For companies doing business in China, 2015 will likely be remembered for the collapse of the stock market and an overall slowing of the economy, which some economists say continues to impact business in other emerging markets as well as in the U.S. and Europe.
Amid the economic fallout, though, Chinese consumers continued to buy luxury goods, which included the use of cross-border, e-commerce platforms. Even with the slowdown, companies expect 2016 to perform better in China and Asia than in other markets.
For this year, companies and fashion brands looking to tap into the Chinese market may also need to consider cross-border payment systems, developing relevant social media campaigns and forming strategies to maximize sales to the Chinese tourist. Here, Brian Buchwald, cofounder and chief executive officer, and Andrew Roth, chief strategy officer, of consumer intelligence firm Bomoda discuss these and other trends shaping business in China.
WWD: For your part, what were some of the major changes in the Chinese luxury market in 2015?
Andrew Roth: While China certainly delivered its fair share of scares for the luxury market in 2015, Chinese consumer appetite for luxury products did not wane. Chinese consumers continued their preference for shopping at more advantageous international destinations, and on more advantageous platforms versus local, offline retail.
In addition to purchasing abroad in markets such as Tokyo and Paris, more and more Chinese consumers took advantage of increasingly abundant cross-border e-commerce platforms that are gaining momentum with global brands and retailers.
Brian Buchwald: Last year, the Chinese luxury market also saw a number of other key events, including luxury retail sales slumping in Hong Kong; Japan’s ascent as a top destination for the traveling retail tourist, given favorable currency exchange rates and hot-ticket brands; Beijing’s repeated slashing of import duties on luxury items as a means to spur domestic consumption; reactionary measures taken by luxury brands to offset slumping sales in mainland China by reducing prices, and, of course, Alibaba’s continued quest to fend off the oft-repeated naysayer claim of counterfeit products available through its core e-commerce platform.
WWD: Do you expect these changes to trigger shifts in the best practices for optimizing a brand’s social media assets in 2016. If yes, how?
A.R.: With economic uncertainties facing the Chinese economy and the increasing presence of the Chinese retail tourist as a major focal point for global brands, Western brands that do not adopt a clear, methodical and targeted approach to optimizing their digital presence in China will face an uphill battle against more forward-thinking and innovative companies.
That said, determining the appropriate platform by which a brand can target its audience remains cloudy. It’s far too simplistic for brands to view Weibo as the past, and WeChat the future; rather, each platform has its pros and cons for establishing fan engagement as well as building partnerships with key opinion leaders.
Most luxury brands have yet to optimize search platforms (such as Baidu), video channels (like Youku), or growing mobile platforms (such as Little Red Book). Only by defining who the target consumer is within the vast landscape, what she is buying, and where and why she is buying a product, can brands truly improve their digital presence and marketing spend.
WWD: Do you think new, cross-border payment systems disrupt traditional Chinese e-commerce platforms? That is, will Western brands adopt more Chinese-friendly payment systems as well as partner with new entrants in the market?
A.R.: Such payment systems will not necessarily “disrupt” traditional e-commerce platforms, but they will certainly help in their growth. According to recent estimates, the Chinese consumer’s appetite for online shopping is already forecast at a 50 percent increase from last year. It is not waning, in fact, it is spreading. According to Alipay, the number of China-based Alipay users that bought from U.S. retail sites over Thanksgiving, Black Friday and Cyber Monday increased 700 percent from last year.
As it relates to merchants, many international brands and retailers have been adopting Alipay, WeChat’s payment system, Union Pay, Borderfree, and other cross-border platforms to increase their presence in the space as well as to maintain exposure to consumer adoption of such payment methods.
WWD: From your perspective, which regions, brands and/or styles are best positioned for a breakout this year?
B.B.: Bomoda expects sustained growth in Japan as the market remains favorable and the local retailer continues to build out the red carpet and localized amenities. Physical U.S. retailers remain in a difficult position given the currency environment. However, as U.S. brands invest more in the online Haitao experience and Chinese consumers spend increasingly via Daigou [resellers], those labels developing the necessary on-ramps for the Haitao buyer should benefit from the trend.
For brands in Europe – thus far beneficiaries of the Chinese retail tourist in the past few years – it is a bit more wait-and-see. If terrorism and unrest continue to plague the continent, the high-end shopper will visit elsewhere. Yet based on a small sample size of data for end-of-year 2015, we did not see a major downturn outside of Paris from the tragedies of last November.
A.R.: Fast-fashion and high-street brands are particularly well positioned to benefit from the younger, tech-savvy, increasingly sophisticated, and somewhat more price-conscious fashion buyer. Zara and Uniqlo are two players right now gaining momentum with the core purchaser and we see that trend persisting.
WWD: Given these changes, do you expect brands to shift their focus to the outbound Chinese consumer from an exclusive focus on the domestic Chinese one?
B.B.: When we started Bomoda in early 2012, just over 60 percent of luxury purchases occurred outside of China. That number grew to 75 to 80 percent in 2015. At some point, the dam will break and brands will shift more investment and time into courting, capturing and remarketing to the traveling Chinese consumer. Some brands are already making that transition and experiencing hopeful consumer feedback.
Yet today, a common refrain of resistance by brands in meeting the Chinese consumer is where she is going (global), rather than where the brand would like her to be (local), is the lower profit margins surrounding the international traveler. That may be the reality in the short-term as the traveler searches for the best global price and is less likely to return as often to the same global location as she would be to a store down the street.
However, with a more holistic picture of its consumer, more integrated global marketing, and the appropriate CRM strategy, once that consumer transacts outside of China, the opportunity exists for brands to leverage such consumer intelligence to optimize its corporate strategy for more preferable profit margins and absolute sales results.