HONG KONG — For years, new entrants to the Chinese online market relied on Tmall to reach shoppers. After all, the Alibaba-owned marketplace is the leader by a wide margin in the online shopping game. Brands that set up official storefronts on the site can gain access to its users — who spent $463 billion there last year alone.
But breaking with the norm, Coach last month decided to close its store on the site, opting to set up shop on mobile app WeChat instead. One of the first Western brands to try Tmall back in 2011, the company abandoned the site in favor of joining Cartier, IWC, Montblanc and Longchamp on the Tencent-owned WeChat platform.
Other luxury brands, such as Dior and Bulgari, have dipped their toes in the WeChat commerce waters with limited-edition promotions. Both brands launched sales promotions on the platform in conjunction with the Qixi Festival, commonly known as Chinese Valentine’s day, back in August.
Dior offered a special customizable pink edition of its Lady Dior Small handbag for 28,000 yuan, or $4,210 at current exchange, for sale through WeChat. Though the promotion was intended to run for four days, all 200 models of the bag made available through WeChat sold out in the first 24 hours.
What is so attractive about WeChat? The super-app — used by over 700 million active users with the ability to do everything from book doctor’s appointments, flights and hail taxis to shopping — enjoys a stickiness and engagement rate that no pure shopping site can beat.
This is taking place against a larger backdrop of fast-rising mobile sales in China. Purchases on smartphones and other mobile devices accounted for 64.8 percent of the country’s online sales at the end of 2015, according to Analysys International Enfodesk. That compares to just 9 percent in 2013.
Since no other company controls so much of a Chinese mobile user’s time, WeChat has a huge in-built advantage. A McKinsey study released in April said that 31 percent of WeChat users surveyed had bought something on the platform, doubling over the previous year.
It also found that it is particularly good for impulse-driven purchases in apparel and personal care, making 25 to 30 percent of online spending in those categories.
Alibaba called the Coach closure a decision a “consideration to adjust its operational strategy. Our quality merchants on Tmall will continue to provide Coach products and services to consumers in China.”
Alibaba also pointed out its own mobile savviness citing “over 427 million mobile monthly active users. Mobile commerce now accounts 75 percent of our total GMV in the June quarter.”
But Wechat’s walled garden effect has instilled a “kind of trust we haven’t seen before in…e-commerce platforms in China,” according to Thomas Graziani cofounder of WalktheChat, an agency that helps companies set up their official WeChat accounts.
“If brands have a direct e-commerce platform that people can access via WeChat, it feels to the user as though they are not leaving WeChat, even if they are redirected to a third-party site, especially if they are able to use WeChat payments to purchase. This enables a high level of trust, because people trust WeChat,” Graziani said.
Alibaba, meanwhile, has been unable to shake its counterfeit goods problem. Nor does it have an immediate solution to parallel goods supplied through “daigou”. These agents purchase authentic goods overseas, bypassing the taxes on luxury products in China and offer a lower price than official channels.
Data from consultancy L2 shows that brands are not necessarily rewarded for setting up an official online storefront on the marketplace. A store that sells parallel or fake goods but has been operating for much longer on the site may rank higher, and often does. Just 12 percent of Tmall search results for Coach actually led back to the official Tmall store, L2 said.
“Official Tmall flagship stores receive no priority when an online shopper searches for a brand online,” L2 said. “Just a few of the luxury brands that have opened Tmall stores — Ports 1961, Burberry, Tommy Hilfiger — own more than 90 percent of search results for their brand name.”
At the same time, the fakes problem is serious enough that Gucci and Michael Kors quit the International Anticounterfeiting Coalition in protest when Alibaba was invited to join, complaining that the Chinese web giant had not done enough to fight counterfeits sold on its platform. Kering is still battling Alibaba in court over the issue of fakes.
Granted, grey market goods and fakes aren’t a problem only on Tmall but the entire Chinese world of e-commerce. Also, selling through WeChat may not be a strategy for every company, Graziani cautions, but is most effective for a big brand that has fans willing to follow it from platform to platform. Others argue that WeChat is seen more as a marketing tool rather than a true sales strategy.
“The Dior promotion was a success because Dior has a big enough name that they are able to draw many followers to a promotion through their social media,” Graziani explained. “Also it created a lot of buzz because it was the first one of its kind. I don’t think brands can expect that they will be able to do the same thing and have it automatically be a success.”
But WeChat’s growing appeal as a retail channel is what happens when a platform can make not just the consumers trust them, but brands too.