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China’s Tmall Making Fashion Play

The country's largest business-to-consumer e-commerce platform is aiming to become a major fashion player.

The Tmall homepage.

HANGZHOU, China — Tmall, China’s largest business-to-consumer e-commerce platform, is aiming to become a major fashion player.

This story first appeared in the June 25, 2012 issue of WWD.  Subscribe Today.

The site, part of Alibaba Group, stocks some 70,000 Chinese and international brands and sells everything from handbags to laptops. Some of the biggest foreign fashion and apparel brands on the platform include Adidas, Gap, Uniqlo, Ray-Ban and Levi’s. Tmall’s gross merchandise value exceeded 100 billion renminbi, or $15.71 billion, in 2011 and is expected to reach 200 billion renminbi by the end of this year, the company said.

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Alibaba is working to fine-tune the site’s image and differentiate it from another one of Alibaba’s key properties: Taobao, China’s answer to eBay. Alibaba spun off Tmall into a separate business last year but the site is still closely linked with Taobao and that presents a problem for some brands eyeing the platform.

While it’s highly credible with consumers, Taobao is notorious for selling fakes and gray-market products.

“We fully understand the concern, especially from foreign brands,” said Tmall president Daniel Zhang at an interview at Tmall’s headquarters in Hangzhou, a city outside of Shanghai. “When these brands want to launch an offline store, of course they want to know which shopping center is good and which location has the most traffic, but they also care about their neighborhood. I want them to know that Tmall is the ideal place for their e-business in China.”

Tmall guarantees up to five times the price of a product in compensation if customers find that they purchased fake items on the platform. In 2011, Taobao launched an online IPR infringement reporting system, allowing the owners of intellectual property to submit reports of copyright violations directly to the site. More than 63 million “suspicious and infringing product listings” were taken down last year, according to a company report from Taobao.

“We [Tmall] do not allow people to sell fake products or gray products,” Zhang said. “This is our basic baseline.”

Yet, the executive said Tmall can’t stop other vendors from selling authentic products at lower prices: “A lot of brands, they ask me about this,” he said. “My answer is, ‘That is your problem. It also happens in the street. Why people sell at lower prices is because they can still make money.’ So it is their [the brand’s] problem, not my problem. They need to review their sales policy.”

In another attempt to differentiate itself from Taobao, Tmall recently changed its Chinese name to Tian Mao, which in Chinese means “celestial cat,” to create a new image with trendy, fashion-forward merchandise and top service, the company said. (The site’s English name is still Tmall.) In March, Tmall staged a fashion show featuring brands such as Levi’s, Mango and Forever 21.

“All of these steps indicate we want to build an independent brand image for our B2C business,” said Zhang. “We need a designated online shopping landmark, which makes people understand if you want to buy a brand’s products or products with high quality and high services, then this will be Tmall. This is our purpose.”

E-commerce is exploding in China. New players, both foreign and domestic, are continually launching shopping platforms here. Brands, ranging from luxury to mass market, are working out strategies to sell their products on the internet. According to an April Boston Consulting Group study, online sales in China should triple to more than $360 billion between 2011 and 2015.

Tmall has a more than 50 percent share of the country’s business-to-consumer online retail market, according to a study from iResearch, a firm focusing on the Chinese Internet.

Waldemar Jap, a Hong Kong-based partner at Boston Consulting Group, said Tmall is a bit of a toss-up for brands looking to expand in China.

“A lot of [companies] are saying, ‘This is not where I want consumers to see my brand,’” he said of Tmall. “But on the other hand, they realize that Tmall and Taobao are dominating. If they want to get themselves in front of consumers, one of the best and most effective ways would be to set up a store on Tmall. If they have their own site on the Internet without anything on Tmall, they may still miss out on a lot of traffic.”

Waldemar said many companies launch stores on Tmall as a branding exercise rather than for commercial purposes. “Chances are that your product will be sold [by other merchants] at lower prices,” he said. “The branded companies don’t want to destroy their brand image by lowering prices too much, so they are selling at more or less the list price rather than discounted prices so they are not getting a lot of transactions.”

Torsten Stocker, Greater China partner at consulting firm Monitor Group, made a similar observation that points to a key challenge confronting Tmall. “Most brands, they look at it as more, ‘OK, this is maybe what we have to deal with, so let’s at least try,’” he said. “The other problem is that for all of its [Tmall’s] power and size, the average transaction is actually quite low.”

To celebrate its 70th anniversary, Coach opened a store on the site for a month at the end of 2011. A spokeswoman said the experience helped the brand get a better understanding of the “needs and preferences of China’s online shoppers,” adding that Coach plans to start its own e-commerce business in China sometime in the next 12 to 18 months.

Zhang said Tmall assisted Coach with targeted marketing to help it reach consumers who already spend on the platform. He said the company plans to do more of this in the future to help companies pinpoint consumers online willing to pay more for authentic products.

Karl McErlean, the head of the Asia-Pacific operations for G-III, an American company that manufactures clothing labels for Calvin Klein and Dockers, decided to use Tmall as an entry point into China for G-III’s in-house brand, Andrew Marc. The executive said overall he is satisfied with Andrew Marc’s performance on Tmall, but it has not been an easy process to learn how to effectively use the platform to market the brand and to generate sales.

“We were intoxicated by it, and thought we should give it a go,” McErlean said. The Tmall store is Andrew Marc’s first store on the Mainland.

McErlean outlined some of the challenges his brand has faced on Tmall. Marketing expenditures are high but necessary for generating traffic, he said. Initially G-III outsourced many operations of the Andrew Marc store to third parties on Tmall’s recommendation. Ultimately, the American company decided it was better to create its own in-house team to manage the online business.

“You have help, but you are largely left up to yourself,” McErlean said. “There are a lot of people asking for help, and sometimes the allocation of help is not particularly fair, and it depends on the relationships happening at the time. It is a very complicated organization within Tmall. It is tough. It is not easy, and it is not for the faint of heart. It is a jungle, and you have to be prepared to fight.”

The executive said a key to success on the site is taking part in promotions and group buys. He said Tmall required the brand to have a certain amount of inventory on hand as well as make a deposit for that amount of inventory to guarantee that it is actually there. Brands that have a high turnover during promotions have an easier time taking part in the next one, he said.

“You are taking a lot of risks,” he said.

Despite the challenges with setting up a store on Tmall, McErlean said Andrew Marc’s performance on the platform could lead to the brand having an independent e-commerce site as well as brick-and-mortar stores in the near future.

“They are just there. They are the biggest. They are the most successful. It has traffic. It has volume,” McErlean added. “So what can you do? If you are not in, you can’t win.”