Two drivers of China’s counterfeit production

The counterfeits industry in China: a consequence of economic growth

The counterfeit industry in China is seen as a problem but it should also be studied as a symptom of economic growth. In 1978, Deng Xiaoping started reforming China’s economy. For the first time, foreign investments where encouraged. Many companies wanted to relocate there because of low wages and domestic potential. The industrial power grew and the country became the factory of the world as the the international production process. Global brands like Nike or Adidas have a part of a part of their production there. In many sectors, the country started to adopt new technologies.

While China’s living standards improved greatly, the new industrial power lead to counterfeits, as factories could cheaply re-create brand products. The counterfeit industry in China seems like a minor symptom of industrialization. Hence, even if it is necessary to tackle counterfeits, it was just the result of a growing Chinese industry.

China counterfeiting is linked with brand culture

Since the early 1990’s, the counterfeit phenomenon increased quickly in China. During this decade brand culture emerged as the opening of western luxury stores in country. Fashion brands became hyped, and counterfeits were a mean to obtain luxury goods without spending years’ worth wages. Since, fakes continue to progress fulfilling the domestic market of China.

In 2015, China and Hong-Kong represented 86% of the global counterfeit industry, which is around 400 billion USD every year, according to Europol. Thanks to years of relocating for foreign companies, Chinese factories now have the skills needed to copy almost everything. In Chinese stores, 60% of luxury goods are imitations and you can also find some complete fake stores who just looks like a real one. For instance, A fake supreme store opened in Shanghai. The counterfeit phenomenon highly increased following the luxury market starting in China.

Size of the market for counterfeit products in China

The global counterfeit trade for all items, from purses to electronics to software, is worth USD 461 billion, about 2.5% of all trade worldwide. That is more than the global drug trade. Despite attempts regulation, international trade in counterfeit goods has almost doubled since 2008.

According to the 2018 Global Brand Counterfeiting Report, worldwide losses suffered due to counterfeiting amounted to USD 323 billion in 2017, with handbag companies alone accounting for $20 billion of that.

80% of the world’s counterfeit goods come from China, and many of the market’s consumers are in China as well.

The market for fake goods in China

There are several distinct market segments of consumers who purchase fake goodsin China. The primary segment is buyers unaware that they are purchasing fake products. This deceptive counterfeiting is rampant, but the market for fake goods in China is largely driven by consumers who actively search for and purchase counterfeit products. 

Middle-class shoppers who value brand prestige make up a large segment of the non-deceptive counterfeit market. They can afford the occasional $500-$1000 bag, but not the luxurious $15,000 Louis Vuitton or Birkin. These aspirational Chinese shoppers purchase fake goods for the same reason the wealthy buy real products: to emulate their high-class idols, impress peers, and enhance social status. Fake goods allow shoppers to “consume” prestigious brands without actually buying the high-quality goods.

Some consumers knowingly buy counterfeit goods even though they could afford a genuine product. They have ample funds but believe that the high prices of authentic products are unwarranted, especially when they can get a similar version at a much cheaper price.

Chinese Fashionistas chasing the trends

Some wealthy buyers of counterfeit goods in China are known as “fashionistas.” These fashionistas want to buy the hottest new products, but know that another trend will replace it next season and are thus unwilling to invest the money to stay on trend season after season. Furthermore, they see counterfeit purchases as low risk, because limited-edition or recently released products are less familiar to the general public, making it more difficult to call out a fake.  

Buyers of counterfeit goods impose a hidden cost on the brand and people who buy the real thing: they make the brand less exclusive. All non-deceptive counterfeit market shoppers share one attribute: they are willing to pay for visual attributes and functions, but not willing to shop the genuine products. 

Government regulation of the fake market in China

Affected parties have previously complained that punishments for selling counterfeit goods in China are too light to deter offenders. In February 2017 Alibaba reported that of the 1,910 cases of suspected counterfeiting they passed on to authorities, only 129 people were found guilty.

In August 2018 the State Administration for Market Regulation stepped-up efforts to crack-down on the illegal production and sale of counterfeit goods in China.

The regulator announced strict punishments for online trading platforms that fail to protect the rights of consumers and trademark owners, or that do not actively cooperate with market regulatory authorities.

They demanded that other regulators such as the Shanghai Administration for Industry and Commerce launch targeted investigations into sales of counterfeit goods in China, and specifically called out offending platforms such as Pinduoduo.

The new China’s e-commerce law, which took effect on January 1^st, aims to discourage counterfeiting in China through heavier fines and places more responsibility on digital platforms to remove sellers of fake goods. The law also addressed false-advertising, consumer protection, data protection, and cybersecurity.

The new law targets three groups: e-commerce platform operators like Taobao, merchants who sell goods on sites like Taobao, and vendors with their own websites or who sell on social media. Merchants who sell exclusively on social media platforms had been previously unregulated, but now these sellers will need to register their businesses and pay relevant taxes.

In an effort to spur major e-commerce platforms to crack down on counterfeits being sold on their sites, the law makes platform operators jointly liable with the merchants selling fake goods. Previously, only the individual merchants were liable. Platform operators can now be fined up to 2 million RMB (USD 290,000) for the property infringement that comes with selling counterfeit goods in China.

E-commerce platforms crackdown on the sale of the counterfeit good industry in China

Taobao and fake goods

In 2015, Alibaba was the subject of intense state scrutiny as the State Administration of Industry and Commerce unveiled that only 37% of the luxury goods authorities examined on its Taobao platform were genuine. In a strongly worded white paper, state authorities criticized Taobao for lax internal controls, declaring that many of the products sold on the site were substandard, violated trademarks, or were just plain illegal. Chinese consumers agreed and called on the government to tighten supervision over Taobao. Alibaba declared a zero-tolerance policy towards counterfeits, and created a new 300-person team to ramp up the fight against fake good in the Chinese market.

Luxury brands were unimpressed, and in May 2015 Gucci, Balenciaga, YSL and other brands filed a lawsuit alleging that Alibaba’s negligence encouraged the sale of fake goods on its sites. A US federal court dismissed the suit, but Alibaba’s reputation as a haven for counterfeiters persisted.

In 2017, Alibaba was again under consumer and government pressure when Taobao was found to have over 240,000 vendors selling fake goods, up from 180,000 vendors the previous year. To assay consumer anger and protect investor relations, Taobao in mid-2017 launched an initiative to crack down on the fake goods being funneled through their site. That initiative has led to 95% of takedown requests and red-flagged listings being processed within 24 hours, a significant improvement in processing times. 97% of listings for counterfeit items are now deleted before transactions even take place.

How does Pinduoduo handle counterfeit items?

Pinduoduo, the third-largest e-commerce platform in China, is another site criticized for selling low-priced knockoffs. In August 2018 the State Administration for Market Regulation investigated Pinduoduo and announced that Pinduoduo should strengthen platform management and better regulate activities of third-party vendors. Pinduoduo soon removed more than 10 million fake items from its site and blocked more than 40 million product links suspected of copyright violations. It is working with over 400 luxury brands to fight counterfeiters and has created a hefty 150 million RMB account to refund consumers who were unwittingly sold fake products.  

How counterfeiters in China get around AI controls online

There are many intricate ways in which sellers of fake goods in China have evaded regulation online. One common trick is for sellers to redirects clients to separate websites, where they can browse options and place an order. Another method is to label items as “haute couture,” which consumers are aware implies ‘high-quality copy.’ Aside from this label, Taobao sellers can change the name of the brand they are copying, or display just part of it. One seller of copycat Zara clothes lists his items as ZA or Z*ra, which allows him to sneak past the filters set by Taobao.

Taobao’s AI tools are constantly upgrading to become more difficult to trick, especially with the introduction of filters against luxury products priced below a certain point. Accordingly, some sellers of fake goods will display a price for their product that is consistent with the price for the real thing, or display a price that is outrageously high. Interested customers will talk to the shop in Taobao’s private chat function, and sellers will reveal the real, much lower price.

In-person sales of counterfeit goods in Shanghai and Beijing

Counterfeit goods sold online in China work hard to avoid detection, but physical brick-and-mortar ‘fake markets’ in cities like Shanghai and Beijing are out in the open, easy to find and even reviewable on sites like Trip Advisor. Officials routinely inspect physical stores, but they may not take the job too seriously because they know local vendors rely on the income. Regulators let the stalls peddling cheap and fake goods slide, instead choosing to target merchants who lead interested buyers to unmarked apartments, back rooms, or closets full of high-quality fake Gucci, Prada, Michael Kors, and Louis Vuitton handbags.

Aside from avoiding government regulation, counterfeiters in China work hard to stay under the real company’s radar. One fake good peddler in Beijing explains: “We careful. Louis Vuitton. They send spies and they sue. So we hide.”

The emerging authentication industry in China

The prevalence of fake goods in China and consumers’ subsequent fears of being scammed into accidentally purchasing knockoffs has created a new sector: product authentication.

There are dozens of apps on the Chinese Apple iOS app store that offer to verify luxury goods. Authentication company Zhiduoshao has hundreds of thousands of users who pay 49 RMB for a product to be checked virtually by an expert. Founder and CEO of Zhiduoshao maintains that 95% of authentication requests can be answered online via photos. Authenticators tell users what kind of photos to upload, and then carefully inspect the monogram, fabric, and technique. Often, the process only takes a few minutes.

Similar app Isheyipai boasts an “expert jury” of 12 authenticators. Users upload photographs of the item in question and choose who they want to check their product. Prices range from 49 RMB for a junior authenticator to 99 RMB for senior staff. Appraisers each have areas of expertise, such as bags, jewelry, or shoes.

Private companies offer training courses that teach appraisers-in-training how to inspect a wide range of luxury brands and products, with advice about texture, logos, stitching and everything else that a counterfeiter might get wrong. A 10-day program can cost up to 40,000 RMB.

Authentication companies in China have an uneasy relationship with the brands whose integrity they claim to protect. Cartier maintains that their products should be bought only from “authorized sellers,” while Audemars Piguet states that it does not endorse any authentication app and De Beers says it is unaware of them.

Brand wariness of authentication services is rational because Chinese counterfeiters are now imitating these authenticators too. Seemingly authentic sites copy the names, website layouts, and imagery of established authentication platforms like Zhiduoshao in order to scam consumers seeking product verification out of their money. In one case, consumers discovered that an authentication app was faking reviews and authentications to sell knockoff goods.

How brands can fight back against Chinese counterfeiting

Anti-counterfeiting strategies must be brand specific to take into account the company’s target market, the types of counterfeits produced, and how the counterfeits are being manufactured, distributed, and sold. An effective strategy combines IP protection, export and customs controls, and retail market controls.

But no matter how sophisticated the anti-counterfeit strategy is, where there is a demand there will be a supply. The only surefire way to shrink the market for counterfeit products in China is to deter consumers from purchasing fake goods in the first place. However, typical deterrence strategies that luxury brands have used in the West will not work in the Chinese market.

Many consumers are aware that their purchases are counterfeit

Most consumers who purchase counterfeit products in China are well aware that the quality is not on par with the real product. When consumers buy fake goods, they do so despite the possibility that the product will fail them. Additionally, the prevalence of sophisticated fakes means that consumers can easily buy counterfeit products with nearly genuine quality. Thus, highlighting the poor performance quality of counterfeit goods is not an effective deterrence strategy for brands to adopt in China.

Where in other countries purchase of knockoff goods is a punishable crime, in China consumers are not liable for their counterfeit purchases. Deterrence of counterfeit purchases in China cannot then be fear-based.

There are two main deterrence strategies that luxury brands can adopt to dampen Chinese consumer demand for fake goods: the ethics emphasis, and the psychosocial emphasis.

Anti-counterfeiting in China: The ethical approach

Counterfeiting is not a victimless crime, and luxury brands should tell consumers who gets hurt when they buy fake products in China.

Most counterfeit goods in China are made in sweatshops by children and slave laborers who are often the victims of human trafficking. These sweatshops are overwhelmingly in low-tier Chinese cities, and these child workers are often Chinese, making the issue hit particularly close to home for Chinese consumers of knock-offs.

The Chinese counterfeit industry’s use of child labor is much more damaging than the use of child labor by companies like Walmart and Target. Corporations can beare held accountable for exploiting cheap labor: when labor abuses are exposed, companies face plummeting share prices, lawsuits, and customer boycotts. Counterfeiters face no such risk, because consumers of knock-off goods do not know who manufacturers their handbags or sneakers.

Brands can educate against counterfeiting practices in China

Additionally, brands can educate Chinese consumers about the criminals who benefit when a shopper buys a counterfeit good. Production and distribution of counterfeit goods are heavily controlled by ultraviolent Chinese triads, who traffic in narcotics and sex slavery alongside fake products.

Consumer awareness of the hidden costs associated with their counterfeit purchase can create shame and guilt that might deter some Chinese consumers from buying knock-off goods.

Anti-counterfeiting in China: The psychosocial approach

In the West, there is a shame that comes when one admits to buying counterfeit products, and luxury brands should work hard to foster that stigma in China. For some people, the regular purchase of fake goods is a normal part of life: many Chinese consumers who own fake goods assume that the luxury brands sported by their peers are fake as well.

In 2018 the Japan Patent Office launched an anti-counterfeiting campaign that revolved around embarrassing consumers who buy knock-off products.

It is too early to see the results of Japan’s shame-based anti-counterfeit strategy, but the premise is solid. Luxury brands effected by Chinese counterfeiting could emulate the approach, and work to create a social stigma against knock-offs.

Across the board, the most effective strategies to deter Chinese consumers from buying counterfeit products are shame-based.

Who is benefiting from the counterfeits industry in China?

China is responsible for more than 70% of counterfeiting according to the World Customs Organization. Where all the money from this industry is going? Alain Rodier, in his book: The Triads: the hidden threat, indicates that the counterfeiting is linked with Chinese triads. They are using the money received from counterfeiting to invest in other illegal activities. However, the money can also be legally re-injected into the country. Alain Rodier argues that criminal money is largely reinvested in the country’s legal economy: “As far as the Chinese triads are concerned, they would have a worldwide turnover of 200 billion dollars. Much of this money is reinvested in the legal economy”. For instance, the Sun Yee On triad would have largely participated in the development of Shenzen. Even though triads and other organizations directly benefit of counterfeiting, it can be noted that this money is sometimes reinvested in the legal economy.

Rethinking the fashion industry

One way of tackle the fake industry is to completely change the opinion of people concerning clothing. Trends should focus more on quality than brands. Fast fashion might also be a big issue in consumption because of its impact on the environment. If the fashion industry evolves to its simplest form, people would not be sensitive to brand image. Without the importance of brand image, there is no demand for counterfeit luxury goods anymore. Naomie Klein with its book “no logo” lead this movement in the end of the 1990s. One way to wipe out counterfeits is to educate people to consume goods differently, without being obsessed with brands.

To conclude, the counterfeit industry is a direct consequence of the industrial growth in the country combined with the value placed on brand image. It is difficult to tackle this gigantic phenomenon generating billions each year. You have both to address the production and the consumption of counterfeit goods. The counterfeit goods industry is injuring companies because it negatively impacts their brand image, consumers who are genuinely interested in the luxury products may lose faith that what they are buying is authentic.

What brands can do to avoid intermixing with counterfeits in China

For luxury brands to avoid being sold alongside counterfeits, brands can try a brand independence, or direct to consumers strategy in China. Counterfeits are sold easily on e-commerce platforms, but selling from a brand’s own website, or brand.com, is a surefire way to avoid competing with counterfeits and keep a pure brand image.

Authors: Alison Bogy & Enzio Cacciotto

Daxue Consulting helps you get the best of the Chinese market. Do not hesitate to reach out to our project managers at dx@daxueconsulting.com to get all answers to your questions.

Luxury brands in China do not have to compete with counterfeits

Download our brand independence in China report to learn more about direct-to-consumer marketing in China

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

This article Behind the counterfeit product industry in China is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Hello everyone. This is China Paradigm, where we, Daxue Consulting interview season entrepreneurs in China.

Matthieu David: Hello everyone. I’m Matthieu David, the founder of Daxue Consulting and its podcast, China Paradigm. Today, I am with Guillaume Sergent. He is French. You are the founder of Ailion Golf. I was asking you how to pronounce it. It’s a very good name. I really like it because I think it gives both a sense of elegance and something like flying. I don’t know if it is the influence of French in this word. With power and also easy to translate in terms of pronunciation for Chinese and we are at China Paradigm, you are based in Shanghai and that’s why I am insisting on the Chinese perception. You started a business in 2015 first in France and then you developed in China and my sense is that it took off and you dedicated more time to your business when you arrived in China because at the time, you found suppliers, you found people to work with and today, you focus more about the brand that is focusing on golf apparel in China. So, it’s about golf apparel in China including jackets; maybe more and you are going to tell us if it’s more. Some numbers about China’s golf industry. You are selling in China and in France. I would say to France because I believe it is more on the website in France and more offline in China’s golf industry. So, the growth market in China; a few numbers and a few dates. In ’93 there were no golf courses in China. Not a single one. The country had opened to the world nine years before and still, there were no golf courses, no China’s golf industry. The first one opened in 1983. It’s said that we have about 1.2 million players in China. France would be 2% of the population, but for China, it’s still pretty niche. Golf is associated with success, to wealthy people and used only 1.4% of the worldwide golf in China compared to 45% in the US. So, if you compare the room for growth, it is huge. It may be a bit mistaken to compare it this way, but still, we are at a ratio which is ten times less. So, we can imagine that it is going to improve. It is a conception. You use golf to show off. You use golf to show you are successful, but yet it is not something that the government wants to show. So, officials are not allowed to join golf clubs (learn more about the golf ban in China). So, it’s sort of a paradox in China as always and golf is represented as one of these that we are presenting as a paradox. Thanks for being with us. It is a long intro because I’d like you to say a few words about China’s golf industry. So, what about Ailion? Can you tell us more about what you do and about the size of the company?

Guillaume Sergent: Yes, thank you so much. A great introduction. I really like first how you explained the business and the golf and the paradox of China’s golf industry. It is exactly like this here. So, about Ailion, I would like to come back to the name. As you guessed, Ailion in French it is a mix of two words. Eagle is that is called “aigle” in French and “lion” which is the lion. So, it’s two words that are combined and we try to make it easy for everyone around the world to pronounce the name of our French golf brand in China. So, that’s the name, and as you pronounce you can say, Ailion, “Ileon”. It depends on the nationality of the consumer. Then about our DNA, I would say we are a fashion lifestyle brand inspired by a golf-like style. The idea about our French golf brand in China at the beginning was, “I’m a golfer” and when I play golf in France, it’s in the middle of my normal day which is the morning I could go to the driving range and I could have a meeting. So, I don’t want to change my clothes and still look elegant and comfortable. So, it was really the beginning of the idea to create a brand, especially pants which are our aero products. Then about our size. We are still a start-up so, we are basically less than 5 people working and we have partnerships here in China and in France, we are just using consultancy. We have Sonny Anderson who is a former football player who played for Barcelona. In the past in France, we sponsor a lot of big events which are the oldest prom in France; 25 years existing with more than 400 players and also the biggest growth charity in France which has helped to increase our brand awareness. In China’s golf industry, we developed our partnership with golf clubs and as you said, we try to mix offline and online shops because as a new French golf brand in China, people need to touch and to see our real product.

Matthieu David: So, you gave a sense of the size of the team. Would you mind sharing the number of clients, number of SKUs, revenue; a bit of a sense of where you are in terms of development. Still recent captains, fifteen or let’s say sixteen. So, it is still as you say a start-up. If you can share any number that would help people listening to us to understand where you are in your development?

Guillaume Sergent: Yes, so at the beginning, we started just by one product because it was just a crazy idea to give to all golfers and also like normal guys like you, for example, to be able to wear pants that is elegant and you can play golf or even ride a bike without having to be wearing sportswear. So, we started just by one product and then, with the success of this product we decided to have more SKU’s and so now we are around 20 SKU’s, but we are not thinking about in terms of SKU’s because now, since a few months by chance, the retail mindset changed a lot and the fashion mindset changed a lot and this is something that we tried to improve which is sustainable predictions. Start producing tons of SKU’s which just makes no sense for everyone and not even for the customers, but even also, for the world. So, we have like reasonable SKU’s with products that you can wear like Diva Life and also then the outdoor activities.  In terms of revenue, we are around 10 000 revenue which is still like the beginning and we are still looking for the second investing time. So, during this special time because as you know, with the Covid-19 it is really special. We try to induce more change with this business model of making on order which we have started to think about before the crisis. So, we will see because, to be honest, this time we are facing a big change.

Matthieu David: Yeah, we are recording on the 18th or 19th of March, 2020. No, it is 20 March 2020 and the crisis seems to be averted in China, but still, it’s recovering. Retail is not I think entirely open, but it’s on the track of being 90% open and it’s in Europe and the west that difficulties are appearing (learn more about China’s Covid-19 recovery). I’d like to talk about the product. What is interesting in the start-up and especially when we are in China is how do you create your first product? I don’t think you have the background of the fashion industry, or as a designer or in finding a clothing manufacturer in China and I think that is a question people have. Where do you start? What do you start with? I listened to one video and you said you found a clothing manufacturer in China at the campus and you saw people shooting and you were asking these people what they were shooting and then they connected you to a producer, but more largely, how do you find a clothing manufacturer in China? How do you manage it and how many can you produce for a start because that’s also an issue you mentioned;  all the factories you have met initially were asking for a huge amount of production. So, if you could give a sense to the people who are listening to us on how you deal with low orders, finding factories you can trust; knowing that you can trust the and there is one more thing is that you are mentioning that you have an innovation with your croquet which can clean golf balls. That is also something that could be interesting. How do you establish innovation? Is it all by yourself? Is it with the factory? So, about the product generally speaking, how do you develop it and how do you produce?

Guillaume Sergent: Okay, so first I had the idea a really long time ago. It was funny; maybe more than 10 years. I even don’t think about launching a company or a product. Just, I realized when I was playing golf and you know when you are playing golf, the only moment you can catch and bring your ball and clean it is when you are on the green and as a golfer, I am really picky with my style and I don’t want to dirty my red pants and so it was really annoyed and in France, we don’t have caddies as they have in China. My type was really far away. It took me really long to think of how to clean my ball and finally, the gamers behind us wanted to play and my friend says, “Hey, we have to play now.” I missed my shot. I was really, really angry and I felt like, “Oh, why?” Why couldn’t we have accessories to help us focus on the stroke? So, I started to have a look on the internet and I just found really just weird things; accessories that you could put on your pocket, which was really not convenient. So, I started to think, “Okay, why we never wrote golf pants?” I mean a golf brand pants itself because it is super expensive, first and then you will not wear it a long time or for example, in the beginning, I was playing golf and I would say, “Oh, I want to buy one pant I will wear like what; 3 or 5 times a year.” So, I think about, “Okay, what about creating a product that you can wear like for your everyday life and also, which could be really easy and comfortable for golf” and then about the accessories about the pocket, we said, “Okay, golfers like to have excuses if they are badly made shorts. So, in the beginning, we thought about just a towel you can plug on all the pants, but most of the time people are not warming up and I was sure they will give the excuse about this accessory. So, we started to think about what about integrating this pocket on our own products. So, we did research. I just did it by myself. I’m just a fashion addict and I’m a golfer, so I just know what I don’t like and if when I swing, I feel discomfort, I say, “Okay no, I don’t pull the pocket on this way. I just use a zipper and not a button.” So, we just iterate a few bends. During this time, I was in Paris.

Matthieu David: So, the first prototype – we talked about a prototype earlier – so, you created it yourself, right?

Guillaume Sergent: Yes. I created it myself.

Matthieu David: So, when you had to find a clothing manufacturer in Chinayou would be able to already show a product?

Guillaume Sergent: Yes, definitely. Before that, of course, I designed it on paper, but then to make it, I hired some designers to just make it.

Matthieu David: How did you find a designer?

Guillaume Sergent: One of my best friends created a company; a professional company and they gave me the first advice of, “Okay, hire a designer.” So, then I just contacted a fashion school which is plenty of designers and they are all looking for experience. So, I met the woman and she did a good job. I gave it to her and we think of how to plug all the details; the feet of the pants. I gave it to her. They are not my favorite pants and said, “Okay, I want it like this fit and it has to be like this; the button” and all the details and so we built it together.

Matthieu David: I see. Which fashion school did you contact? I try to be as specific as possible.

Guillaume Sergent: It’s the classic one; ESMOD.

Matthieu David: ESMOD is in Paris and they have also a school in Beijing. I believe there is an investment from China? The founders are both in China.

Guillaume Sergent: So, I was able to draw, but I was not able to make it. By the way. I choose my own fabric that I really like and then, the same as I had the advice from my friend to hire the designer. I started looking for good fabric and so then I went to an exhibition in Paris to find the proper fabric which I had a really high expectation because during my marketing research I just showed really sporty pants or really fashionable pants. I want to give my customers something really in between, but if you are wearing golf apparel in China; the purpose was, “Okay, you need to be able to wear it with a jacket and with a tie.” It was really tough at the beginning to say, “Okay we need elastin, but not too much because if you put too much elastin you can guess, it is like really sports trousers. So, finally, I found in Switzerland has a very famous manufacturer which is Solo, which used to supply Nike and so on. So, it was pretty expensive, but it was real and it is still the best one. The first words from my customers when they try the pants are, “Oh my god. It is so comfortable. You didn’t lie.” I say, “I know.”

Matthieu David: We’re talking about the fabric? 

Guillaume Sergent: Yes, the fabric of the pants. So, then I did one prototype with the final fabric and to have the exact shape. Also, the number of meters and seeing like manufacturers. So basically, at the beginning as you said, I was in France and at this exhibition, I met some manufacturers, but they asked about ten thousand or like a thousand pieces. So, I was like, “No, I don’t want that. I want around a hundred pieces.” So then, by chance, I moved to China and I followed my wife. She was relocating here. So, I was thinking., “Okay let’s go and see China. It is really known about manufacturing and so I am sure we will find a manufacturer.”

Matthieu David: For the prototype; by the time you had a designer, the designer is doing drawings. I understand you found the fabric. I understand that you created your own prototype yourself, but if you want to go beyond the prototype and to have something comfortable which fits people you need to work with someone who knows how to produce those pants. Who did you work with to produce the prototype? Was it in a small shop? Was it with a small designer who was also able to produce a prototype? Was it yourself?

Guillaume Sergent: No, no, no it was the designer. Me, I provided the drawings and then we worked together about the fit, and then she stitched with the fabric I bought in Paris and we said, “Okay, here you have like too many fabrics. Here we need to add some blabla.” So, we did it like this. At the beginning towards like almost the final prototype which is not really final, but which fitted and then, which was the most important thing which is we did the final drawing on Lectla which is a software you could print the drawing and make the pants through the drawing and you just cut the fabric with the drawing.

Matthieu David: How do you spell Lectla?

Guillaume Sergent: L-E-C-T-L-A.

Matthieu David: Very interesting. So, you have this software that helps you to communicate with manufacturers and with people who produce easily with these standards.

Guillaume Sergent: I will add, ‘supposed’ to talk with the manufacturer. Why suppose? Because in Europe they are using this software and I came into China and so as you said, I found-

Matthieu David: So, we go back to China now?

Guillaume Sergent: Yeah, so those women who are just photo shooting for a fashion brand; they look like say westerners, but they are French. So, it was funny, easy and we started to talk and they gave their contacts to me about their manufacturers which were really small. So, able to make small quantities. So, I was super happy to find a clothing manufacturer in China. So, I met this woman who was managing the smaller manufacturer, and then that’s probably how it started. Why; because they didn’t have like traffic here in China. They are not using this software. So, it was like I had something, but we couldn’t print and we started because China is really strong to make garments. So, we talked together and they were doing fashion in small quantities and so they introduced to me their suppliers. So, when I met her, I came with my software drawing and I say, “Okay I have everything. So, let’s try to make some samples.” Unfortunately, I discovered in China electro was really not used. So, I did just by a copy at the beginning and what I did… 

Matthieu David: You gave the product to them?

Guillaume Sergent: Yeah just my size to be able to wear it, to see and to test them, but at least you really need to have all the software because the software gives you all the sizes. The idea of our product was to be like not tailor-made, but half tailor-made. So, we did the gradation which is like we are using American sizes for our golf apparel in China. So, from 30-40 with the lengths of the legs. So, we need to print these. It was quite tough and finally, by chance, I found the contact of Electra in Shanghai who printed for me the drawings of our golf apparel in China. So, then I could give my small manufacturers the drawings and they could cut my fabric and make the first batch. 

Matthieu David: So, at that time it was a prototype. How much money did it involve? Did you need to pay them for consulting for the time spent with you or what are we talking about? Is it something that they were willing to waste time on before you produce more?

Guillaume Sergent: You have to pay to put it up then they deduct the price when you get your order. The kind of money to make this kind of prototype; because you need to run around and buy fabric and also your time, but at least it is around 5 000 Euro, at least.

Matthieu David: 5 000 Euro for the prototype and the fabric and so on?

Guillaume Sergent: Yeah because you buy the fabric and you are buying small quantities and the small quantities mean it’s more expensive and then you hire the designer to have the drawings. Yeah so, maybe I add more than ten prototypes in my wardrobe that we are not using at all because at the beginning we had these that they made the prototype but on the wrong side of the fabric. Our fabric is waterproof and so on so, that was inside. 

Matthieu David: I see.

Guillaume Sergent: You can guess. You couldn’t have just 3 meters of the fabric. You need at least 10 meters of fabric.

Matthieu David: And then you produce about 100 units? Is that correct?

Guillaume Sergent: Exactly.

Matthieu David: So, we talked about the product. I understand now how you started and I understand the key differences and the unique proposition of the product. Let’s talk about marketing (learn how to achieve your marketing goals in China). You said that you do offline marketing in China’s golf industry and online marketing as far as I understand; online sales with France. Could you tell us more about how you connect clients with your French golf brand in China? In some interviews before you said it’s a lot of connections, it’s a lot of contacts; building clubs, golf clubs, going to shops as well to add your products. Would you mind elaborating more on that?

Guillaume Sergent: Yes, so first what is really interesting is to remember our agents. Four years ago, all of WeChat, Weibo, and KOL (learn more about KOL marketing in China) was not so strong in China. It was really the beginning and now, the game has changed completely. So, at that time you didn’t have so many and so many groups like this. I even don’t know if TikTok was still existing? So, you couldn’t have any chance to promote your product like this, which is the case now for two years, I would say. In France, we realized and when I started a project there, I met golfers and for me, it was the best way to help people to know the brand because we are not known at all and you have so many brands, so many competitors. Everyone is not just a golf brand, but just fashion brands. So, the big thing was, “Okay, how a French guy could sell a product without speaking Chinese in China’s golf industry.” So, I talked with friends who of course were playing golf a lot. I started to meet golf directors and so on and we decided to follow the same strategy as we did in France, which is sponsoring golf events in the golf courses to promote our golf apparels in China. We met our customers and we helped them to know the French golf brand in China and know me, even play with me golf and also, what I learned in China and all the advice I got from people like you who are living there for a while said, “Okay, you should promote yourself” and at the beginning, to be honest, it is a bit tough to promote yourself and sell yourself because you are not the brand and I am not famous. So, it was more about the product. So, that’s the strategy we tried to have; sponsor different golf tournaments and help people to know about our French golf brand in China, know about our value proposition and start this and also, what is fabulous with China is you talk (learn about the importance of networking in China) with people and if they like the product they say, “Okay let’s go.” We started it just like this throughout some shops and throughout some pants and said, “Okay, why not? We try it and that’s it.” It failed. It worked on others. So, it was quite like fun to see how these things go fast in China compared to France.  

Matthieu David: One thing I’d like to go back on is you talked about sponsorship. What kind of sponsorship are we talking about? Is it about moderating an event? Is it about giving some products for free? Is it paying for your logos to be somewhere? I believe that is maybe something you may spare for a later time because that may be costly, especially for golf because golf is where wealthy people go so it should be an expensive place to do advertising and to show your products. Would you mind sharing more about what a sponsor can be when you start your business in China’s golf industry?

Guillaume Sergent: True. So, as we did that at the beginning it was, we tried to pay and give money because people want money, but hopefully, we are a brand so in all golf competitions they are looking for gifts. So, in the beginning, we started like this; providing products like caps and for the winners some pants, some Polo shirts and so on. Then also, a chance at how to promote a brand was to organize by ourselves or with other companies and so as I developed a good network in the golf club, I started to meet some others in the industry of hospitality, fashion, retail, as F&B to say, “Okay, I am a French golf brand in China. We are organizing or we are trying to organize some competitions. So, what do you think about joining us?” You could meet like the final customers which are really tough in China to meet them and to meet us. So, also with the French government, we organize a big and huge competition at the Sushant Golf Course in France. So, the idea was the gathering of the French community, the French style on the competition and all the golfers of course really, really loved it. So, this is the first part of it and then of course as you mentioned, you need to give free gifts and free products to influencers and this is the part that is tough because you give some products to teachers, you give products to people who have good networks, but then you need to push a marketing plan to be involved and when you are starting a fashion business, marketing is really key. Of course, for us, it was our weakness because as you mentioned, my background is a bit funny. I did a business school and so I was really bad at marketing. So, I hired some consultants and we improved that, but then it was also after that, the next step to build brand awareness; a brand story because at the beginning it was a product story. So, that was really key and really expensive also and of course, we did mistakes. I guess this is a start-up life. 

Matthieu David: I see. It is interesting to look into sponsorship at this time because when you look at luxury brands, some took off with strong sponsorship and we are talking about one that is very famous, which is Louis Vuitton (learn more about Louis Vuitton in China). It took off in the US by sponsoring the American Cup and being very present at this competition. That made a difference and we know with horse riding which is sponsoring races; it is also actually a key component of luxury events or gatherings where you have sponsors and myself; my first company was a gift box company and I sponsored as well. There was a question: What is the return on the sponsor in China’s golf industry? It is not clear. WeChat now with the fact that people can write articles on you and sell it themselves after the product gets commissioned. I feel that it’s getting more and more trackable, which is I think the good news for the future.  How do you get an ambassador? You have an ambassador which is I think pretty famous.  I am not good at football (learn more about the football industry in China). I am not good at sports, but he seems quite famous. How do you get him to work with you? He is called Sonny Anderson, right?

Guillaume Sergent: Yes, exactly. It’s a funny story. Because of China, it is funny. So, as you know, we have a lot of WeChat groups here and a friend said, “Oh, my cousin is working in the sports industry and we want to know about the sports industry in China.” It was funny. It was three years ago and almost no one was there and I remember all the comments were, “Oh wow, why is your cousin now coming on this time that no one is there?” Instead, I say, “Me, I am interested and blabla.” So, I was available and I said, “Oh, I want to meet you.” We connected through WeChat. We got a drink and we talked about his business, my business and I said, “Okay” it was already like 6 to 8 months I was doing business in China’s golf industry and I was looking for more things in France and I know France is really important for them to have like luxury and so we started to talk and he was really involved in football which is really famous in France and I just asked, “Do you know any famous people playing golf?” He told me about, “Yeah I know Sonny Anderson.”  I was like, “Oh my god. Are you kidding me” and it was funny because he was one of my idols when he played in Europe and France? So, I was surprised and said, “Okay maybe I would like to meet him or to be in contact with him.” In fact, I learned by the past that he was the best friend of his daughter. He gave me the contact of the daughter and we started talking. It was really interesting and then we got phone calls and I have to say, he is really amazing. He’s really kind, really mindful and we made it through there in France and we started and he helped to develop a business in France, introduced me to some good relationships of him and we started like this, but he liked the product, again and he wanted to also involve himself in start-up’s and so that’s why I think he came into the project.

Matthieu David: Has he invested in the company? Has he done within the company or you… what do you give to him? Is it purely kindness or truly help?

Guillaume Sergent: No, of course. We ‘ve got a contract. He didn’t put money, but he is wearing and advertising us on his social network and we try to develop networks with people inside his network, but for now, he did not invest.

Matthieu David: You said in one article that you have a partnership with CTrip (learn about the possible secondary listing of the company in Hong Kong) and I interviewed another entrepreneur and she is in the travel business. So, it’s more understandable that she is partnering with CTrip and one of the questions we had is, how come CTrip which is a huge company is partnering with the small companies, start-ups who have just started? How do you enter it? How do you contact that? If I am correct. You said that you have some partnership and contact with CTrip, right?

Guillaume Sergent: So, it was funny. During trade golf once, I saw on the golf course, a CTrip event which was organized by the Citroen golf branch. So, I talked with a woman and I said, “Oh, I have French golf brand in China. I would like to sponsor one of your events. Could you introduce me to your boss?” She said yes. So, we had a couple of meetings with them and we sponsored one of the events in the Chi Chong golf course. It was purely random and it’s just because I was playing golf during an event and as I know, every time you organize a competition, you are looking for sponsors so it was a good opportunity and again, they liked the product. They liked the cap very much and it was like this.

Matthieu David: The learning I get from the talk today so far, is that it is important to be present at events, to connect, to be openminded and even to connect with online players like CTrip because actually, they go to the event, they connect as well and here you have your opportunities. Do you agree with that? Is it the way you see immerging your business to be active in the communities, to be present, and to engage with people?

Guillaume Sergent: Yeah, I completely agree. Even big companies need to have new projects, new products and they need to innovate. So, they don’t care if you are a start-up or not and even I think what is funny is just you have to pretend that you are bit bigger than who you are and what you have to be careful of is, don’t pretend you are bigger than who you are, but just be able to deliver good products or I don’t know; good things. Good training, good whatever and even big companies would be happy to have an innovation or to provide innovation to their customers. What they provided in this competition was a unique brand, a unique French golf brand in China and after that event, it was really funny because we started to see some Chinese golfers with my cap with my logo and it was fun because my friends sometimes send me pictures of those  Chinese guys wearing my caps and they were like, “Oh my gosh. They are starting to wear your brand.” So again, I think as you say, the most important is what is the risk to just try to talk to someone except a no? So, it’s really my mindset about that in China’s golf industry.

Matthieu David: What I feel and correct me if I am wrong, but the fact to be a foreigner in China actually is opening you up some doors. It is clearly closing some doors to some settle that you cannot join, but it’s also making you so different, so unique in an event that you can get access. You can get into contact with people and people will not dare not to answer. We are not there not to help you a little bit. So actually, opportunities happen as well by your own identity as a unique identity. Do you agree with my conclusion?

Guillaume Sergent: Yeah completely. I think they are curious and they want to know, they want to learn and again as you say, of course, we can’t access from a certain circle until you are speaking Chinese until you are speaking full about their habits and so on. So, for me, this is the best thing that I would like to bring back the day I come back to Europe is to be open-minded and full. Just listen to people and you don’t care about this Chinese, this American.

Matthieu David: And I feel it’s not happening necessarily in the rest of the world not necessarily in Europe. You are seen as an outsider.  You are seen as someone we don’t want in a lot of circles in Europe, but in China, when you are on this site, we are very different. We want to know why you are here, what do you do? You are a foreigner in a country where it is difficult to make business when you are a foreigner. You are on the golf course and you are a foreigner. What are you doing here? You are creating some curiosity. I’d like to talk about marketing which is more like offline marketing with people. I went to your website because I like technology and we do a lot of research with tech. I understand that you are using Shopify, you use Google Analytics and Facebook Pixel as well. So, you do a bit of online marketing to the west, I believe otherwise you wouldn’t use Facebook Pixel on Google Analytics. So, what do you to create traffic on the website? Do you do anything? I didn’t see anything for the newsletter I believe you have, but I didn’t see a Mail Chimp or anything. Could you tell us more about what kind of technology you use?

Guillaume Sergent: So, we’ve got two strategies. First, for China and another one for Europe because after a few months ere, we tried to use the same marketing and communications tools (learn more about what marketers in Europe can learn from China), but it didn’t work at all. So, for China, we are using Weibo and WeChat and articles not promoting at all almost our product.

Matthieu David: Sorry to interrupt, but do you sell on WeChat because you cannot sell on Weibo, but you can sell on WeChat. Are you selling on WeChat? You don’t sell on Tmall, Tao Bao, but you decided to sell on WeChat?

Guillaume Sergent: Yes, exactly. So, we are using this offline and for now, we are still thinking of how to provide a new program that would be different so we need to think of how and that is really important.

Matthieu David: Why would you need a new program, if I may ask? Is it to add a layer of engagement to other mini-programs?  

Guillaume Sergent: I think it could be more about if you are reading a new program it is more about the experience and how we can give something different because again, we sold a lot of mini-programs, but for me, they are just like embed something or just like embed and/or the classic process and you didn’t have any purpose on this so, again I don’t like to do something like everyone else does because you have to do it. Be different because if you are not different people will give up the mini-program and so on. So, it is more we attract people to be different and do like different content which is creative with China. For Europe, we used to have a light newsletter and we are using a lot of Instagram and Facebook and we are also using our KOL’s a lot because we have got also golf teachers now and they are promoting themselves and help us to promote the brand and also, of course, Sonny Anderson.

Matthieu David: How do you help them because helping; I believe there is something like a relationship with them?

Guillaume Sergent: Yes, we give them some products for free.

Matthieu David: Alright so it does not commission on what they help you to sell? It’s a few products for them for free and if you find out that they are very active, you would continue to sell them products.

Guillaume Sergent: Exactly it is more about steps and if they are able to introduce us to some business. We can talk about the next steps, but until they are, we are just like this, but to be honest, at the beginning we thought about this business model just engage teachers to sell our product, but it didn’t work because teachers are teachers. They are not sellers. So, it was interesting because at the beginning we really thought about this.

Matthieu David: I found out that we always think that people are rational economist people and if you tell them that they will get 30% commission on it, they would sell and they would think to sell, but actually they would do a better job if you actually get them involved in building the product, getting feedback, offering for free or thanking them on Facebook or Weibo or WeChat and soon; getting them involved, getting them visibility and also, thank them actually for most people who could help. That’s good enough and they are not looking for an additional business to make it as a business. That is maybe the mistake of business people or entrepreneurs who always think rationally about relationships. You said that you do Instagram and you are using also Shopify as a tool for your website. For people who don’t know about it, when you create a shop online in the west, you have a few choices with Shopify and it is certainly one that is growing faster. You could use Woo Commerce with Word Press, you could use PrestaShop which is very fresh and you can use Shopify which is Canadian and is doing like 40 billion, I think USD now. It’s is growing fast. 14 or 20 billion to open your own shop, not like Amazon where you would actually be on the marketplace competing directly with people. So, when you need to create a brand, Shopify is a very smart solution. Could you tell us more about your experience with Shopify?

Guillaume Sergent: So first, in the beginning, I started to use Word Press and Woo Commerce because it was just a landing page, but it was too basic and really not appropriate for e-commerce from my point of view. Then we switched from Shopify because PrestaShop is great, but at the beginning of a start-up I will never recommend it and all the consultants I met said, “Okay, you can have PrestaShop, but it’s like give it to you and you just get your license.” So, don’t go and don’t invest in something that you will not use as it has to be used. So first, I did like Shopify and you can make something really, really nice and really friendly. So, that’s why we pick Shopify.

Matthieu David: The comment you just said is also usually what people say about Magento which was built by E-bay which is a very heavy solution and people have the same comment as you said for PrestaShop. You need to start low key. You need to start with a few sales. You don’t want to build a gas factory when actually, you need a small shop to start. 

Guillaume Sergent: Exactly, so then also, I was really inspired by China for making Shopify wide because in China, you buy in maximum and all the solutions we got in Europe was really too slow, but I tried to find a way to make it really short because again, we didn’t realize how European and French people are not really internet friendly, especially when you are in the golf industry which is more on budget. We say 40 or a bit like 30 people, but most of them are between 45 – 65 years old. So, they are not really open-minded and even they are going more on the internet, they don’t know how to buy it. So, we think about that and we try to make something really smooth and simple, actually. In three clicks you can buy it. For me, it was really the most important thing with Shopify and again, we just have really good feedback about our website.  I guess we did it well.

Matthieu David: saw by looking at your website and inspected your website in code, you are using Facebook Pixel. What do you do with Facebook Pixel? Are you retargeting people going to your website through Facebook and Instagram? Are you doing a custom audience? Are you doing look-alike? What do you do with Facebook and does it work?

Guillaume Sergent: Customer audience. It works. We have more and more traffic and we have more and more sales. So, Facebook is not really a complicated tool. It is really useful. I am not managing this on my own. I have a consultant doing it for me. Again, what I learn and what we learn is it takes time. So, you have to be patient to build and to know more your target and to learn your audience because you make tests actually with Facebook and they change a lot or really frequently the tool and you have to try to say, “Okay I pick up someone who is following this kind of brand from this part of the world; Europe, France” and then sometimes you don’t know why your agents are increasing or sometimes it didn’t work. So, we did some tests and sometimes the tests were really good and some were really bad for two reasons from my point of view is just again, in Europe they have more and more advertising, more and more processes so with the new LGBD policy in France it was a bit complicated at that time to target it and to know and people don’t want to get bored about advertising and also because you are a new brand, you need to investigate some ways. So, until that, it was really up and down and now starting to be more stable.

Matthieu David: So, first of all, you need to test on Facebook, but I understand as well that Facebook is a bit working like the brain itself. The more data it has, the more it would be able to target actually your custom audience with the Facebook Pixel helping. So, that takes time because it needs to learn who likes your post? Who is spending time on your post? Who is going on your website from Facebook and so on? So indeed, that’s not like Google where you pay and you get immediate traffic. That is something that takes time. It is so true. It takes time. About funding; you talked about funding in some articles and interviews in the press. Have you gotten any funding and what is your view on getting funding in the fashion industry? I am especially asking that about the fashion industry because fashion seems like something that people want to start because they like it themselves and not necessarily because there is a business behind it, not necessarily because there is a rationale behind it. So, I think the investment industry is less mature in this segment because a lot about the likes and the fun to start a fashion brand. Could you share a bit of your view on that?

Guillaume Sergent: Yeah, it’s even if I can say, irrational because as you say, fashion is kind of a dream. It is like for me to have a sports club and you see all these billionaires are buying football clubs and it’s funny how it’s the same comparison. People want to have their own brand to sell, “It is my brand.” So first is we go to smaller investing as I say, family and friend investors and then we got another investor from the fashion industry and so that’s the product and that’s how we started.

Matthieu David: In France, right?

Guillaume Sergent: No, no in China.

Matthieu David: At the time you were in France?

Guillaume Sergent: No, no at the time we were in China, but it was a French investor.

Matthieu David: Okay.

Guillaume Sergent: So, then I think again about funding that was a key point at the beginning. Involve people who are concerned about you or the industry and not just about money because at the beginning if you are involving people who are not committed to the industry, they will put too much pressure on your business and on you and you don’t need pressure. You already have so much pressure as an entrepreneur. So, that’s the thing and then also, the business model is crazy. We are talking now about the crisis and everything, but if I can, I just have feedback and a reminder that since 6 months, now people are more aware of how to change the fashion business, but before that, when you talked about a new model or producing by orders and everything; people were laughing at you. So even investors, when you present this kind of model, were really skeptical about that. So, it was and it is about finding how you will make your plan first, and then you have to adapt your speech regarding the steps you are funding. So, at the beginning like family and friends, it is easy then. You need to have a plan about how you will settle the brand and so on and then the other steps for a bigger investment are more of what is your new value proposition about fashion because I will not say it is easy to make T-shirts, but almost, you know? If you have a bit of money tomorrow, you can start. I am sure you will have followers and people, but how you can be sustainable and why people will buy our T-shirts more than mine or more than picking other kinds of shirts? It’s more about that. It is a complete process about how to promote your projects and find a good investor for good funding. So, that’s a bit crazy and be aware of me, if I can say that advice; like how you choose the funds and it is really important when you have funders to make some setup’s really clear meeting about who you are, what you want to do, what is the target because fashion is crazy and it can change in one click. So, just be aware of that.

Matthieu David: Thanks for your time. It is one hour already. It goes fast, as you can see. I hope everyone is doing fine, who is listening to us. Stay safe everyone. We are still in the middle of a crisis in the world and thanks for listening to everyone. Thanks for joining us.

Guillaume Sergent: Thank you, Matthieu.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article China Paradigm transcript #96: The reality of brand building in China’s golf industry is the first one to appear on Daxue Consulting - Market Research China.

The company Adidas Sports (China) Ltd entered China and built headquartered in Shanghai in 1997 with a core business of men’s and women’s sportswear and footwear. The company also entered the market of children’s wear in 2001. Adidas in China is one of the most popular athletic apparel brands, and is equal footing with Nike.

In 2019, the net sales of Adidas were shared by Footwear (57%), apparel (38%) and hardware (5%). Adidas represented 1.9% of the overall Chinese apparel market, equal to Nike.

Adida’s expansion into China

The Chinese market of Adidas is blooming. According to statistics, Adidas has a national distribution network of around 12,000 stores in China, reaching in more than 1,200 cities and expects to accelerate its expansion to 2,400 cities. It was stated to have 1000 more stores in China in 2019. Adidas is not successful worldwide but one of his important metrics is the speed of the sales growth in the Greater China. In this country including Hong Kong, Macau, and Taiwan, the German sportswear group has kept its growing trend. During the third fiscal quarter of 2018, the growth sales surpassed 23%, which indicates the 11^th successive fiscal quarter with above 20% growth rate.

In fact, Adidas witnessed a slump before sustainably growing in the Chinese market. While in 2008, Adidas had 14.9% market share, but it plunged to 9.6% in 2009. Adidas run a new campaign ‘Way through 2015’ at that moment. It aimed to expand to lower tier Chinese cities and opened more stores. The stores were designed to different needs. For instance, the tone of Adidas Women is gentle and soft. The strategy switched focus from ‘sell in’ to ‘sell through’, which means that Adidas aim to not only sell products to distributors but also empower them to sell product to the final-consumers.

Production of Adidas in China

Around 25% of Adidas’ products are manufactured in China. Although Adidas has been transferring some production capacity to countries like Vietnam due to rising labor costs, China still is an indispensable production base for the company, according to a recently conducted market research study in China.

Market Position of Adidas in China

Despite the market boom, international companies are being challenged by local rivals in the Chines market. According to Euromonitor, Adidas takes up 19.5 % of the total market retail value, followed by Nike at 19.0%, Anta at 11.1% and Li Ning at 6.1%.

According to the research, Nike was the third most popular footwear brand in 2018 in China. Adidas earned 80% of all Weibo engagement on activewear brand accounts in the one-year period studied. This was mainly generated by posts featuring its brand ambassador Qianxi Yiyang, a member of the superstar boy band TFBoys.

Strategies of Adidas in China

• Product and pricing strategy: Instead of competing with low prices alone, Adidas sought to expand into lower tier segments by enhancing both products and pricing.
• Multi-brand strategy: Adidas used different sub-brands to improve different aspects of the brand. For instance, the company’s “Originals” line strove to increase retail value sales share to enhance awareness of the brand. While Adidas NEO targeted teenagers of 14-19, priced about half lower than Adidas Originals, and helps the company penetrate into lower tier cities.
• Sponsorship strategy: Adidas increased its brand awareness by sponsoring certain sports events and activities.
• Innovation Product Strategy: Adidas actively released new products to attract consumer attention. For example, NEO Label released in 2011 targeted at younger customers by combing sports and fashion elements.
• Internet Strategy: Adidas entered the Chinese e-commerce market in 2010 by launching the online store, tmall.com. Adidas sought to reach consumers of lower tier cities and further develop its distribution network.
• Cooperation with Chinese designer to launch new products, e.g. Angel Chen.
• Hunger marketing: Yeezy series were greatly applied with the hunger marketing strategies. It was sold in limited amount; thus, a large number of Chinese consumers were queuing for hours just for a pair of Yeezy.

• Brand ambassador: Adidas chose some Chinese celebrities to be the brand ambassadors, such as Qianxi Yiyang, Yifei Liu, Lun Deng and etc. It raised a high engagement between the brand and the consumers in social media platforms. Each topic regarding the announcement of the brand ambassador reached more than 100 million views. The hottest reached more than 1 million discussion in Weibo.

Adidas during COVID-19 in China

Affected by the epidemic, the offline retail sector was worst hit in China. Adidas’s revenue in Greater China is decreased by about 85%, comparing to the same period last year.

• To stay presented, Adidas China put more focus on its online strategies. On February 20, 2020, Adidas hold its first online product announcement in Taobao live. It had more than 2 million views and gained more than 3 million likes. 6000 sneakers were sold in the first 10 minutes.
• Discount: Adidas gave both online and offline discount to boost sales.
• Online work-out lectures: On its official Wechat mini program, Adidas provided online work-out lectures for free to maintain the interaction with their consumers. Moreover, consumers can buy products directly from the mini program.

Future Goals and Directions of Adidas in China

• Adidas moved its Asian Pacific headquarters to Shanghai in 2019. According to James Grigsby, VP of Cities and Marketplace Transformation, Shanghai is an important city for Adidas which empower Adidas to build both domestic and international brand image.
• Sales of the e-commerce channel increased by 36% to 2 billion euros. Adidas is seeking for a balance between online and offline distribution channels.
• Due to the epidemic, basically all sport events were cancelled or postponed. Adidas should look for a platform to stay its presence and talk to the consumers.
• The company’s target annual growth of 15%-20% in China in the coming years (according to a market research in China).
• Adidas understand that a majority of their consumers (90%) would first approach digital platforms to get to know the products. The digital strategies would always stay relevant for Adidas.
• Back to 2018, Simon Peel, global media director of Adidas confessed that they over-invested in digital advertising. 77% of budget was spent on performance while only 23% on the brand. A commercial published on April showed a group of Chinese entertaining celebrities just within 60 seconds. Adidas was accused of putting too much effort in entertainment marketing and forgetting to emphasize its brand core value. Adidas might need to find its sweet spot to leverage entertaining marketing in China.

Today developers, designers, and managers are part of its creation center based in Shanghai, with constant new product concepts especially made for the Chinese consumers. For the group, it is a success that will be continued. Indeed, the group expects China to contribute to a large part of their global sales growth. They will then extend their sales from lower tier cities since they are more and more attracted to sportswear not only for fitness but for daily casual wear.

For more information and insights on brand strategy in China, follow us on LinkedIn and on Wechat by scanning the QR code below

Listen to 100 China entrepreneur stories on China Paradigms, the China business podcast

Listen to China Paradigm on Apple Podcast

This article Adidas in China: Reaching low-tier cities with high-tier products is the first one to appear on Daxue Consulting - Market Research China.

Calvin Klein (abbreviation: CK), is an American fashion brand, founded in 1968. It was named after the founder, designer Calvin Klein. Calvin Klein is one of the largest designer brands in the United States. Its new product designs are endless, and the momentum of Calvin Klein in China is strong. Their products adhere to perfectionism, and every piece of Calvin Klein fashion is aimed to be perfect. As it reflects the full New York lifestyle, Calvin Klein’s clothing has become the favorite of the new generation.

Calvin Klein has three major brands: “Calvin Klein Collection” (high-end fashion), “CK Calvin Klein” (high-end ready-to-wear), and “CKJ” (denim). It Also operates casual wear, socks, underwear, nightwear, swimwear, perfume, and glasses, furniture and etc.

Calvin Klein Initial Stages in China

Calvin Klein Jeans, launched in Beijing in 2001, was a landmark for the brand. CK held its debut Fall/Winter 2010 line in Shanghai. It marked as its first time to show the entire line in the same show and reflected Calvin Klein’s emphasis on the Chinese market.

In 2006, President and chief operating officer of Calvin Klein, Tom Murry, gave an analysis of Calvin Klein in China, “Our core client here (Calvin Klein consumers in China) is middle class, aged 25 to 35. Ours is a segmented business, and in China we are focusing on the middle range. In March, we’ll open our first Collection store in Beijing, hopefully following with additional locations. There is a growing affluence in China. It can support luxury, but so far, no one is making money yet in luxury goods.”. Calvin Klein made up for a unique blank market of middle-class consumers in China. CK China positioned itself as a midprice brand with global prestige.

Calvin Klein Facing Challenges in China

Thanks to the steady double-digit growth in Europe in 2019, Calvin Klein’s third-quarter revenue repaired the second-quarter decline. A slight increase of 0.5% year-on-year to 968.9 million US dollars, a fixed exchange rate increase of 3%, a 10% increase in Europe, and the additional revenue of acquisition of Australia business offset the decline in China and North American home market. Same-store sales in international and North America respectively decreased by 2% and 4% year-on-year.

Chairman and CEO, Emanuel Chirico said in the 2019 financial report that the current holiday season needed to continue to face the fiercely competitive and widely promoted retail environment. It was expected that global macroeconomic and geopolitical turmoil would continue to bring headwinds. He pointed out on the analyst conference that same-store sales and profit margins were disappointing in the third quarter, and he expected the trend to continue.

Calvin Klein sales declined in Hong Kong

Emanuel Chirico also revealed that the lucrative Hong Kong market, which accounted for more than 1% of the group’s revenue, plunged 40% in the third quarter, showing a decrease trend of Calvin Klein’s business in Hong Kong. Calvin Klein penetrated Hong Kong far more than its competitors before. Therefore, Calvin Klein’s parent company continued to put pressure on the performance of CK China. During the period, the Group did additional branding work on the tension between China and the United States. A small survey of about 1,000 shoppers showed that their acceptance of Calvin Klein and Tommy Hilfiger brands remained unchanged. “We have not seen any potential negative reactions from Chinese consumers to American brands,” he said in response to analyst questions.

Calvin Klein’s decline in Mainland China

As for Calvin Klein’s decline in the mainland, Emanuel Chirico explained that as the first local high-end brand, Calvin Klein’s positioning of midprice non-luxury brands and a huge sales network had put pressure on consumer flow, and physical same-store sales had not been able to reverse the decline. The strong growth of the online platform was not enough to offset the decline of the entity.

Calvin Klein’s Humiliating China Incident

In 2019, Calvin Klein listed Hong Kong and Taiwan as separated regions from China on its English page and Hong Kong was separately labelled on its Chinese page. Calvin Klein consumers in China were furious about its implication about Taiwan and Hong Kong were independent countries, so they boycotted the brand. Zhang Yixing, a Chinese pop star and a Calvin Klein ambassador, warned the brand to respect the “one China” policy. Before the explosion of CK, many well-known international brands were collectively boycotted by Chinese netizens because of the politically incorrect division of countries and regions. 

[Source: RETAILINASIA, Zhang Yixing]

According to the operator’s financial network, in 2018, the first quarter of CK parent company PVH Corp.’s group revenue was 2.314 billion US dollars, an increase of 16.4% year-on-year, net profit reached 179.4 million US dollars, and digital business achieved a 20% increase.

Emanuel Chirico, Chairman and CEO of its group, stated that “CK has continued to outperform the rest of Asia in all categories in China, despite its strong international business momentum.”

In response, many netizens have said: “To run business in the Chinese market, you must obey Chinese laws”, “China’s territorial integrity cannot be violated”, “leave none behind”.

Calvin Klein China apologized on Weibo and corrected the mistake on its websites. “We respect and support China’s sovereignty and territorial integrity,” the company stated.

How COVID-19 Affected Calvin Klein in China

Calvin Klein’s parent company is PVH Group. On February 12, 2020, PVH Group disclosed the impact of the COVID-19 epidemic and revealed that most of its Calvin Klein outlets and authorized stores in China were closed, and other stores needed to close early even if they were still in operation. Sales had dropped sharply.

PVH Group expected that CK China would contribute 7% of the Group’s revenue in 2019. The Asia-Pacific region accounting for approximately 16%. On the other hand, China would account for 20% of the group’s global procurement. About 10% were exported to the United States.

Emanuel Chirico, CEO of the PVH Group, believed that the epidemic would only have a “short-term” impact on Asian business. He emphasized that the local major development opportunities would continue to increase in the long run.

Calvin Klein First Test On “Cloud Pop-up Shop” with Tmall

On March 16, 2020, Calvin Klein China and Tmall Club joined forces with the official flagship store of Tmall. This collaboration was the launch of the CK ONE “Cloud Pop-up Shop“. The shop integrated the interactive 3D virtual experience exhibition, and simultaneously released a limited time limited edition of CK ONE series of clothing and CK EVERYONE Eau de toilette.

The opening of the “cloud pop-up shop” was a test for Calvin Klein and Tmall Club to combine the online shopping experience with cutting-edge technology. Public information shows that as a new-experience marketing of Tmall, the Tmall Club co-brand, reaches a wide range of people. Through online and offline linkage, it is possible to create online groups that suitable for different groups. Innovation would be important in the future marketing of Calvin Klein in China.

[Source: Baijiabao, Calvin Klein First Test On “Cloud Pop-up Shop” with Tmall]

What we can learn from Calvin Klein’s China strategy

Calvin Klein has targeted a more middle class consumer than other luxury brands in China. The brand has also navigated through internal crisis management during the Hong Kong incidents. Additionally, having employed Coronavirus crisis management. The brand can continue to expand through digital marketing and KOL marketing.

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article Calvin Klein in China is the first one to appear on Daxue Consulting - Market Research China.

Cartier: from its origins to the Chinese luxury goods market

Origins of Cartier, the “king of jewelers”

Louis-François Cartier created the jewelry brand in 1847. The brand quickly became prestigious thanks to its finest quality and many royal family and rich people adopted its products. In 1902, the reputation of Cartier is so important that the Prince of Wales (King Edouard VII) stated “Jeweler to kings, king of jewelers”. The brand established rapidly abroad in countries like the US or the United-Kingdom. They also found some clients amongst the Russian royal family in the 1900s. After the Second World War, Hollywood stars adopted the brand. Cartier has backers in royal families and stars since. Still, they created of tiara of Kate Middleton for her wedding with the Prince Charles. Through decades, Cartier successfully gained a solid reputation acclaimed by the most elitist people in the world. This brand image is a real asset for Cartier China

Watchmaking, the second main knowledge

Beside their solid reputation as a jewelry maker, Cartier began in the watch industry in 1904. This year, Louis Cartier created one of the first wristwatch for his aviator friend Alberto Santos-Dumont. In this time, wristwatches were mainly for women, pocket watches were more common for men. The Brazilian aviator needed a wristwatch to be able to see time information while flying.

The First World War generalized the use of wristwatch for men and was also an inspiration for the brand. In 1919, Cartier created the Tank watch with the shape of a military tank. One century later, the brand is considered as one of the main brands of the Swiss watch industry. In 2001, the company opened its own factory in Swiss to control every process of the watchmaking creation. Today, watchmaking is a real part of Cartier DNA. These watches are popular upon Chinese luxury consumers. The Chinese luxury watches market is an important part of the luxury industry.

Cartier today: a powerful brand on the Chinese luxury goods market

Nowadays, The Richemont group owns Cartier and also famous brands like IWC or Montblanc. It is the second biggest luxury group behind LVMH. Cartier is first on the jewelry market and second behind Rolex on the watch market. According to Statista, the brand holds a value of 6 million million US dollars.

The China market entry of Cartier started in 1992 with a store in Shanghai. The Chinese name of Cartier China is “卡地亚”. Currently, the brand possesses 37 stores in China. According to its official report, The Richemont group including Cartier, made a profit of 4.3 billion euros in Asia in 2018. It represents 40% of the group total profit. Since the 1990s the booming Chinese economy created massive opportunities for luxury brands. Thirty years after, the Chinese luxury goods market is vital for many luxury brands.

[Source: Behance.net – Cartier X Modern Weekly magazine By Yulong Lli]

How Cartier China developed on the Chinese luxury goods market

A golden market for the luxury brand

Through years, the luxury market in China is increasing and evolving. Cartier China features many developing strategies to adapt mutating Chinese luxury consumers.

Cartier China makes expositions to improve its Chinese brand image. Two expositions were made in 2009 and 2019 in the Palace Museum of Beijing. The first one is named: “Cartier Treasures – King of Jewellers, Jeweller to Kings” and the second “Beyond Boundaries: Cartier and The Palace Museum Craftsmanship and Restoration Exhibition”. They both tend to make the high-quality work of Cartier known in China. Not also among Chinese luxury consumers but also artists or those who like arts and craftmanship.

Currently, one the main purpose of Cartier China is to attract  male Chinese customers. Arnaud Carrez stated: “If you look at our designs, we’re dominantly feminine because we’re a jeweler but it doesn’t prevent us from addressing men with elegance and sophistication,”. As the communication director of Cartier International underlines: a majority of Chinese customers of the brand are women. The brand tries to raise interest among Chinese men on the Chinese luxury goods market. Thus, they launched in 2016 a Chinese advertising campaign with actor Lu Han to celebrate the “Juste Un Clou” bracelet. With such a young movie star, Cartier is aiming male and particularly young men. They are the main core of the Chine luxury goods consumer.

[Source: South China Morning Post – Lu Han in an advert for Cartier jewellery]

Digital strategies, the new cornerstone of Chinese marketing.

According to Bain Consulting, from 2015 to 2018, the digital marketing proportion in the total marketing budget of luxury brands in China increased. It progressed from 35% to 60-70%. Luxury brand try to seize the online luxury opportunity in China. On January 2020, Cartier made an agreement to sell their product with the T-mall marketplace. This will contribute to improve the Chinese brand image of Cartier China.

It is too soon to notice if this will have an impact on the brand selling in China. Most of the time, Chinese luxury consumers go online to seek product and then they go to real stores to buy products. This concept is called ROPO (Research Online, Purchase Offline) and is the main luxury buying strategy in China. Buying online can be a real solution for city where the luxury goods demand exists but is not filled by stores. Cartier China also has their own Chinese online store.

[Source: https://www.cartier.cn/ – Cartier China website]

Second, Cartier China started to work with “KOLs”. Key opinion leaders are online influencers. Lots of luxury brands are working with them because they have a real influence of the Chinese luxury goods market as they can improve the Chinese brand image of any company. The brand is working for instance with Chrison, an influencer with five million followers on Weibo.

Cartier China: Issues slowing development

Counterfeits, the nightmare of luxury brands.

In China, up to 70% of bags or designer jewelry bought online are counterfeit. In non-brand stores 60% of luxury goods are imitations. Cartier is one of the most affected brands by this phenomenon. The brand stands with Louis Vuitton, one of the most engaged luxury brand in China to wipe out fakes. Indeed, in the 1990s, consumerist culture appeared. The booming middle class increased the demand of luxury goods in China. The backfire is that it also increased the counterfeits industry in China. Since then the quality of fakes has improved a lot. Today more than 73% of fakes came from China. Cartier China has to tackle the fake luxury goods industry. The brand is losing money and it could confuse Chinese luxury consumers.

The Hong-Kong crisis and the Coronavirus: Impediments for Cartier China

Since 2019, these two recent events have strong impacts on the Chinese market.

First, the Kong-Kong crisis which complicated shopping and tourism there. The island is today the first watch industry market in the world. Recent events affected the Richemont group. Cartier is one of the main watchmakers of the group. According to Richemont statistics, retail sells of jewelry, watches and luxury gifts were affected. There was a decreased of 47.1% in August and of 40.8% in September. Chinese luxury consumers demand was impacted by this.

[Source: Cartier.hk – CARTIER PEKING ROAD BOUTIQUE]

Second, the Coronavirus has an impact on Cartier China. In one hand, the company had to close its main shops in China. In the other hand, the company closed its jewelry and watchmaking factories, in March 2020. Around 1200 workers cannot work. This will impede the fulfillment of the Chinese luxury goods demands. Both hands are weakening Cartier China whether on the demand and the offer.

Thus, for decades Cartier kept a strong brand image. The brand is known for its finest quality in jewelry or watchmaking in every country. The Chinese entry market of Cartier started in 1992. Almost thirty years later, the Chinese luxury goods market is vital for the brand. Cartier China continue to develop its strategy, particularly with digital marketing. Still, the Coronavirus could have a real impact for the watch and jewelry market on the long-term. Which could weak the company in China and the whole Richemont group. But contrary to other jewelry brand, the Chinese brand image of Cartier could save the company.

Author: Enzio Cacciotto

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article Cartier in China: The king of jewelers is the first one to appear on Daxue Consulting - Market Research China.

• 0:10 Guest introduction
• 3:36 Ailion Golf – company history and size of business
• 11:03 What is Ailion’s product development process?
• 14:32 Collaboration is key to success – how was the first prototype built?
• 20:52 It takes the right software to build the right product
• 24:31 First prototype – financial commitment and other requirements
• 26:56 Ailion’s marketing strategy in China?
• 30:45 Brand building strategy – payoffs vs giveaways
• 35:24 Brand recognition – what brand ambassador did Ailion acquire?
• 39:19 How did Ailion partner with Ctrip?
• 41:01 Being present makes a difference
• 43:17 Is being a foreigner in China an advantage when it comes to doing business?
• 45:15 Ailion’s online marketing strategy
• 50:49 What is Ailion’s experience using Shopify?
• 54:12 How is Ailion using Facebook Pixel?
  

 China Paradigm website

The relevant episode

We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 96: Creating opportunities through connections (关系） is the first one to appear on Daxue Consulting - Market Research China.

Hermes entered China in 1996, and has since become successful in the Chinese luxury goods market.  In twenty-five years, Hermes in China evolved from their initial market entry to become a well known luxury brand in China.

Hermes in China: from origins in France to implementation success in the Chinese luxury goods market

The unique beginnings of Hermes, a commitment for tradition and respect of heritage

Hermes is a prestigious French high fashion house established in 1837 by Thierry Hermes. Today, the company is specialized in leather goods, lifestyle accessories, perfume, luxury goods, and ready-to-wear products. Its logo, since the 1950s, is of a horse-drawn Duke carriage. The brand was first established as a harness shop, because in 19^th century Paris, most households bred horses. It has since changed into a luxury fashion company.

Hermes is a model of tradition and elegance in the luxury goods industry. Its extraordinarily elegant design has garnered praise from consumers throughout the world. The company is adamant about maintaining its old-fashioned business model and rejects mass production, assembly lines, and mechanization. Hermes goods are almost entirely hand-made in France in middle-sized workshops. Hence, it is evident how much the luxury brand emphasizes quality. To guarantee the product quality and uniqueness, Hermes guarantees that only one person works on each individual product from the beginning to end.

[Source: Annual report of 2019 from Hermes]

The situation is economically good for the international company worldwide known for the Kelly bag. In 2019, Hermes sales were composed of about 50% leather goods, 22% clothes, 9% silk products, 7% perfumes, 5% watches, and 11% from other wares. Their total profit is 6,883 billion euros accord to the official annual report.

Market entry of Hermes China

Hermes started its implementation on the Chinese market in 1996 with its first exclusive store in Beijing in 1997. Today, there are 26 flagship stores. One of the biggest stores of the world is in Shanghai.

[Source: Behance – HERMES SHANGHAI By LEVI VAN VELUW]

The company seized the opportunity on the Chinese luxury goods market with the economic boom of the country. “爱马仕” is the Chinese brand name for the company. This luxury brand is particularly popular amongst Chinese people, especially men. Contrary to most luxury brands, only 40% of Hermes Chinese consumers are women.

China is a vital market for luxury brands

China is the largest luxury market in the world ahead of the US. Hermes benefits from the increasing of Chinese luxury goods demand. According to the company annual report of 2019, in 2019, the company made 2,590 billion euros of turnover just in Asia (without Japan). This almost 38% of the global turnover. Compared to 2018, this represents an increase of 17.8%. So far, China is a vital market for the luxury brand. To fulfill the opportunity on this market, Hermes China has an aggressive marketing strategy.

In 2019, Hermes China  opened a website store, and lauchned a Xiamen store. Moreover they renovated their exclusive store in Tsingtao. This underlines a will to respond to the Chinese market where consumers want luxury products. Also, the company organized the event “please check-in” in Shanghai to promote the luxurious bags of the company. Hermes China developed their position in the country with solid and virtual store and events. The main objective was to develop brand recognition and to be close to Chinese consumers.

The alternative of Hermes to develop on the Chinese luxury goods market

The creation from Hermes of Shang Xia: Highlighting the best of China’s luxury goods production

In September 2010, Hermes launched a new luxury brand in China called ‘Shang Xia’ aiming to attract more customers in the world’s largest luxury market in the world. Now there are eleven flagship stores across the world. The brand was initially created in 2008, and was completely independent from Hermes’s mainline products. From product development to product design and product manufacturing, the whole business process is run by the Chinese team and lead by Jiang Qiong Er. The aim of Hermes in creating this separate company is to try to build an international Chinese luxury brand. In addition to Chinese consumers, the Paris store has also attracted a substantial amount of Russian and Swiss consumers.

[Source: Behance – SHANG XIA By CHENCHEN GAO]

However, ever since it was first launched, the new company has been unprofitable. The actual Hermes CEO M. Thomas knows the situation and explains that Shang Xia actually performed better beginning than expected. He knows it will take time to make the brand cost-effective.

Shang Xia still struggles to develop in the Chinese luxury goods market

Shang Xia’s struggle underlines how Chinese traditional style products cannot draw as much interest among Chinese luxury consumers compared to European products. In China most consumers of the luxury brand are men whereas in other countries, women are the main buyers of the company products.

A lot of Chinese consumers have not even heard of this new company and do not associate it with luxury. A large portion of Chinese consumers purchase brands based on their fame and recognition. It is seen as a way to show their social status and purchasing power. Therefore, a brand like ‘Shang Xia’ has a long way to go before it can earn a good luxury brand reputation among Chinese luxury goods market. As of 2020, the development of Shang Xia continues, as both the CEO of Hermès and the lead designer of Shang Xia acknowledge the time needed to construct a good brand image.

Shang Xia is a diplomacy gift

Even if Chinese authorities indirectly help  the brand. They buy products in order to offer it as gift to foreign Governments. They say Shang Xia’s goods represent the melting of Chinese heritage, creativity and innovation. To try to change this lack of a luxury brand image, Hermes opened in 2013 a ‘Shang Xia’ store in Rue de Sèvres, right next to its global flagship store.

The company hopes that the brand display in Paris can increase the image value and familiarize Chinese tourists with the ‘Shang Xia’ Chinese luxury goods. Jiang Qiong Er knows it will take years to develop the luxury brand particularly in China. She declared “But it is a real ambition to create a brand in the 21st century with a vision a hundred or two hundred years ahead.”

The impact of the Hong-Kong crisis and the Coronavirus on Hermes in China

The Hong-Kong crisis and its effects on Hermes

In 2019, the luxury brand Hermes was concerned with the Hong-Kong crisis. The company holds seven stores in the city. E. du Halgouët, the financial director of the company, stated that the declining sales of Chinese luxury goods will be absorbed by the growth in China: “The slowdown in Hong Kong will be offset by a strong level of activity in China”. Nevertheless, even with the Hong-Kong crisis, the third quarter of the year showed good economic results for the company as the rest of year 2019. The company knows that the clients of Hong-Kong are really loyal to the company and the Chinese demand there will increase after the crisis, the 9,000 square meters flagship store will stay a proficient investment.

The Coronavirus impact the growth of Hermes in China

The Coronavirus impacted the whole Chinese economy and the Chinese luxury goods market.The company had to close 11 out of its 26 stores in the country. The Chinese Hermes website cannot replace closed stores because, according to A. Dumas, director of Hermes International, it is not aiming the same clients as city stores. Indeed, most of the time, Chinese luxury goods consumers go through the luxury brand website to see what they want to buy and then go to real stores for the actual purchase.

[Source – Hermes.cn website]

Right now, the situation is improving and only four shops based in Wuhan were still close in February 2020. Even if shops open again, Chinese consumers demand is still low. Hermes will follow the trend of the global Chinese economy. It will take some time to be in its full shape again, but the luxury brand stays popular amongst its Chinese clients. The next issue Hermes has to deal with is the closure of of its production lines in France. 42 out of 52 production centers of the company are based in the country. After the Coronavirus raised a problem with Chinese luxury goods demand it will develop an issue with the company’s offer in China.

Thus, Hermes started selling on the Chinese luxury goods market in the 1990s. Now the country is vital for the company. The luxury brand continues to invest in China to conserve its prestigious brand image and be close with Chinese consumers. Even recent issues like Coronavirus or the Hong Kong crisis are not big threats for the company. Shang Xia, owned by Hermes, has the idea of promoting Chinese heritage in design. However, the brand is still growing on Chinese consumers as power figures are already accepting of the brand.

If you have any questions or would like to discuss your e-commerce strategy in China, contact our project team at dx@daxueconsulting.com

Author: Enzio Cacciotto

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article Hermes in China: 25 years of history is the first one to appear on Daxue Consulting - Market Research China.

Tommy Hilfiger’s performance in the Chinese luxury market

In China, from 2012 to 2016, the sales performance of Tommy Hilfiger was remarkable and has become one of the most influential brand of its parent company, PVH Corp. PVH Corp is a comprehensive company that includes the brands such as Calvin Klein, Van Heusen and IZOD. Since 2012, its parent company has taken over Tommy Hilfiger’s business sector in China. Such a decision has enabled Tommy Hilfiger to expand and develop its markets directly and rapidly. Meanwhile, the company is able to utilize its sophisticated regional leaderships and infrastructure in Asia. Taking over the business of subsidiary in China is able to facilitate the global decision making and standardization the global strategy.

China’s market has been appeal to Tommy Hilfiger’s business. Since 2012, the year of takeover, the revenue of Tommy Hilfiger in China’s market has surged from 70 million USD to 0.14 billion USD.

By the end of 2016, Tommy Hilfiger had more than 357 retail stores in China. Among these stores, 65 of them are direct stores, 292 of them are authorized resellers. Before 2011, they had merely 100 retail stores. On average, the store area is 1,500 square foot.

Tommy Hilfiger’s China market strategy

Products embody both standardization and localization

Tommy Hilfiger has standardized its product segments all over the world. Nevertheless, Tommy Hilfiger has launched its special series in China that tailors to China’s market. According to the official Chinese website of Tommy Hilfiger, most of the products in China such as jeans, hoodies, shirts, etc. can be found in other markets. On the other hand, in order to tailor to China’s market, Tommy Hilfiger has launched the Chinese New Year series and joined-design series that feature popular Chinese celebrities. Celebrity endorsements have had a positive impact on Tommy Hilfiger consumption in China.

[Photo source: Tommy Hilfiger, ‘Chinese New Year series and joined-design series’]

Distribution channels of Tommy Hilfiger in China

TOMMYNOW: an innovated sales channel that boosts transactions and orders

Since 2016, Tommy Hilfiger has launched TOMMYNOW Snap, where Tommy Hilfiger customers are able to shop and order novel style of clothes in real time via the image provided by TOMMYNOW the fashion show. This turned out to be successful as the order had increased by 60% and many designed clothes were sold out. Afterwards, Tommy Hilfiger has implemented such a distribution channel in other cities such as Los Angeles, Milan, London and Paris.

Even though these fashion shows are normally held in Europe and North America, in 2018, the company selected Shanghai as their location for the first TOMMYNOW in Asia. Tommy Hilfiger consumers in China are able to purchase the new arrival while watching TOMMYNOW in real time.

[Photo source: Weibo, ‘TOMMYNOW’]

Digital concept stores implemented in early adopted countries

As digital technology is a growing trend all over the world, Tommy Hilfiger realizes that and keeps pace with the trend. In 2019, the company has shut down some flagship stores in United States. “Large scale of flagships stores should exist in the history instead of now as no one wants to enter such a grand store. Just like you would no longer be interest in the food if the table is filled with it,” says Daniel Grieder, the CEO of Tommy Hilfiger Global.

China has been a suitable business location for Tommy Hilfiger to exercise this idea. In 2019, Tommy Hilfiger had scheduled the launch of the digital concept store in Beijing and this is the first digital store in Asia. As Chinese consumers are early adopters in regard with digital branding, satisfying Chinese customer’s need will drive key success to the business.

[Photo source: Beijing Business Today, ‘Digital concept store of Tommy Hilfiger in China’]

[Photo source: Beijing Business Today, ‘TommyXYou campaign for Tommy Hilfiger in China’]

Tommy Hilfiger aims to follow the original style of store décor. Nonetheless, in order to feature the characteristic of digital technology, Tommy Hilfiger has established the digital shopping wall and intelligent fitting rooms. Moreover, TommyXYou is an intelligent platform that installs the function of intelligent clothes matching. Tommy Hilfiger consumers in China are able to select different types of clothes on the screen and try virtual fitting.

Online stores are highly localized to the Chinese market

As E-commerce is a current trend in China, Tommy Hilfiger has kept pace with this trend and set up a couple of online stores in the mainstream platforms.

Tommy Hilfiger owns its Chinese official online store. This is a common platform for Tommy Hilfiger consumers in China to shop due to its authenticity and trustworthiness.

[Photo source: Tommy Hilfiger, ‘Website of Tommy Hilfiger’]

Additionally, Tommy Hilfiger has also owned its online stores on Tmall and JD. Since these are the platforms that have earned lots of consumers in China, establishing online stores on such platforms are able to maximize its brand exposure and expand its customer base.

[Photo source: Tmall, ‘Online store of Tommy Hilfiger on Tmall’]

[Photo source: JD, ‘Online store of Tommy Hilfiger on JD’]

Tommy Hilfiger is more expensive in China than in the United States

On average, in China, the price of Tommy Hilfiger is more expensive that of the United States. According to both official websites in China and United States, take Men’s TOMMYMYXMERCEDES-BENZ series as an example, the average price is 154 USD in United States while that is hi RMB (199.8 USD).

This has been proven by Chinese people’s perception towards Tommy Hilfiger. According to Zhihu, there are topics regarding the price of Tommy Hilfiger being relatively high. Some users argue that Tommy Hilfiger has different positioning in different countries. In Japan and China, Tommy Hilfiger products that are sold in direct stores are mid-to-high end products. For those sold in United States are positioned as mid end products. Another argument is that the products sold in direct stores in China are European manufacturing with better quality.

Chinese consumer profile of Tommy Hilfiger: polarized customer groups

Even though Tommy Hilfiger products seem to be classic, the consumer profile of Tommy Hilfiger in China is polarized. According to Zhihu, some people agreed that this brand is most popular with middle-aged men as they perceive that the design is rustic, except for the jeans series which suit young men in China.

Tommy Hilfiger marketing campaign in China: celebrity endorsement

Leveraging celebrity endorsements in China

Tommy Hilfiger collaborates with popular Chinese celebrities.

The first Chinese brand ambassador of Tommy Hilfiger is Shawn Yue Man-Lok, a former Hong Kong actor and singer. He is also the global brand ambassador of Tommy Hilfiger. As Yue is in his 40s, some Chinese netizens argue that selecting Yue as the global brand ambassador reveals the major target market in China are consumers aged 30-40.

[Photo source: Weibo, ‘Shawn Yue Man-Lok, the global brand ambassador of Tommy Hilfiger’]

Moreover, Tommy Hilfiger China has also collaborated with Junkai Wang and Zhengting Zhu, the stars in China that are popular with people aged 15-25. As celebrities in China are able to influence Chinese consumer’s behavior, Tommy Hilfiger’s collaboration with these stars is able to drive income stream from Chinese young people.

[Photo source: Weibo, ‘Zhengting Zhu, the brand ambassador of Tommy Hilfiger in China’]

[Photo source: Weibo, ‘Junkai Wang, the brand ambassador of Tommy Hilfiger in China’]

Promotion channels of Tommy Hilfiger in China, on mainstream social media

Tommy Hilfiger has set up its social media accounts on the mainstream social media platforms, Weibo and Xiaohongshu as means of promoting their brands to Tommy Hilfiger consumers in China. On Weibo, Tommy Hilfiger has 318,005 followers while the figure of Xiaohongshu is 2,708. As a global brand, Tommy Hilfiger’s popularity in China can be improved significantly since the number of followers is comparatively low.

Tommy Hilfiger China shares photos of models or brand ambassadors in their clothing on Weibo. It is an effective way to promote different products and instruct Tommy Hilfiger consumers in China what to where in different social occasions.

[Photo source: Weibo, ‘Home page of Tommy Hilfiger on Weibo’]

[Photo source: Xiaohongshu, ‘Home page of Tommy Hilfiger on Xiaohongshu’]

How the Coronavirus outbreak has affected Tommy Hilfiger’s business in China

The Coronavirus outbreak in China has affected many industries in China, especially retail. In February 2020, PVH Corp announced that Tommy Hilfiger China shut down some of the retail stores temporarily due to the decreasing customer flow at shopping centers and concern for employees and business partners’ health. Even though such an action has affected the business performance of Tommy Hilfiger in China or even Asian-Pacific region, it seems to be a feasible solution under such a serious circumstance.

Chinese people’s perception towards Tommy Hilfiger: Overpricing the number one issue mentioned

Although Tommy Hilfiger is a famous brand all over the world, some Chinese people have negative perceptions towards the brand. According to Zhihu, some users commented that products of Tommy Hilfiger are expensive and overpriced in China. Furthermore, some of them labeled Tommy Hilfiger as a high-end brand in China while being a low-end brand overseas.

[Photo source: Zhihu, ‘Chinese people’s perception towards Tommy Hilfiger’]

Tommy Hilfiger has localized their marketing strategy but not all their products

The American luxury brand has proven their success in China leveraging celebrity influence to market to middle-aged people. However, their positioning as an aspirational brand is muddled by the perceived price-quality gap of Chinese consumers.

Author: Amelia Han

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article Tommy Hilfiger in China: Digital marketing and celebrity endorsements is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below

Matthieu David: Hello everyone. I am Matthieu David, the founder of Daxue Consulting, the China market research company, and its podcast China paradigm. And today is very special. I have two guests at the same time from Hong Kong – Kanch Porta Panjabi and Kate Padget-Koh. So, you have a very long entrepreneurial story, and you decided to work together on and to put your resources and your experience into a company called Fashionable Futures, a consultancy based on sustainability in the fashion industry. 

You provide strategy consulting to those brands who want to build a branding strategy. And you have a very, very strong experience in Asia, Hong Kong, China by being working in big companies like Li & Fung, Puma, for the UK for instance, and to build your own brand, which I feel is a very, very different experience; very, very different story. And altogether you are providing a consulting strategy for those brands who want to adapt for the coming years with some values you insist on, and I want to already talk about them, which are sustainability in the fashion industry, and that you insist a lot on it in your presentation, and transparency. So, in order for people who listen to us to better understand, would you mind sharing a bit of some case you have been working on for the Chinese market, let’s say Greater China?

Kate Padget-Koh: Can we talk a little bit about how we operate just so that your listeners can understand more clearly?

Matthieu David: Sure.

Kate Padget-Koh: Okay. So, we work with a number of products. We basically work in three areas. We work with large brands that want specific projects done around sustainability in the fashion industry, innovation, and strategy. And they may be, they are probably in the midst of a transition of – coming from how they have been operating for some time. We are all very aware of the disruption in the fashion industry in China and worldwide, and the fashion retail business. So, we work with them to really look at how they can fast track any transformation they are currently engaged in. 

Secondly, we work with small brands and these small to medium-sized brands who really want to start on that sustainability journey. They may be so far into that but then again want to progress it. And how we do this? We do one on one consulting and we are just launching an online program for small to medium-sized fashion brands, and actually anyone in the fashion or associated space. It would also be suitable for the beauty industry and so on. So, we see that we need to get our message out there quite extensively. 

The third part and this is probably also very relevant for China too is we work with Chinese fashion manufacturers. We noticed that Chinese fashion manufacturers or manufacturers of apparel have been facing many challenges, and especially in China due to the trade war so that they are looking for ways that they can progress themselves and become manufacturers of the future. And that’s really what we are here to do. We understand this space very well and how we operate is to really help companies navigate these challenging times.

Matthieu David: So, to summarize, you segment into two different – three, sorry – three different offers: one for big brands, one for small brands, and one for Chinese fashion manufacturers and others around the world.

Kate Padget-Koh: Yeah, correct.

Matthieu David: And with all of them you work specifically and you insist again on the word sustainability. Before we go a bit deeper, how would you define sustainability in the fashion industry? I feel people may use it this word for different reason – the business is sustainable when it’s making profits in some way, it’s sustainable when it will start affecting the environment and the stakeholders around them, it’s sustainable when the brand is solid enough to actually continue to exist after the CEO may be replaced and so on. So how do you define sustainability in the fashion industry?

Kate Padget-Koh: It’s a very good question. And we actually have one part of our online program around this word because it’s rather overused, and it’s really, it is to sustain over time. I think Kanch can talk a little bit more about what we mean by sustainability?

Kanch Porta Panjabi: Yeah, sure. So, you know, sustainability focuses on meeting the needs of the present without compromising the ability of future generations. So, to us really, sustainability in the fashion industry is – we understand businesses need to make a profit, sure – but for us, sustainability is really about making a product that is not harming the environment that we are and our future generations. So, whether it be producing new clothes or upcycling or reusing or remaking, it’s about how are you affecting the planet while you are doing that, and the planet in different areas. So, it could be – so, I think for a lot of brands to do everything is quite difficult. So, it could be that you focus on water, it could be that you focus on the social aspect, it could be that you focus on solar. So, it really just depends on what the brand is doing. But I think sustainability in the fashion industry is a big word, and under that, you have different umbrellas. Right? Is there anything else you can add to that, Kate?

Kate Padget-Koh: And I think a lot of it is around being conscious of what you are doing. We are at a time where, you know, it can’t be just growth, growth, growth. We have a lot of – like if we stopped buying clothes, all of us, and we didn’t buy anything for the next five years, we would be fine, right? All three of us. And for fashion people like us probably a bit longer. If I don’t buy anything, for the next 10, I am fine, right? So, what it is, is we are never going to stop buying fashion, we are never going to stop being engaged in fashion. But what is the future of the fashion industry in China and worldwide? When we look at it from a conscious perspective, another core part of what we are doing is design thinking and creating designers of the future. We see sustainability in the fashion industry is very much about building future leaders.

Matthieu David: You talked about manufacturers and Chinese fashion manufacturers as a third segment. The image we have of a manufacturer is to be very pragmatic, to provide products for the brands they work for, maybe at some point to create their own brand. But what is leading them to think about sustainability in the fashion industry? What do you think is pushing them to think about sustainability? I am not talking specifically about the Chinese fashion manufacturers, which may have many other issues than thinking about also stakeholders or the future in the coming 5 or 10 years.

Kanch Porta Panjabi: Well, I think, like yesterday we had this conversation with somebody and it’s the customer, you know, the customer overnight is going to become demanding and say look, if you want us to work with you, this amount of the collection needs to have these values around sustainability. So, if they don’t change, then.

Matthieu David: I see.

Kate Padget-Koh: Irrelevant.

Kanch Porta Panjabi: Yeah.

Matthieu David: I see. I see.

Kanch Porta Panjabi: And it’s not just like the small brands, it’s like the big brands, it’s everybody you know. And I think we’ve seen it happen progressively the last five years but I feel like in the next two, one to two years, it’s going to be like overnight.

Matthieu David: You define sustainability in the fashion industry in a very broad way and not to damage your future – no, the present work and action don’t damage the future. How does it convert into actions with the work you do with big brands, small brand manufacturers?

Kanch Porta Panjabi: Do you want to tackle that one, Kate?

Kate Padget-Koh: Sure. So, I think that critically we look at what is – why do brands do what they do. And we get them to look at what they are doing, their operations and why they exist and what they want, how they want to leave the world. So, you know, it’s very much about legacy and impact. So, if a brand is operating in a particular way, it has been that – oh we get fashion to as many people as possible at an affordable cost. But we also know that there’s been a cost to that, right, an environmental cost? And also, for the past – what – 20 years, we’ve trained generations to buy and consume clothing, and, maybe wear it once, maybe not wear it. I think I went a bit off your question. Sorry. 

So, what we really want to look at is a brand should be very conscious of what they are doing in their activities, do they look at materials? Do they look at their impact on water? Do they look at end of life? You know, there will be a requirement. We were having a conversation yesterday with some contacts we have and they work with some fast fashion companies in the fashion industry in China and worldwide. And there is a requirement that a significant percentage of the business that they provide to that organization, to that fast-fashion retailer must meet a certain sustainable criterion. That criteria covers factory certifications, material requirements, impacts in water and they are operating in China.

Matthieu David: So, if you work to – I mean with your clients, to assess what to do to actually work on the transformation with them and implement it, what do you specifically work on?

Kate Padget-Koh: We look at how you begin that journey because it is a very complex subject and our superpower is to make it simple. So, we take a very complex subject and we make it simple and manageable. We are not technical in the respect that we do not measure energy and we do not test the water and so on. But we do have very strong partners who we then would hand off to. So, what we see is we see that we are able to help brands navigate that world, that sustainability conversation because there’s a lot of information out there. It’s very confusing. And people are very concerned about saying and doing the wrong thing.

Matthieu David: Yeah, and the risk is too.

Kate Padget-Koh: Yeah, the risk.

Matthieu David: And the risk could be to be only words, right?

Kate Padget-Koh: Yeah. And everyone is scared that they are accused of greenwashing. They are scared that they get something wrong. And then, you know, they don’t do anything. And it’s really for us is to shift that, to have them and really for them – we also come from a place of – we are not saying is that you are doing the wrong thing, you should be ashamed of yourself, there is none of that. It’s about enabling the next generation of the fashion industry in China and worldwide, really.

Matthieu David: I go back to the first question; would you mind sharing one or two specific cases in the past you have dealt with?

Kate Padget-Koh: Okay. So, we have manufacturers who – so if we look at Chinese fashion manufacturers, there is a lot of challenges we know around the trade war and they now are at the point. So, we have one group who operates in, they are specifically from China, but they also have offshore sourcing and manufacturing. And they are working with some pretty well-known companies but the huge capacity of their China production now cannot be, that US brand does not want to take it, right, because of the trade war impact. So, what they have to look at now is – suddenly they are faced with, what are they going to do? The model is broken. We don’t know what it’s going to be, how things are going to be in the future, and so they’ve got to look at who they are going to serve in the future. You know, it’s always been an issue in China that they go from the US and then something happens in the US and they run to Europe, but this also isn’t sustainable. So, we are now working with them to understand what is next – like how they can become more sustainable in terms of not so dependent upon their legacy customers. And this is obviously quite complex.

Matthieu David: Does it mean that you are also working with them to build their own brand?

Kate Padget-Koh: It can be but I think we are also, you know, that’s been happening in the last 15 years, let’s say. What we also see is if companies are big enough, then they may want to be working with existing brands, you know, whether they are introducing them to the Chinese market, they are actually investing in them, they are investing in innovation. I think this is a very interesting area. We have a lot of innovation, which needs to happen and how can manufacturers be partners in that? There is a lot around education for the future also. And we were on a call yesterday with a – it’s related to, kind of a very well-known educational institution, and they want to do design leadership. And it is a China challenge. So, it’s how they can progress at speed, sustainable innovations around critical materials. So, let’s say, denim, cotton and really educate designers of the future. So, Chinese fashion manufacturers can become part of that educational process too.

Matthieu David: So those values which are sustainability, and I am going to elaborate more to add transparency as well because you mentioned it in your presentation – how is it different in China and in the West? Are you seeing different uses? Are you seeing different maturity? Do you see some differences?

Kate Padget-Koh: I will speak very briefly about this because I know that you are – it’s a bit of a tricky question, right. In my experience, the majority of what I have worked in have been overseas brands who are operating in China or Chinese fashion manufacturers who are producing for those big brands. I think that transparency, it’s tricky. And I am surprised that that’s in our presentation because I am very careful about speaking about transparency – that is something which we have to, you know, it has to be proven, right?

Matthieu David: So, for your information, you mentioned ultra-transparency actually in your presentation. It’s on slide three. And I felt because you were using the word ultra-transparency, it was a key element. So maybe I misunderstood.

Kanch Porta Panjabi: I think that – if I can just share here – I think it’s really, for us the ultra-transparency is for brands to see that that is the future. We were at a conference a few weeks ago and there was a Hong Kong company actually – called – it’s very famous called Chicks. And they had started a program with blockchain where they were tracing the garment from production to end. So, the consumer had like a barcode, you could go with your phone, press on the barcode, and you know where the yarn comes from, you know, you know. So, I think for us transparency is really about that and the process in that. Now, in terms of factories and stuff, I think there is a progression that is happening over time. It’s not very fast but I think for us that is the goal, right? I mean, and I think now the consumer if you – the millennial generation, for example, they are very – they care a lot. They want to know where their clothes are made, how they are made, which farmer made them, is there any kind of social impact? So, I think for us transparency is about that really, about knowing where things are made. And again, as Kate said, it’s not about perfection, you know. 

Obviously with the big companies, sometimes it’s hard to know, so many layers it’s hard to know, right? So, like, for example, when I had my own brand, right, I used to go to China, go to the factories, sit with them, see how it’s being made. So, for a smaller brand, it’s easier to control in a way what’s going on whereas, for a bigger brand, there are so many layers of it, and now they are getting the customers aware. So even these bigger brands, they have to figure out how to do this transparency thing and to do it right, and to do it in a way that’s authentic and not misleading. So, I think for us that’s really what that is about.

Matthieu David: Transparency has trustability to be able to trace where it’s come from. Why, why, why Kate, were you saying that you were cautious with the word, with transparency?

Kate Padget-Koh: I just think around a China conversation. We don’t always know where? Not in my world or my experience in the past but generally, there can be questions about whether things are authentic. However, what I also want to bring into the conversation is, we also – in China, there is so much incredible innovation that is happening. And we have some clients and partners that we work within the South that are doing amazing supply chain solutions, which are fully traceable, which are really progressive. And I think that’s really exciting. And this is just the beginning. So, we know that there have been companies that have just set up in Hong Kong because of the access to South China and all the innovations that are happening. And I really think that we are in a very unique position to be able to – for new brands, this is an ideal place to operate from – the ease of doing business and the access to the rest of the world and to sustainable innovation is really valuable.

Matthieu David: That’s a very good transition to another set of questions I would like to ask you about why should someone create a fashion brand in China? When do you need to create a brand? I remember I had this conversation with a Chinese, I want to create my brand. And I asked her why? Because it’s mine because it’s me. I want to create a brand because it’s me. Is the will to express yourself in the product enough to create a fashion brand in China? How do you analyze this?

Kate Padget-Koh: Yeah, this is really good because we talk about this all the time. We talk about it a lot. I’ll speak about it briefly and then Kanch will take over. So, nobody needs to create a fashion brand in China. We have so many brands; it’s probably the easiest to do ever. And there are influencers – whether they are from China, whether they are from other parts of the world who really want to create brands, right? And there is no need for anything more. From my perspective, there are two reasons why you want to create a fashion brand in China – that the example you just made, which is ah well, it’s mine, you know. And I would say that’s probably from – I want to put something out there. You could say it’s kind of like ego to have a brand that is yours. The other part of it I see which I think is extremely valuable is, for example, what Allbirds or Reformation or those kinds of brands where they have created brands which are educating customers to be using sustainable products to look at how they engage in fashion industry in China and worldwide in a way which is conscious, which is considered. And I think the future of a lot of brands is, – it’s a duty to provide something in the world which is educational and is a conscious way to engage with fashion.

Kanch Porta Panjabi: Yeah, I’ll just like end a little bit on that. But I think I totally agree with Kate. I think we don’t need more stuff. There is a lot of stuff out there and you can find what you need with all this stuff out there. So, I think if you create a fashion brand in China, there really has to be certain values that you want to educate the world about. So as, you know, Allbirds or Beha, all these, they’ve got a real stand, and that’s what they want to sell to the world. So I think if you have a real stand and a position, then yes, by all means, go ahead, create a fashion brand in China but if it’s something you want to create because it’s yours, that’s fine but I don’t think that’s a strong enough position because there are so many things out there. So yeah, you have to have some kind of educational aspect to want to get out there. And, at the same time, of course, it has to be beautiful, it has to be respectful, it has to be so many more things that the consumer is now demanding. 10 years ago, when I started my brand, there was no – net afford had just started. Online was not even big, there was no Instagram, you know. So, it’s much easier to create a fashion brand in China but I think it’s also much harder because there is so much more out there and everybody has access to everything. So, yeah.

Matthieu David: So, you just said that if you find out a segment where you need to educate a population, your potential clients, yes, it could be a good reason to create a brand. How do you find those segments? Maybe it’s your work. How do you find those segments where there is still a gap to create a brand? How do you find what is going to be fashionable? And you – actually if I understand correctly but maybe you will correct me, sustainability in the fashion industry in some way is the new fashion. There are good reasons to adopt this fashion, but it’s a new fashion. So how do you – first thing, how do you assess those gaps where there is a need for education and a new product which conveys those messages and education? And secondly, how do you know what’s going to be fashionable?

Kanch Porta Panjabi: Well, I think market research, you know, to see. If it’s something like okay, I want to create – going for the purpose of creating a brand for sustainability in the fashion industry, then it’s, you really have to see what’s out there and what is the products are like, you know, the guys. Again, the guys who created Allbirds, right? It was like nobody was using wool with a shoe at that time, right? And so, it was a very new concept and they spend I think like, I don’t know, at least over 10 years in just developing the product, and that they had over 150 prototypes before they got the right one. So, I think its market research – having an idea and also having a connection to the idea. 

So, like I think the founder of Allbirds, he knew a lot about farms and, you know, and so it’s like there has to be some kind of connection as well. So, first, obviously, look at the market and then like a connection, find a connection to you, like that’s really a deep connection, have a reason for doing it. So, I think that’s and then, market testing consumer, go out to the consumer and see what is it, what’s the consumer feedback? I think what a lot of people do is they say, okay, I am going to create this brand, start something and then go out and test the market. But then it’s too late.

Matthieu David: I think this is contrary to what the image we have of a creator who is going to stay alone, create his own pieces and so on. What you are describing is actually a process where you listen to society, you listen to the consumers in order to create your brand. Is it the same way we create brands in the 21st century?

Kate Padget-Koh: Definitely. Social media is so active people are constantly engaging with each other. And, you can put anything out over there. And even if you are really supremely creative, you are some kind of outlier, your need to put that in front of people is so great. And I think the younger generation who will be the brand creators of the future, they are so used to engaging with others around their creations and getting feedback. It’s just very, very different. And I think there is another part to this question, which is what are the brands of the future? We still have a lot of problems to solve, like if you look at the whole of achalasia, for example, how do you take all the – for want of a better word, plastic out of achalasia? How do you do that? Like if you could just remove a lot of the man-made fibers out of one category was massive, then how all the conversations around end of use, I think that’s getting – end of life that’s getting much more, people are much, much more aware of that. In Hong Kong we have several companies which are doing – they are repurposing, kind of like reselling luxury products or children’s products or whatever. And then, there are so many ways that we can engage with products when we would normally have stopped now. And then the whole rental thing, we can just see that these different ways of engaging with the fashion industry in China and worldwide escalating.

Kanch Porta Panjabi: And innovation, I think that is also another big – So we were in Paris a couple of weeks ago and we were at this forum and there was somebody from the US who started doing this where they took the fabrics and then made it into a liquid state and then made it – separated it and made it back into the solid-state. And it was like carbon fiber and the carbon fiber was going to be used in cars. So, it’s like, you need some kind of innovation, especially like the end of life, end of use. So, finding an innovation as well. So, I think if you are creating a brand that’s something, that is key in today’s world.

Matthieu David: When I listen to what you say, I feel that you – there is a lot of proximity with the brand and ideology. You bring in a new set of beliefs, a new set of behaving. Maybe if Marx was born today, he would create a brand. So how do you feel about it? Actually, and to be honest, it makes the fashion industry in China and worldwide much more attractive to meet you because it conveys much more than just a logo or just a design. And I feel that it was more of the case like 30 years ago.

Kate Padget-Koh: Definitely. It is an ideology. It’s a philosophy. It’s a way of looking at life. And I think – I know for both of us, we got into fashion because it expressed something, certainly, for myself, I saw it as something which had values and had credibility and respect and it was something beautiful, and it’s something which impacts people. I don’t know if every – like you just said, I don’t know if everybody has that view of the fashion industry in China and worldwide but certainly that’s how I see it, and certainly to resolve some of the issues we have around environmental impact. That’s the way it can be dealt with going forward.

Kanch Porta Panjabi: Yeah, and I think with the thing that happened is with fast fashion, we lost a little bit of the soul, because when I created my fashion brand in China, my collections, and I am sure Kate probably the same is like, we really went into study something like, I don’t know. For example, the collection was about dance, right? Then you went there, you studied dance, you really understood the movement, you did drawings, you did twirling. And then from there came like a five-piece collection, which was, you understood there was like a reason why every fold was in its place, why – I used to do my own prints – why every print had some kind of or what was your message in the print to the world? With the fast fashion, you just kind of lost that. It was like quick clothes, cheap prices and so to me it seems like it’s going, like it’s a cycle, right? And now the younger generation again is back in this thing where they care like I mean I have two kids, and I am sure that in a few years when my son is buying his own clothes, he is going to be questioning. It’s no doubt, so I think yeah, it’s a cycle maybe.

Matthieu David: Should everything be online? You mentioned that it’s very easy now to reach out to the clients, consumers and you have so many tools; and the opposite Kate, you mentioned that transparency – we have to be cautious with this word. Should everything be online for a brand and I am specifically thinking about the luxury brands which are always very slow actually to disclose and to be everywhere? They were very slow to go online to have their first website; they were very slow to open their first e-commerce website as they are very slow to go on social media. They don’t really know how to communicate out of the shop, I mean out of the boutique. Now they know, but it took time. So, what about – should a brand, be everywhere, put everything online?

Kate Padget-Koh: When you say put everything online, do you mean to sell?

Matthieu David: Oh no, I am thinking all communication, all transparency? I would – if we go up to the full meaning of transparency, you would actually put cameras in the office of every brand to show how they work. So, should we go to this extreme where actually you see everything about what they do and how they behave internally? How is it? Is it diverse? Is the team diverse? Do they behave respectfully to each other? And then you can show it with cameras everywhere. So how far do you go?

Kate Padget-Koh: I don’t know if that is going to happen. I don’t really have a point of view on that. I think we get so much stuff online, that we are already overwhelmed with information. I do think that it’s great because Nike and a number of companies will publish their suppliers. They are happy to share. So, I think sharing is valuable. When there is no sharing, whether it’s relevant or not, questions are always asked, what are you hiding, right? So, this one thing which we’ve become very aware of and very happy about is that when we talk about sustainability in the fashion industry, it becomes less about competition and more about collaboration. So, people are willing to share information, they are willing to – you know, even with competitors because they see that, we’ve got something to do in the world that is important. Otherwise, you know, whether we’ve got 11 years left or whatever that is, if we don’t do something together, this is not the time to be competitive. So, I think that’s how I would answer your question.

Kanch Porta Panjabi: Yeah, I think I agree to it. I think, you know, the fashion industry in China and worldwide has always been very linear and you see it getting more circular in terms of like the brand’s collaborating and I think yeah, online – definitely you need some kind of presence. Again, how deep you go and what the relevant information that you share, but also, like in-store and I think a physical presence is also necessary. So, I think you need to have like a mix of both in a way whether it’s like via pop-ups, whether it’s – this in terms of like representing and selling your product. I think you still need that; people still want to touch and feel and see, especially in Asia. Okay, maybe in the States, you are in a little town and you want to buy something from New York, you are not going to drive 10 hours, but like in Asia, I think people are still, the proximity is still relative enough where people want to go to the store.

Matthieu David: Talking about China more specifically, are you seeing some brands? Do you have some brands in mind which convey what you are saying, the insistence you have on sustainability in the fashion industry? Do you see some brands which are built on maybe older brands or new brands that are built on those topics you are mentioning?

Kanch Porta Panjabi: I think this – what I find very interesting in China is the luxury children’s market because they are very conscious of what their children are going to be wearing. And they have a very high-quality commitment. And, I can see where that comes from. And I believe, from the research I’ve done in this area, they are miles ahead of the majority of other countries. And that’s, you know, it’s very much their connection with their kids and how the future generation is careful. So, I do consider that has been very relevant and valuable.

Matthieu David: Interesting.

Kate Padget-Koh: I can’t – sorry, I can’t think of the name of a brand off the top of my head for you.

Matthieu David: Okay. Okay. We are heading to the end of the interview. And we have a couple of questions, you know, at the end of every interview about books, about what you are witnessing in the market. So, what books have inspired you most as entrepreneurs, as a brand?

Kanch Porta Panjabi: How long have you got? I’ll start with the one I am reading right now, and I gave it to Kate as well.

Matthieu David: If it’s a good one.

Kanch Porta Panjabi: Yeah, it’s called Fashionopolis. And yeah, it shares basically the history of the fashion industry in China and worldwide and also the future of fashion and where it’s going. So that’s what I am reading at the moment. And it’s yeah, it’s very – 

Matthieu David: Who is it by? Who wrote it?

Kanch Porta Panjabi: I’ll tell you; I think it’s John or Thompson or something like that. I’ll just let you know in a second. Let me check.

Kate Padget-Koh: Actually I – yeah, I have it in front of me. And I, what I – there is a number of books but quite honestly anything about fashion, it becomes irrelevant very quickly. So, the business of fashion – the publication, is fantastic. It’s so good. And I think also The Financial Times had, especially weekend, you know, that it has a lot, there is a lot of subjects around in there and I think any – I would tend to read more from those publications. And it’s also – I don’t want to say my laziness but my short attention span that I tend to read from publications than books at the moment.

Matthieu David: I see. So, I thought the second question I had – how to stay up to date? I understand it. 

Kate Padget –Koh: Contests. 

Matthieu David; Which ones are interesting about fashion?

Kate Padget-Koh: The business and fashion were fantastic ones.

Kanch Porta Panjabi: Yeah, very good ones. And then there are some really good ones like Finding Mastery. Although it’s not related to the fashion industry in China and worldwide, he interviews like very high performing individuals. And so, it’s like really good for business people because like how do you have more productivity? Everybody wants that, right? Everybody wants to.

Kate Padget-Koh: And then the other – there was one other series of books, sorry. It’s Harvard Business Review. They do these little manuals on different things and they did like one on resilience, one on focus. And I think if you are an entrepreneur and a business owner, that’s definitely like – it’s very helpful.

Matthieu David: If you had extra time, what would you do? What other business you would add?

Kanch Porta Panjabi: Sorry, we have a lot of ideas.

Kate Padget-Koh: I have another business. I am an artist.

Matthieu David: Any idea you’d like to work on? Do you feel another value in the market on top of sustainability which is taking off, for instance, as a topic?

Kate Padget-Koh: I think, I can only – I am thinking of what Kanch is going to say and how.

Kanch Porta Panjabi: I think, you know, for us, we have many projects that we would like to do – something around the blockchain. And then I have another project which is around F&B and, vegan and plant-based. And yeah, Kate and her art and fashion from that. So, I mean we have a lot of projects and just not enough hours, I think.

Kate Padget-Koh: Right now, we are very focused on this consultancy, but we, you know, we constantly have ideas.

Matthieu David: What unexpected success you have witnessed over the last, let’s say, three years? Something you would not have expected to be successful to work and actually became massive and worked very well?

Kate Padget-Koh: Are you talking about other brands or?

Matthieu David: Anything you have witnessed in Asia during speaking China more specifically, that you were not expecting to succeed? Giving you an example, 10 years ago when I arrived in China, people were still paying cash to get anywhere online. And now it’s all – everything is digital and WeChat, and much more advanced and it’s the west. So that’s, for me, very constraint. So, what have you witnessed which could have been a constraint for you three years ago, but is happening now and it’s becoming successful mainstream?

Kate Padget-Koh: I think there are so many things, of course you know, payment systems as you were mentioning. Also, with the way that Alibaba and a lot of those, Taobao and so on and a lot of those platforms, how huge they’ve become and how much more advanced they are in AI and data than anyone in the West. And I think, it’s – and also the infrastructure development in China. I mean earlier this year I took the bridge from Hong Kong to Zhuhai, and, you know, the ease of going through immigration and all of these things, which 10 years ago and when you arrived, do you remember? Just how much the infrastructure has changed and also cleaned up. I mean Shanghai now is a very beautiful and relatively clean city.

Matthieu David: Yeah, yeah. Kanch, what were you saying? What has been surprising to you?

Kanch Porta Panjabi: It’s on the hi-speed train.

Kate Padget-Koh: Yeah, yeah.

Matthieu David: Yeah yeah. And the opposite – what have you seen as a failure over the last three years? You would not have expected to be a failure?

Kate Padget-Koh: You know where we live? To that, that – what we are dealing with currently.

Matthieu David: Okay.

Kate Padget-Koh: We never expected this.

Matthieu David: Okay.

Kate Padget-Koh: To the extent as this.

Matthieu David: I see, I see.

Kanch Porta Panjabi: Yeah definitely. Well, I think on a grander level like for me being Indian – education, because if you, like you know, coming from India and focusing a lot around there, you see masses, most of the population is still uneducated like not being able to read or write. And I think for me, that’s like, considering that we have internet and everything is everywhere, it’s just like the contrast. I feel like that is just – at some point like that doesn’t work, you know.

Matthieu David: Yeah. In 2019, yeah.

Kanch Porta Panjabi: So, I think that’s kind of a shame.

Matthieu David: Thanks for your time. I hope you enjoyed it. And it will be published I believe in 10 days.

Kate Padget-Koh: Okay.

Kanch Porta Panjabi: Perfect. Thank you.

Kate Padget-Koh: Thank you.

Matthieu David: Thanks for listening.

Kanch Porta Panjabi: Take care.

Matthieu David: Bye everyone.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article Podcast transcript #85: A Hong Kong-based consultancy bringing sustainability in the fashion industry is the first one to appear on Daxue Consulting - Market Research China.

“China’s fast growing 5G technology infrastructure, artificial intelligence, machine learning and digital related-business environment, as well as people’s willingness to connect with various products via digital applications, are creating many opportunities, Michael Martin, vice-president of Nike China, said. So, to succeed on the Chinese market Nike has expanded its digital presence in China.

Nike in China: Business is Blooming

US-based Nike, Inc., the world’s leading sportswear and apparel company, has had a customer presence in China since 1981. For Nike, China has been a significant growth driver for many years.

Nike China’s revenue surged 21 percent in 2018 to $5.13 billion, which accounts for 14 percent of Nike’s total global sales. In 2019, sales of Greater China increased at a rate more than double the company’s growth. Sales were up 20.9% in 2019, from $5.13 billion to $6.21 billion.

[Source: Nike, “Nike’s revenue in Greater China from 2009 to 2019, by segment”]

According to China Daily, a top executive at Nike has stated that Nike will continue to expand operations in China, which is a growing consumer market for many US companies.

Channel Strategy of Nike in China: Digitalization

[Source: daxue consulting, “Nike’s digital direct retail framework in China”]

Nike’s strong sales growth is largely thanks to its digital strategy in China. In 2012, Nike  started its online journey in China by open its flagship store on Tmall, one of China’s largest e-commerce shopping platforms. Then, Nike launched its official website store, SNKRS App and WeChat Store in next several years. In November 2019, the widely acclaimed Nike App was launched in China, which takes a further step in Nike’s China digital transformation. Currently, Nike is focusing on developing its digital platforms, including innovative platforms and digital channels.

DTC strategy of Nike in China

[Source: daxue consulting, “DTC revenue of Nike China”]

Nike has established a Direct-to-Customer (or DTC) retail framework covering online and offline, 7975 offline stores and digital supply chain since 2012. Nike is always placing a heavy emphasis on direct-to-consumer channels through Nike.com, brand own Apps, Nike WeChat store and its own retail stores and DTC’s revenue share in Greater China increased from 23% in 2014 to 40% in 2019.

Nike’s China brand-own digital channels

[Source: daxue consulting, “Brand-owned channels of Nike in China”]

Apart from Nike Tmall flagship store and Nike’s China official website, Nike China also sells online through its WeChat mini-program. On the one hand, WeChat has 1 billion monthly active users, providing a huge pool of potential members for Nike. On the other hand, the Nike’s China mini program offers Nike’s consumers a full range of products and services. Leveraging the power of WeChat, Nike is able to connect with their Chinese consumers closely and personally.

In 2019, Nike launched Chinese version of Nike App and built its digital DTC system. Nike drives traffic from website and WeChat to its brand-owned apps, where it can deliver the most personal access to its products, events and exclusive content including coaching tips and personalized services for Chinese members. Since launched, the Nike China App is widely acclaimed due to its multifunction and convenience. At the same time, Nike gradually transfers its sales to brand-owned channels, especially the Nike App, since self-own channels mean higher profits and more loyal members than e-commerce platforms. Such strategy works well and currently, around one third of Nike’s digital revenue comes from its brand-owned Apps. 

“Nike has reported that its revenue for the second quarter of 2019 grew 10 percent. Nike’s international business grew 18 percent, led by Greater China at 23 percent thanks to Nike’s digital advantage in the marketplace. The Nike app and the SNKRS app are outperforming all other channels, driving digital growth of 38 percent for Q2”, Mark Parker, the executive chairman of Nike, Inc. said.

Cooperation with e-commerce platforms

The cooperation with Chinese e-commerce platforms like Tmall has great impact on Nike’s business in China. Opening the Nike flagship store on Tmall not only enables Nike to win international and local competitors in a short time, but also contributes to Nike’s China digital strategy in the long run.

Nike is driving growth through partnership with Tmall. For example, Nike placed as the top apparel-industry seller on Tmall and its flagship store’s transaction volume hit 10 billion yuan in hours on the Singles Day in recent years (2017-2019). Also, thanks to Tmall’s large customer base all around the countries, Nike has seen an impressive increase in new members in China. For example, the number of Nikeplus members increased 3 million in 2019 Single’s Day.

Nike also collaborated with Tmall for data-driven marketing projects. With the partnership with commerce platforms, Nike can access vast consumer behavior and industry trend data from third-party online platforms, which together with data collected from its own channels, to develop its consumer study and offer new products and better services to Chinese consumers. Currently, Nike China is deepening its partnership with Tmall, especially when to comes to innovating New Retail.

New retail strategy of Nike in China: Starting from Nike 001

[Source: Nike, “Nike Shanghai 001 shop”]

“Nike’s lead in retail and sports innovation is also redefining the future of sports retailing,” said Heidi O ‘Neill, President of Nike global Nike Direct. “Opening up digital and offline retail services is critical to providing seamless connection to the personalized consumer experience.”

Opened in Oct. 2018, Nike’s first global flagship store (Nike 001) aims to bring digital driven sports retail innovation, design and personalized services to the Chinese market. The launch of Nike 001 can be viewed as a cornerstone of Nike’s new retail and digital strategy in China.

“The ‘House of Innovation’ is set to propel our consumer-direct strategy as it provides the best that Nike brands has to offer through the integration of digital and physical retail,” said Angela Dong, vice-president of Nike Inc. and general manager of Nike China.

Digitalization, personalization, online-and-offline integration, the key elements of “new retail” can be found at each corner of Nike 001. The store is equipped with a mobile-checkout so the customers do not have to wait in line. Through advanced or in-store booking, the Nike Expert Studio of the Nike 001 gives NikePlus members unrivaled access to try on exclusive and personalized products in one-on-one sports expert sessions. As for online and offline experiences, Nike members have access to their customized products and private services in the store through online reservation. Also, from Nike’s WeChat Mini-program, members can get information about Nike’s latest products and exclusive members’ benefits.

Starting from Shanghai 001, Nike is leading the transformation of sport retail in China.

Nike’s Membership Community in China

Brand’s community allows two-way interactions which can draw regular customers closer to then brand and through them the band has access to more precious data about their customers’ behavior and need. Nike’s lifestyle community which evolves around the platform Nike+ is a good example in this context.

Nike online community in China: the troves of consumer data

Nike+ is a modern digital platform that integrates many products and features. The content of Nike+ is created by the members themselves through sharing and interacting on the platform. On the one hand, Nike+ motivates members to actively connect with each other, which further leads to strengthening the connection between the brand and its users. On the other hand, Nike+ online community collects rich data regarding user’s sporting behavior, which enables Nike perform an evolving consumer study.

Nike has delivered a fully localized version of the Nike+ membership program to reach and engage millions of Chinese members. For example, Nike creates and keeps updating the Nike+ Run Club (NRC) official account on WeChat, in order to build a single place for Chinese runners’ needs. With action points such as run routes and crews provided by NRC WeChat account, new runners are able to run with experienced runners and crews. Such a good running partner is widely acclaimed and popular among Chinese runners: within 2 months of the launch of the account, more than a hundred thousand users had a signed up.

Nike China App collects consumer data for important business decisions

Additionally, in Nov. 2019, Nike launched the Chinese version of the Nike App — Nike’s one-stop shop, which aims to provide Chinese members with a personalized, immersive experience, and to inspire every Chinese consumer to live a fit lifestyle.

The Nike+ ecosystem allows Chinese runners to share their experiences, track their running progress and create and meet challenges for themselves and their running networks. It is the information and data uploaded by runners that have become an important basis for Nike’s business decisions such as product design, new product promotion, and online and offline marketing. The collection of users’ running information can help Nike find potential customers and understand them better by analyzing how the fans and consumers behave, what they like about Nike’s footwear and apparel. Thus, Nike is able to conduct data-driven marketing campaigns more accurately by leveraging the troves of consumer data.

Nike offline community in China: increase members’ loyalty

Nike has garnered the power of community and learned more about what Chines users want through holding a series of offline activities. The sports brand has organized a series of ‘social’ sport events (for example the China High School Basketball League, races) annually and also held theme activities regularly through many community clubs such as Nike Runs Club, Nike Training Club. For example, Nike “JUST DO IT SUNDAY!” runs campaigns are hold on a regular basis in different cities around the country, and new elements like technology, books, music, charity, etc. are added to the events in order to make running more interesting and meaningful.

[Source: Nike, “Nike ‘JUST DO IT SUNDAY’ event”]

Events like races provide consumers with a platform for immersion in the Nike experience, through their willingness to engage personally and interact socially online and offline, Nike and its runners are co-creating an experience together. Therefore, members are motivated to actively connect with each other through taking part in the Nike’s offline events, which further results in more sense of belongings and loyalty of the members to the Nike. Through the offline community events with specific theme matched with Nike’s spirit, Nike is able to established emotional resonance with its members and in this case, the connection between Nike and its Chinese customers is deepened.

Digital Marketing Strategy of Nike in China

As more consumers start adopting various digital technologies in their daily lives across the country, Nike has developed its new digital marketing strategies in order to continue engaging the Chinese audience.

Female-focused strategy

Data from the Nike+ Running community proves the growth in women’s running around the world especially China. In China, female Nike+ runners are growing at an even faster pace than men. In recent years，Nike has laid more emphasis on Women’s business by launching various community campaigns and providing tailored services targeting women.

[Source: Nike, “Nike Women China ‘Better For It’ Brand Campaign”]

How Nike China targets women runnersNike has activated Nike+ Run Club and Nike+ Training Club to provide women runners of all levels with more comprehensive running programming and elite coaching. Nike also launched NikeWomen WeChat account, which aims to provide a social platform for Nike’s female customers and advertise women-based products and events. Therefore, with the digital platform base (integrating Nike+ Run Club, Nike+ Training Club, Nike App, Nike and NikeWomen WeChat account), Nike is able to realize its woman-based marketing strategy and build a more cohesive female community in China.

Nike markets to women by empowering them

In addition, Nike launched its global “Better for It” campaign meant to spark women’s interest in sports and Nike China localized the campaign under the tagline “Just for better (只为更赞)”. For the Chinese campaign content, Nike leveraged female influencers like actress Wang Luodan relating to the frustrations of every day exercise and the love-hate relationship many have with working out. Influencers on WeChat and Weibo helped Nike connect with the target by sharing their training stories and inspiring women to be “Better for It.”

Also, Nike drove traffic and downloads of the N+TC app, that provides a community and personalized workouts with professional trainers for women to complete at home. For offline marketing, Nike’s N+TC Tour officially kicked off in Shanghai on March 8，2015 and has since completed its first-ever Greater China tour, connecting with over 8,000 women across 4 cities. Two-time tennis Grand Slam winner Li Na joined over 1,000 young women for the inaugural Shanghai N+TC Tour celebration and is joining the #betterforit call to action with her own story.

Nike China opens women’s only store

Moreover, Nike opened its second, women’s-only store in Shanghai. In this store, specialized services, weekly programming and tailored events are designed to inspire and enable the community of active women. It is from the store, we can see the key of Nike’s digital marketing strategy: Integrating online communication and offline retail terminals around digital community platforms. For example, Nike Women Shanghai also features a digital community area displaying updated calendars for the Nike+ Run Club, Nike+ Training Club classes and store events. Profiles of Nike coaches and trainers, the latest product and campaign information, Nike+ content and downloads will also be easily accessible.

[Source: Nike, “Nike Women store in Shanghai”]

Brand community on social-media

Nike shows the successful creation of a strong relationship with its online brand community demonstrated by an active customer engagement.

Nike encourages its brand community members to post photos of their workout on social media by offering templates and hashtags. That way, sharing goals, struggles and achievements with either friends or strangers motivates Nike+ users themselves as well as other brand community members. Additionally, community members spread information about Nike and its products and act as stealthy brand ambassadors.

[Source: Weibo, “Posts with #NikeTraining hashtag on weibo”]

Particularly on Weibo, one of the top social networking platform in China with 516 million monthly active users, Nikes’ brand community members transfer their experiences in form of individual images and words under a collective hashtag #NikeTraining or #Nike+训练营. Thereby they express their commitment to both, the brand and the brand community. Currently, there are around 1.955 million reads on Weibo #NikeTraining topic. With the help of social media, brand stories created and shared by users influence not only existing community members but also new ones, who might get confirmed in their brand spirits and gain more trust towards the brand. In this case, Nike successfully promote itself among billions of users in Chinese social media platforms, and this further leads to long-lasting relationships between the Chinese customers and the brand. 

Digital strategy is the key to Nike’s success

“The digital economy will bring huge market opportunities for China and the other parts of the world, as technology has profoundly affected consumer behavior and raised the expectations of potential customers.” Iris Yen, vice-president of Nike Direct China said.

Nike believes digitalization as a strategy in China will help it perform better in Chinese market. Focusing on digital platforms, Nike aggregates segmented users to create different communities and provide diverse online services and offline experiences. Also, for brand marketing and promotion, Nike integrates the resources such as retail terminals, digital platforms, and offline experience activities, etc. With the digital strategy in China, Nike is creating its brand ecosystem, which covers consumer insight, products innovation, customer experiences and value creation. The pattern is expected to constantly drive growth for Nike in China and help it lead the future of retail.

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article Nike in China: Embracing digital transformation is the first one to appear on Daxue Consulting - Market Research China.