate strong sales growth, as reports show that the local cosmetics market is the fourth largest in the world.

    LG Household & Health Care’s The Face Shop is focusing on the Middle Eastern market, opening 55 stores in five countries – Jordan, Saudi Arabia, UAE, Oman and Armenia.

    Cosmetics brands are using a number of different marketing strategies to aggressively target overseas markets.

    In areas where natural ingredients and safety are important, such as Europe and the US, businesses are attracting customers with their ‘natural’ brands. Some brands promote elements of Korean tradition to attract western consumers. Many are ‘blending in’ with the locals through collaboration with local businesses.

    To boost overseas expansion, the Korea Trade Promotion Corporation (Kotra) is taking steps to boost sales of Korean cosmetics through American and Chinese online shopping sites.

    Kotra will host a ‘K-beauty summit’ to help Korean cosmetics brands export their products. The agency’s ‘online export incubating program’ will be introduced, and is expected to help businesses sell their products through Amazon.

    Kotra is also seeking to secure new trading opportunities in China in collaboration with the online shopping site TaoBao, operated by Chinese eCommerce behemoth Alibaba. The two parties plan to host a K-beauty expo in China during the first half of the year.

    Innisfree store in Shanghi

    The cooperation with TaoBao is only the start, as Kotra is also planning to work with other online shopping portals such as JD.com.

    Officials at Kotra emphasise the importance of making inroads in the American and Chinese markets to prolong the popularity of the K-beauty trend. They expect to draw the attention of young consumers who are sensitive to fashion and style trends and familiar with online shopping.

  • China $1.1T eCommerce Market On Horizon

    China $1.1T eCommerce Market On Horizon

    According to a recent report from Forrester, total eCommerce revenue for China, Japan, South Korea, India and Australia is projected to nearly double in the next five years, from $733 billion in 2014 to $1.4 trillion by 2020. That same report goes on to detail how these five Asian online economies have already outpaced the combined online retail markets in the U.S. and all of Western Europe, with China and India ranking as the two largest and fastest-growing markets worldwide.

    It goes on to point out that the Chinese market already surpassed that of the U.S. in 2015, and China remains the world’s largest eCommerce market, despite seeing its overall economic growth dip below 7 percent for the first time since 2009.

    “While the days of staggering year-over-year eCommerce growth in China are gone,” wrote Lily Varon, lead author of the Forrester report and analyst for eBusiness and channel strategy, “current growth rates are solid and more consistent with other mature markets in the region, like Japan and South Korea.”

    Varon also went on to project that China would continue to lead the region’s market growth, expanding to be nine times larger than Japan’s $122 billion market in 2020 and 17 times larger than South Korea’s $65 billion.

    India is also projected to see online sales expand by five times, fueled by a rapidly increasing number of online shoppers entering the market and per capita online spend continuing to increase. However, in the case of India, Varon noted that the country’s underdeveloped logistics, “challenging” connectivity, as well as a traditionally cash-based culture, would pose significant challenges to online retailers looking to grow the online India market.

    The Forrester report goes on to note an important and defining trend across the region: the dominance of Web-only retailers, such as Rakuten and Amazon in Japan; Taobao, Tmall and Jingdon in China; and Flipkart and Snapdeal in India.

    “Consumers have flocked to online pure-plays rather than their traditional retail counterparts,” Varon wrote. “In very few markets in the region do traditional retailers hold any dominant position or even come close to competing with the Web-only giants.”

    Having noted the significance of Web-only players, Varon shared that omnichannel functionality had not been as robust in Asian markets as it had in the U.S. or U.K. This, though, was starting to shift, as more traditional retailers start to make the move towards eCommerce in Asia. Australian retailers have been forced to play catch-up, with omnichannel offerings, such as click-and-collect, being adopted by global players, like TopShop and Zara, and helping to bring omnichannel services to the local market.

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  • China Jo-Jo finds gold online

    China Jo-Jo finds gold online

    While its physical stores and wholesale revenues slipped, pharmacy retailer China Jo-Jo Drugstores recorded an increase of about 96.7 per cent in its online revenues during the third quarter ended December 31.

    Through its own retail stores (59 in Zhejiang Province), wholesale distribution and online pharmacy, the New York-listed company is a leading provider of pharmaceutical and healthcare products in China.

    Overall, its revenues of about $24.7 million for the period were up 15.9 per cent. Its retail drugstores brought in $12.9 million, down 2.7 per cent, while its wholesale businesses netted about $3.1 million, a decrease of of 13.8 per cent. However, its online pharmacy revenue rose 96.7 per cent to total about $8.6 million.

    This gave the company a gross profit of about $4.8 million for the quarter, up 52.3 per cent on the previous year. The online profit soared 194.1 per cent to about $1.8 million, while its stores had a 20.3 per cent increase to about $2.8 million.

    Over the nine months of the financial year, revenue totalled $68.6 million, up 22 per cent, with gross profit up 56.1 per cent to about $13.2 million.

    Sales and marketing expenses grew by $1.1 million, or 50.5 per cent, mainly because of higher labour costs and service fees for its eCommerce platforms.

    “We are seeing improvements in gross margin from increased volume in our online business as our revenue mix continues to shift to our fast-growing online business,” says chairman/CEO Lei Liu, who predicts a strong quarter to end the fiscal year.

    “Investments and efforts in building critical mass to service China’s consumer needs in the pharmacy space is taking shape, creating new opportunities to diversify our revenue base.”

    Closer collaborations with large local pharmaceutical vendors are also providing cost advantages. Co-operation with business-to-consumer online vendors have expanded, with the company’s products listed on such platforms as Taobao, JD and www.yhd.com and customers being directed back to China Jo-Jo’s website.

    Meanwhile, the company continues to benefit from working with large insurance companies such as The People’s Insurance Company of China. Commercial health insurance in China continues to expand to supplement the nation’s social health insurance.

    Lei Liu says there is a “relentless call” for healthcare reform in China, including an end to hospitals dominating prescription sales. Meanwhile, China Jo-Jo has also seen its loyalty program expand to embrace more than 2 million customers.

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  • Louis Vuitton and Chinese dispute

    Louis Vuitton and Chinese dispute

    Luxury retailer Louis Vuitton is suing three individuals in China for selling counterfeit items on Alibaba’s online shopping outlet Taobao.

    Damages of 250,000 RMB ($37,900) are being sought by the LVMH-owned company, says a statement on a Beijing court’s website uploaded yesterday. It says the suits are against a person surnamed Liang and two with the surname Han, who were sentenced in 2014 for selling counterfeit Louis Vuitton clothing, shoes and handbags between 2011 and 2014.

    This move comes nine months after luxury conglomerate Kering pursued legal action over fakes on Alibaba’s platforms. The group sued Alibaba directly, filing the suit in the US rather than China.

    In 2013 LVMH signed a co-operation agreement with Taobao to fight fakes on its platforms. Under the agreement, Taobao agreed to proactively track down and remove listings of counterfeit LVMH items.

    Meanwhile, Alibaba has been working to defend its reputation. It hired a former counterfeit investigator from Apple in December as its new head of global intellectual property enforcement. This followed the American Apparel & Footwear Association calling on the US Trade Representative to add Alibaba back to its blacklist of “notorious markets” for fakes (it was removed in 2012). Alibaba has also hired extra staff to fight fakes and is releasing an English-language version of its intellectual property reporting system.

    The courts’ decisions on the Kering and Louis Vuitton lawsuits could have an impact on the way brands formulate their China anti-counterfeit strategy in the years to come, observes Jing Daily. Kering has challenges with its US lawsuit as the Bank of China has refused to comply with a subpoena to disclose information about counterfeiters’ bank accounts to the New York District Court. The bank is also appealing a $50,000-a-day fine imposed by the court, arguing that the order violates Chinese bank secrecy laws.

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  • Young, rich, e-savvy will transform Chinese economy

    Young, rich, e-savvy will transform Chinese economy

    China has been one of the world’s fastest-growing consumer markets in recent decades and there’s no sign that is going to change anytime soon, slowing economy or not, US management advisory firm Boston Consulting Group says in a new report.

    However, the profile of Chinese consumers and the products they buy will change over the coming five years, according to BCG’s report, The New China Playbook: Young, Affluent, E-savvy Consumers Will Fuel Growth, which predicts three trends to watch in the country’s consumer market through 2020: upward mobility, a new generation of consumers and the continued rise of eCommerce.

    BCG expects China’s upper middle class and affluent households to overtake the emerging middle class as the main drivers of consumption growth. At the same time, a younger generation of sophisticated consumers will rise in prominence, and eCommerce through online marketplaces such as Alibaba Group’s Taobao and Tmall.com will play an increasingly important role in the Chinese economy.

    “The growing role of richer, younger, Internet-savvy consumers will boost demand for different kinds of products purchased through different kinds of retail channels,” BCG said in the report. “Indeed, this emerging consumer class will transform the structure of China’s economy.”

    This transformation is already underway as Chinese consumers increasingly go online to make purchases via desktop computers and smartphones, according to BCG. In 2010, eCommerce made up just three per cent of total private consumption, but that number will reach 20 per cent five years from now, generating $1.6 trillion in sales. In the US, eCommerce accounted for 7.4 per cent of total consumption in the third quarter of this year, according to the US Department of Commerce. Also, within this category, 15 per cent of Chinese eCommerce transactions will be cross-border, another burgeoning sales channel as the Chinese government takes steps to make the import and export of goods via eCommerce easier for both consumers and retailers.

    The report, which was carried out in partnership with AliResearch, the research arm of Alibaba Group, arrives as investors across the globe watch growth targets for China’s gross domestic product decline in the face of decreased exports, once the backbone of the economy. But Chinese consumers are unfazed, BCG said.

    The consultancy predicted that even if China’s economic growth slows to 5.5 per cent – well below the 6.5 per cent target – the country’s consumer economy will expand by about half to $6.5 trillion by 2020 from $4.2 trillion now. The $2.3 trillion differential over those five years is still 1.3 times larger than Germany’s entire $1.8 trillion consumer market.

    Rising incomes will help to fuel that growth. The number of upper middle class and affluent households – those with more than $24,000 and $46,000 in annual disposable income, respectively – will double to 100 million by 2020, and they’ll account for 81 per cent of total consumption growth during that period.

    Increasing affluence will also help to push shopping trends in new directions and to new locales. Where consumer goods such as personal care products once dominated sales, the next five years will see the demand for services take over, especially in areas such as healthy foods, education and travel, BCG researchers wrote. Moreover, merchants that want to reach this growing demographic will have to move beyond major cities such as Beijing, Shanghai and Guangzhou. BCG said that about half of the 46 million new upper middle class and affluent households expected by 2020 will be located in fourth-tier cities or lower, or those outside China’s top 100 cities.

    eCommerce sites such as Taobao have made moves to capture this growth in services. The report pointed to Taobao’s lifestyle service channel, which had customers in 300 cities only six months after launch. And most of those customers were 35 or younger and they were making online arrangements for home-based services such as house cleaning, with as many as 2600 maids booked in a single day at one point.

    Omnichannel retailing, where consumers are driven from online promotions to offline services accessed via smartphones, will be another key area of growth, BCG said. eCommerce purchases made on mobile devices currently generate 51 per cent of all online sales in the country – well above the global average of 35 per cent. Mobile transactions will account for nearly three out of every four online purchases by 2020, BCG predicted, as Chinese consumers increasingly rely on the internet to obtain local services and purchase products, such as organic foods, that they can’t find in local brick-and-mortar stores.

    An ability to attract a younger demographic, those born in the 1980s, ’90s and the first decade of the 2000s, will increasingly spell success or failure for companies selling into China, BCG said. The country’s up-and-coming crop of college-educated shoppers under the age of 35 are sophisticated and brand conscious in ways the previous generation was not. Their consumption is growing at 14 per cent annually, double that of consumers over 35, and they spend more than their elders – as much as 40 per cent more in many product categories. By 2020, BCG said the young generation’s share of total consumption is projected to reach 53 per cent in 2020 from 45 per cent.

    Companies that wish to remain competitive in China – or those entering for the first time – will need to adjust their strategies to fit in with these shifting demographics, BCG said, as the days of ubiquitous and insatiable Chinese demand across all product categories are over.

    “Even though overall consumption will continue to boom in China over the medium term, targeting the wrong income segment, playing in the wrong categories, and being underrepresented in the fast-growing online channels will be a formula for slow growth,” the report said.

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