Click to jump to sections of the guide on clothes distribution in China

• Fashion market overview
• E-commerce
  • Taobao and Tmall
  • JD.com
  • Pinduoduo
  • Brand owned channels
  • Social commerce
• Offline stores
• COVID-19 impact

China’s fashion market growth is not slowing anytime soon

The fashion industry in China has performed well over the past five years. Industry revenue grew at an annualized 5% over the five years through 2019, to total $324 million. Forecast shows that the performance of clothes industry in China will increase to $359 million in 2021.

Data Source: Statista, Revenue in the clothes market in China

Clothing occupies 1/3 of all online shops. The three most popular e-commerce websites for clothes distribution in China are Taobao, Tmall and JD. Forecasts show that 52% of total revenue will come from online sales in 2020.

Data Source: Statista, Sales channels in the clothes market in China

Though offline channels attract less traffic than online, they play a more important role in the purchase stage, accounting for 60 percent of all transactions. Offline conversion is almost 4.5 times as high as online. Chinese consumers buy 43 percent of unbranded clothes online. However, they tend to buy branded clothes in physical retail stores. When it comes to branded clothes distribution in China, offline channels account for 80 percent of sales.

E-commerce market is an essential channel for clothes retail

Taobao and Tmall – the key e-commerce players for clothes distribution in China

There are three major types of clothes brands sold in Taobao: designer brands, commercial brands, and fast fashion brands. In recent years, international apparel brands have accelerated their expansion into the Chinese market. In general, Taobao targets the fast-fashion category of middle-income consumers seeking diversified fashion. For example, Zara is also developing rapidly in the Chinese e-commerce industry.

From the perspective of key brands, in December 2018, the online sales growth of most listed apparel companies continued to decline year-on-year mainly due to the fierce online competition.

Luxury clothing distribution on Tmall and Taobao

Luxury fashion has trouble differentiating from counterfeits on Taobao

There are no official stores of luxury brands on Taobao platform, as it focuses on fast-fashion. Besides, luxury brands worry about counterfeiters, which are hard to regulate on Taobao. In 2015 Gucci, Yves Saint Laurent and other brands filed a suit accusing Alibaba of being a conduit for counterfeiters. Starting in 2016 sellers of luxury products have to upload an invoice or authorization letter from the luxury brands, for examination by Taobao.

Tmall is an ideal alternative for luxury brands

51% of 45 top global fashion brands now have official flagships on Tmall. It’s a big uptick from previous years. Luxury brands that now sell on Tmall include Valentino, Versace, Isabel Marant, Coach, Bottega Veneta, Givenchy, and Burberry. At the end of September 2019, online fashion retailer Net-a-Porter and its men’s site, Mr. Porter, opened a shop on Tmall too. They are offering more than 130 luxury and designer labels. However, luxury’s mega-brands, such as Louis Vuitton and Gucci, haven’t come around to Tmall just yet. But for independent brands and so-called affordable-luxury labels such as Coach and Michael Kors, the reach Tmall provides is particularly beneficial.

Data Source: Quartz, Share of brands Luxury China Index selling on Tmall

Fast fashion distribution on Tmall and Taobao

E-commerce accounted for 20% of Uniqlo’s sales in China accounted in the first half of 2020, an increase of 30% over the same period last year. The brand expects e-commerce to account for more than 30% of sales in the fiscal year of August 2021.

The growing middle class in China are mostly seasoned shoppers who have a long-standing relationship with online retailers like Taobao. If we look at top selling clothes brands on Taobao, Uniqlo occupied the top position in the brand store category. In 2019 on 12.12 they got around 5 million yuan revenue in one day.

Up to now, Tmall has attracted 90% of the world’s fast fashion brands. Taking Uniqlo as an example, the financial report released in 2018 showed that thanks to the strong growth of the Chinese e-commerce market, the performance exceeded expectations. Co-operation with Tmall brought Uniqlo space for lane change and overtaking. In 2019 during 11.11 festival after 16 minutes, the turnover was around 5 hundred million RMB. Uniqlo became the leading Tmall apparel brand.

Data Source: Zhiyi Technology, Top ten brand stores on Taobao

Does Tmall and Taobao have more domestic or foreign brands?

Domestic brands are key on Taobao

Despite that foreign brands started actively participating in selling on Taobao, domestic brands still play a key role. In 2019 among top 5 best-selling brands on Taobao during 12.12. festival four brands were Chinese. For example, Semir brand established in 1996, has become a leading brand in China’s casual clothing industry. It made around 600,000-yuan revenue during the 12.12 festival.

Unlike Taobao, Tmall’s top brands in terms of sales are mostly foreign brands. Good performance shows Handu Group. In April 2019, the number of followers of the HSTYLE Tmall Flagship Store exceeded 20 million.

Foreign brands turn to Tmall

Foreign brands like Levi’s, GAP and Uniqlo actively distribute through Taobao and Tmall. Adidas also established an online store on Taobao and Tmall. Adidas claimed while most of its sales still come from offline stores, the company’s online sales in the country has seen rapid growth.

Tmall has become the core position of global brands in the Chinese market. According to Tmall data, the number of global brands that have entered Tmall has exceeded 50,000. Such foreign brands as Uniqlo, ZARA and Monki participated in Spring/Summer Tmall Fashion show, bringing nearly one million new products to the Chinese clothes market.

Data Source: Yunguan data, China’s top clothes brands on Tmall

Clothing distribution on JD.com

The data shows that JD.com clothes industry went online in 2011. It became the second largest occupant of clothes categories in China’s B2C market in 2014. It has now become one of JD.com’s fastest-growing categories. JD.com’s key brand layout has attracted many well-known international and domestic brands to settle in.

Luxury fashion: JD can help with brand awareness, but not all brands use it

Louis Vuitton Group has no official store on JD platform. However, other luxury brands in China actively cooperate with this e-commerce giant. In 2017 JD.com and Farfetch announced a strategic partnership that created the premier platform for luxury e-commerce across China. Farfetch has well-established operations in China and is already the partner of choice for 200 luxury brands. JD will help drive further brand awareness, traffic and sales for Farfetch in the market. Such brands as Armani, Swarovski and Zenith have their official stores on JD platform.

Fast fashion is not a focus of JD

As JD.com initially specialized in tech, there are not so many fast-fashion brands on the platform. The key players are Vero Moda and Only. From the brand lineup, JD.com bags, watches and jewelry account for a higher proportion, while Tmall focuses on clothing and beauty.

Domestic vs. foreign brands on JD

According to JD’s clothing brand ranking, domestic brands prevail in different categories of clothing. Taking the category of “women’s dresses” as an example, we can see that the top 5 products are Chinese brands.

Source: JD.com, Top 5 products in “women’s dress” category

Pinduoduo – discounted clothing with group buying

Founded in 2015, the Chinese e-commerce platform Pinduoduo offers a wide range of products from daily groceries to home appliances. Counting 536.3 million active buyers and 7 billion products sold in the first half of 2019, the platform is essential for retailers and brands.  When looking at a product, users have two price options, a standard price to buy directly and a discounted price. Discounted prices are unlocked when users form ‘teams’ of at least two buyers.

Luxury fashion slowly join Pinduoduo

For most brands, Pinduoduo is not going to be as good of a fit as a platform like Tmall or JD.com. This is particularly true for premium or luxury brands, which after years of resistance have turned in droves to Tmall’s Luxury Pavilion but are as resistant to discounting and promotions in China as they are elsewhere. However, in 2018 such luxury brands as Armani and Givenchy joined the platform. It can give other luxury brands in China an impulse to cooperate with Pinduoduo.

Brand owned channels

Brand.com is key for luxury

With higher platform fees and increasing user acquisition costs, only 10-20% brands are making profits on Tmall. Thus, building brand-owned ecommerce channels may be more worthy of investment. Besides, the issue of fake goods sold on public marketplace is a common concern of Chinese ecommerce consumers. Brand-independent ecommerce platforms in China can ensure brands full control on the whole retail process. 

Louis Vuitton in China – like Gucci and Hermes – has ventured online but on its own terms. In 2017 it launched a standalone e-commerce site. The site will let customers buy Louis Vuitton leather goods, shoes, accessories, watches, jewelry, luggage and perfume. Vuitton is fiercely protective of its distribution as a means of controlling prices and supply.

Many fast-fashion brands using their own website for clothes distribution. For example, UNIQLO has its own web-based store in China. Customers can also receive the latest information including the weekly mail magazine and the latest UNIQLO campaigns.  Customers will be able to choose from approximately 500 different items of UNIQLO mainstay products.

Using own website is more common for foreign than domestic brands

Most of global foreign websites such as Zara, Uniqlo, H&M, Nike, etc. have their brand-owned websites in China. For example, Zara in China launched an online store back in 2012. The website offers online shoppers the same full range of merchandise for women, men and kids as the one found in physical stores.

As Chinese companies are aware of rising costs of e-commerce in China, they actively distribute clothes using brand-owned websites. For example, Chinese company Peacebird launched a variety of sales models during Spring Festival, such as discounts and live broadcasts on its online shopping platform. It invited fans to “cloud shop”.

Social commerce in clothes distribution in China

Xiaohongshu- the fastest growing social media platform for shopping review

Xiaohongshu is a startup that’s part e-commerce portal and part social media platform. It also has its own e-commerce mall to which the posts on its site can link. The company is backed by Alibaba and Tencent, and has 220 million users. The top 10 content are the categories of “clothes”, “hairstyle”, “skincare”.

With the rising of Xiaohongshu many domestic brands started using it to achieve sales breakthroughs. For example, in June 2020 the domestic women’s clothing brand Zhizhi and the Orange Desire held a brand day event in Xiaohongshu. 12 different fashion bloggers shared live broadcast, promoting clothes of these brands. After this event, both brands saw rapid growth in sales.

Using hashtag “fitting room” on Xiaohongshu, most of results will show popular fashion bloggers taking photos of themselves trying on clothing in a store changing room. Zara, H&M, Uniqlo and COS are the most mentioned brands with fitting room hashtags. The article will give a description of the items, what the KOL did or didn’t like about them (such as material and fit), the prices, and which items the Chinese KOL suggests buying.

Source: Media Production, A typical ZARA fitting room try-on post

Luxury fashion use Xiaohongshu for brand awareness

Luxury brands like Dior and Chanel actively use Xiaohongshu to increase awareness. The number of mentions of luxury labels such as Hugo Boss and Max Mara by users has increased quickly on the platform. In 2017, users mentioned Chanel 2.24 million times, with Dior following after at 2.14 million mentions. Meanwhile, Hugo Boss recorded a 271 percent jump in mentions, with Bally and Max Mara both achieving growth of 133 percent.

Xiaohongshu shows fast growth in Fast-fashion

In 2019 the search volume of brand specific information on Double 11’s Eve brand has skyrocketed. In recent years, Uniqlo, a clothing brand that repeatedly created sales campaigns during the Double Eleven period, has also increased its search volume by 148% during this period.

Clothes brands embrace WeChat e-commerce

WeChat is a key channel for Luxury fashion

Since Louis Vuitton became the first luxury brand to open a WeChat public account in November 2012, other luxury brands have also rushed to open service numbers.

For example, on Chinese Valentine’s Day 2016, Dior launched an online customization campaign for its Lady Dior handbag. Users could choose the accessories for a small Lady Dior bag and directly purchase it using WeChat’s payment system or Alipay. 

Data Source: LadyMax, Top luxury brands in WeChat by number of followers

Uniqlo set the pace of WeChat for Fast fashion

UNIQLO was the first brand to test the WeChat mini-program store in China. At the same time, it introduced smart shopping guides Xiaoyou and Xiaoyou Zongsha to provide consumers with a better-quality experience and make its omni-channel closed loop more complete, thereby targeting more consumers. Uniqlo has taken the lead in WeChat, a traffic pool with 1 billion users, and has introduced offline self-promotion and LED digitization in all e-commerce channels and physical stores.

Domestic brands

Domestic brands use WeChat to increase awareness and communicate with customers. According to statistics, such brands as Eichitoo and Li Ning have the best results in WeChat promotion of their clothes.

Data Source: Sino-Fashion, Top domestic clothes brands in WeChat

Foreign brands

Nike, Adidas, Tiffany&Co, H&M and many other foreign brands launched WeChat accounts in China in order to expand clothes distribution. Users are staying on WeChat more frequently and longer, but for domestic brands, it is easier to attract traffic, gain customers, and convert sales on WeChat. For foreign brands, wanting to enter the Chinese market towards it requires a lot of capital investment and months of account opening.

Offline stores still make 60% of the total transaction volume

Despite the enthusiasm of Chinese consumers for online shopping, most still prefer purchasing luxury products at bricks-and-mortar stores. These enable them to see, touch, feel and try out products. Besides, it helps to enjoy high-end customer experiences such as refreshments, invitations to private lounges, and other customized services.

Particularly in the luxury sector, offline stores are still an important marketing and sales channel, where consumers are engaged in a highly experiential way through activities and events that reflect the brand image of the retailer. According to a report by Tencent, in 2017, 95% of luxury purchases were made offline versus merely 5% of luxury purchases done online. Taking Louis Vuitton as an example, China has the third place in the ranking of countries with the biggest number of LV physical stores. It shows the importance of physical clothes distribution in the Chinese luxury sector.

Data Source: Louis Vuitton, Number of Louis Vuitton stores per country

However, between 2015 and 2017, 138 new leading luxury brand stores were open in China, yet 144 stores were closed, therefore the aggregated number of the leading 20 luxury brand retail stores fell slightly down to 1,119 in 2017, compared to 1,125 shops in 2015. It can reflect the growing importance of the e-commerce in China, as more and more consumers choose to shop online.

Fast fashion brands continue to open offline stores

Companies with ambitious expansion plans include European company C&A Mode, which has more than 40 stores and plans to have 150. The Japanese brand Uniqlo, one of the first entrants into the scene of the fast fashion industry in China, plans to open 100 new fashion stores in China and already holds 2.4% of all apparel and retail footwear values.

Foreign fashion brands focus on offline ‘flagship stores’ in China

A number of players have expanded local store networks and launched their first/ largest global flagship store in the country. For example, in June 2019, Spanish fast fashion brand Mango signed a cooperation agreement with Hangzhou Jingzhe Clothing Co., Ltd. to accelerate its development in Asia, especially in the China market. Under this cooperation agreement, the brand will further develop both online and offline channels – it plans to open 16 physical stores in China.

Brand stores in China dominate in terms of clothes distribution in China

At the moment, in Asia – and in China in particular –mono-brands dominate the market. More precisely, 95% of the market in China is mono-brand retail stores. Adidas alone has 11,281 stores in China. The only exception in Asia is Japan, which already has a mature market. Nevertheless, the multi-brand trend is constantly evolving.

Multi-brand stores are rising in China

Department stores in China are still an important channel for clothing sales. According to the statistics, in 2005, the monthly sales of clothing in the top 100 shopping malls were 4.9 billion yuan. 44% of the total amount, with an average sale of 100 million yuan, indicating that despite the rapid development of the apparel wholesale markets in various regions, large department stores is still the main channel for clothes distribution.

COVID-19 impact on clothes distribution in China

Data Source: McKinsey, Traffic fell during COVID-19 outbreak in China

COVID-19 outbreak in China influenced the clothes industry in China. Discretionary categories, such as food service outlets, apparel stores, and department stores were hit hard during the crisis and their recovery has been slow. Absolute traffic levels fell dramatically in all categories. Some 80 percent of apparel stores have reopened, but footfall in discretionary categories is still 40-50 percent below pre-COVID-19 levels. To engage with these dynamics, hard-hit categories such as apparel have ramped up their digital activities. In February, when coronavirus struck China hard, Taobao saw the number of livestream sessions on its app double. It is a sign to the e-commerce platform that brands are relying more on livestreaming to get customers.

Distribute through brand-owned channels – our Brand Independence in China report

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This article The complete guide to Clothes Distribution in China is the first one to appear on Daxue Consulting - Market Research China.

Market Entry and Development

Carrefour entered China in 1995 through a joint venture and opened the first large hypermarket – Beijing Chuangyi Store. Enjoying first-comer advantages, Carrefour in the Chinese market had remained the fastest-growing foreign retailer for about two decades. Problems began arising when digital technologies came to the Chinese market in 2010.

Expansion Phase

Carrefour expanded throughout China in just a few years, led by its China CEO Shi Lerong. Between 2003 and 2006, Carrefour in the Chinese market was the fastest expanding foreign retailer, with over 10 stores opening each year. During this time, Carrefour had established several flagship stores and procedures in China. In 2011, Carrefour set up a top-level food security lab in Beijing – the first of its kind in China. The lab links 42 smaller labs together to enhance food security, becoming an example of the provision of high-quality food.

From 2009 to 2014 the sales of Carrefour in China had stable growth, reaching 4.9 billion euros.

Data Source: Statista, Net sales of Carrefour in China 2009-2014

Carrefour decline in China

In 2009, Taiwan-based RT-Mart replaced Carrefour China as having the largest number of retail stores among foreign retail investors. In 2010, online retailing started to soar in China. By 2017, China’s e-commerce market became the largest in the world, accounting for 40% of worldwide e-commerce transaction. China’s online retail market has also become the world’s largest, with 38% annual growth rate (US$830 billion). To respond to the changing habits of Chinese consumers from in-store shopping to online shopping, Carrefour started to close some stores. The first store closure was Xiaozhai store in Xi’an. By the end of 2015, Carrefour had 228 stores. In the same year, it closed 18 stores, with only 210 outlets at the time of its exit in 2019.

Data Source: Statista, Number of Carrefour stores in China 2015-2019

In 2015 the sales of Carrefour in the Chinese market started to decline and reached a low of 3.6 billion euros in 2018.

Data Source: Statista, Net sales of Carrefour in China 2015-2018

Carrefour’s measures to cope with decline

To respond to Chinese consumers’ preferences for convenience, Carrefour opened its first convenience stores in China in 2014. Carrefour Easy and Carrefour Express convenience stores opened in residential areas in Shanghai, targeting middle-class residents. The fast growth of its convenience stores contributed to Carrefour’s store and sales growth rate in 2016.  According to data from China Chain Store and Franchise Association, Carrefour was 11th largest retailer by sales in 2016. Besides, it ranked 4th place among foreign retailers in China. In 2015, Carrefour introduced its online shopping tool to boost its market share.

In the same year, Carrefour opened its first shopping mall in Beijing. It rents out its store spaces to other retailers to attract customer flow and spread costs. It was also the first time that Carrefour purchased land to build and manage a mall.

Failure in terms of e-commerce

The rise of e-commerce has forced the transformation of traditional retailers’ businesses, but Carrefour has been too slow. The problem was a bad shopping experience. The Carrefour App ran slowly, product variety was limited and many regions did not support the distribution of fresh food.  

After traditional retailers such as RT-Mart and Walmart have tried the “catering + retail” format, Carrefour’s similar format was late to the game.  In 2018, Carrefour opened “Fisherman’s Kitchen” and “Extremely Fresh Workshop” in Shenyang and Wuhan. It only chose seafood products in China to try the new concept.

Corporate image and internal issues

On March 15, 2012, Chinese authorities reported that the Carrefour in Zhengzhou sold re-packaged expired food. On April 18, 2012, a Weibo user posted on her microblog that the codfish she bought for her baby at Carrefour turned out to be Ruvettus pretiosus, which is a poisonous variety of fish. On June 17, 2012 Carrefour was accused of price cheating in Wuhan.

In addition to food safety issues, product prices, rigid relationships with suppliers and insufficient supply made it difficult for Carrefour to survive in the Chinese market. In January 2020 Carrefour faced a fine of 2 million yuan for violation of China’s price law. Due to all these problems, the stock price of Carrefour declined during the period from 2015-2020.

Data Source: Yahoo Finance, Carrefour stock price 2015-2020

Supply chain system problems

Carrefour did not have its own distribution center until 2015. By then, suppliers delivered most of goods directly to stores. The previous system caused inefficiency for managing both costs and sustainable growth. The reason for this late development was the lack of emphasis on distribution centers and logistics management.

Neglect of construction of a supply chain system forced Carrefour to pay a painful price. The slow supply speed not only affected the shopping experience and product sales, but also caused challenges with competitiveness.

For example, Yonghui Superstores formed a strong regional supply chain across Chinese regions relatively early. RT-Mart completed the construction of logistics distribution centers in four major regions in 2012. Walmart in China adopted the model of delivery to national distribution centers.

Carrefour’s competitors in China

In terms of competition, in 2016 and 2018, Carrefour’s market share remained around 3%. It was lower than the industry’s TOP3 retailers: Sun Art Retail Group Limited (8.1% and 8.4%), RT-Mart (6.8% and 7.1%) and CR Vanguard Group (6.4% and 6.8%). 

Data Source: Kantar Consumer Index, ‘Market share of major retailers in China 2018

Carrefour also competes with other foreign supermarkets and hypermarkets in China. ALDI, a recent China entrant, has shown to be a new favorite in the grocery market. Costco, an even more recent entrant, is known for causing huge commotion of popularity during its opening week. Then there is Walmart, which takes 5% of the market share, and Sam’s Club, which is known for it’s strong digital strategy.

Problem with city-based merchandise centers

In early 2015, Carrefour reduced its 24 CCU (city-based merchandise centers) to 6. In doing so, Carrefour in China centralized its merchandise systems. After this new establishment, regional directors of these six big regions started to focus more on store operations. The CCUs contributed to the increased centralization of power from stores to each CCU, making profit more transparent.

However, each region needed to allocate purchasing power to an increasing number of employees who were responsible for supply. Carrefour shifted staff from stores to CCUs. Consequently, many experienced store managers left Carrefour.

Carrefour’s current state in China

Acquisition by e-commerce retailer Suning.com gives positive results

In 2019, Suning.com announced that it had completed the acquisition of Carrefour China. The company acquired 80% of stakes in Carrefour China for 4.8 billion yuan.  Jindong Zhang, the Chairman of Suning.com, said that Suning can transform Carrefour stores into fully integrated online-and-offline supermarkets.

The chronology of acquisition

• In early November 2019, Suning Finance successfully integrated Carrefour’s financial system, so customers can pay with their Suning Finance account.
• In mid-November 2019, Carrefour stores in Nanjing and Shanghai have built quick picking warehouses. Customers can place orders online through Suning’s Convenience Store app, Carrefour Mini WeChat program and third-party platforms. It delivers their package in 1 hour within 3 kilometers. During the Single’s Day period (Nov 1- Nov 11), Carrefour sales and orders broke historical records.
• At China International Import Expo, as a purchaser and exhibitor, Carrefour signed 150 million RMB in purchase contracts.
• On Black Friday in 2019, Carrefour’s online flagship store opened on Suning.com, focused on selling high value imports. Customers can place orders online and enjoy efficient delivery services through Suning Logistics.

Data Source: jiemian, Sales of Carrefour in China’, the sales grew after the acquisition by Suning

Carrefour’s ties with Alibaba

Suning has had close links to Alibaba. The Chinese e-commerce giant Alibaba owns a 20% stake in Suning courtesy of a $4.6 billion investment in 2015.  Suning, in turn, invested 14 billion yuan ($2 billion) in Alibaba — a deal that kickstarted Alibaba’s ‘new retail’ strategy.

Suning last year cashed out and cut its stake in Alibaba from an initial 1.1% to 0.51%. In other words, Alibaba has gone from an ally to Suning to a potential competitor in the omnichannel commerce space. The Carrefour deal can lead to a race between retailers as Carrefour China’s retail presence could boost Suning’s offline reach. 

Five long-term strategies of Carrefour in the Chinese market

In 2019 Suning announced five long-term strategies of Carrefour in the Chinese market. It included digitalizing Carrefour’s physical stores. Improving current store models and expanding to lower-tier cities with Suning’s Retail Cloud Franchise Store became key priorities. Integrating with Suning’s convenience store and opening new stores in the existing market are also strategies for Carrefour’s business development.

COVID-19 impact on Carrefour in China

Carrefour in China saw significant profit during COVID-19 outbreak

The implementation of the e-commerce strategy has come at the same time as the onset of the coronavirus in China. Carrefour launched flash delivery services that have been combined with Suning’s convenience stores to meet consumer demand. The average daily order has increased by 202 percent month-on-month, according to the company. In terms of digitalization, 210 existing stores nationwide have completed smart retail transformation to meet the one-hour delivery service within 3 km and the half-day service within 10 km of the same city.

Baidu Index: searching frequency for ‘Carrefour online store’ soared during the lock-down period in China

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How can sports brands optimize distribution in China to gain market share?  The sports equipment market in China is booming, and brands and distributors are interdependent. In this piece we evaluate the sports equipment distribution distribution channels in China of market leaders.  Lastly, we see how brands responded to two recent disruptions in the sports equipment distribution landscape in China.

Overview of the sports equipment market in China

Sports equipment market size is growing at double digit pace

Promotion from the State and general improvement in quality of life pushed more people to work out

State Council has made the sports industry a top strategy since 2014. Based on statistics from General Administration of Sport of China, the population who regularely exercised grew 48% in urban areas and 148% in rural areas from 2007 to 2014. According to Qianzhan Industry Research Institute, as of 2018, the absolute number of people exercising regularly hit 420 million, almost 32% of the Chinese population. Since it’s still behind 70% of the United States, there is still room for growth. What’s more, this increased interest in sports is manifested across all age groups. According to YiGuan Analysys and China Merchants Securities, the penetration rate of sports has almost doubled from 2007 to 2014.

[Data source: YiGuan Analysys and China Merchants Securities, “Sports penetration improved across age range in China”]

The passion for sports and an increase in disposable income have led people’s attention to a wider range of physical activities

More and more people are not satisfied simply with running, football, basketball, but also participated in skiing, diving, yoga, hiking and other specialized sports. According to Official Website of Chinese Athletics Association, the number of people who run marathons grew 8 times from 900 thousand to over 7 million over 2014 and 2018, and the sport clubs almost doubled from 45,465 to 80,106 in the same period. According to Wind and China Merchants Securities, the average expenditure on sports equipment is growing at a CAGR at 11.2% and is expected to attain 3,448 RMB by 2020.

[Data source: wind and China Merchants Securities, “Annual per capita sports expenditure is rising in China”]

The two important factors of sports equipment market size are both on the rise, making the sport market size bigger than ever. The State Council issued a program called Fitness for All which predicted that by 2020, the market size for sports consumption will be 1.5 trillion RMB, 58% more compared to 910 billion in 2018.

In this growth context, the Covid-19 pandemic caught everyone off guard. Many department stores were forced to temporarily shut down, and economic slowdown curbed consumer expenditure in the short term. In the medium to long term, we can expect a shuffle in the industry with weak sports equipment brands being squeezed out and leaders self-upgrading. This is likely to consolidate the growing internal demand and make the leaders even stronger in the market position.

Profile and segmentation of Chinese sports equipment customers

It is to be acknowledged that sports equipment market encompasses a wide variety of equipment and accessories. They could be consumer facing (2C) or gym facing (2B), suitable indoors or outdoors, for leisure or for competition. Also, each category requires a distinct set of marketing and distribution strategy to best target their specific market segment.

A humble categorization of this vast Chinese sports equipment market can be defined into 3 parts:

• Sports shoes and sports protection equipment like running shoes and yoga clothes,
• Special sports equipment and accessories like treadmill and dumbbells,
• All the rest that does not fit into the first two subcategories.

The first category, the sportswear market is mostly consumer facing. This requires the sports equipment brands to incorporate brand image, comfort and performance into the product design. Likewise, the sportswear distributors have to first emphasize on in-store experience and second develop the distribution channel that covers the most potential customers with the help of e-commerce and management information systems.

[Source: heiyd.com, “Example of special sports equipment in China”]

The second category of special sports equipment and accessories usually has final clients like schools, businesses, gyms, communities, and governments. Consequently, it’s important for sports equipment brands and manufacturers to have several trustworthy wholesalers. The distribution channel doesn’t necessarily need to be as widespread and stretched as the sportswear market, but it has to ensure big quantity supplied to viable clients.

The third category should adopt a distribution depending on the specific characteristics of the sports equipment. As there are no distinct commonalities, the distribution strategy might be a mixture of the two models mentioned above.

Sportswear takes up a big part of total sports equipment market and has most visibility in the distribution issues. According to the State Council, the leisure exercise industry is an important subcategory to the general sports industry and could take 60% of the total market size (3 trillion out of 5 trillion RMB) in the market projection for 2025. In order to better illustrate the supply chain for sports equipment distribution in China, the following report focuses mainly on the sportswear market.

[Source: heiyd.com, “Examples of sportswear sold in China”]

Sports equipment brands, sports equipment distributors and their interdependencies

The sports clothes and sports shoes industry has seen several major brands fighting for market share in China. According to Euromonitor and China Merchants Securities, Nike and Adidas each claim 18%, followed by Anta with 7%, Li Ning 5%, and FILA 3% in 2018.

[Data source: Euromonitor and China Merchants Securities, “Market share of top 5 sportswear brands in China”]

The major sports equipment distributors operating in china include international-level distributors such as Baili International (holding company of Top Sports) and Paosheng international (holding company of YY Sports) as well as regional distributors like Really Sports in Shanghai, High wave Sports in Chengdu, Sanfo Outdoors in Beijing, Sanse in Guangzhou. There are also international players such as Intersport and Decathlon. The fact that the manufacturers of sports equipment are mostly in the southern provinces like Zhejiang, Fujian, Guangdong, Jiangsu and Shanghai in some way explains the prosperity of distributors in those regions.

Sports equipment brands and sports equipment distributors are both important business partners but also partially competitors. For example, when the sports equipment brands adopt self-owned distribution channels through digital means, the distributors lose some of its market competitiveness to the brands. Inversely, when the distributor collects a big number of sports equipment brands and consolidates the local demand, they gain bargaining power.

The intricate relationship between sports equipment brands and sports equipment distributors imply different strategies for getting ahead. For distributors, their success relies on securing vast retail points through M&A, regional networks, and their own sports equipment R&D. A beautiful example is the French Intersport’s strategic partnership with Chinese distribution conglomerate Suning. On the other hand, brands benefit from developing proprietary distribution channels, enhancing brand identity, and cutting-edge R&D in sportswear innovation.

Sports equipment brands have more bargaining power than sports equipment distributors in China

Unlike the home appliance market in China where Gome and Suning, two famous appliance distributors have taken the lead in the distribution landscape, the sports equipment market seldom sees distributors build up their own brand name or decorate their own boutique, even though they own thousands of chain stores. Additionally, this phenomenon is also in contrast with the sports equipment market in the West where retailers like Foot Locker or Decathlon have total authority in the interior decoration of their stores.

Yihong Chen, the president of DX Sport, a Hong Kong-listed sportswear company in charge of all the equity of Kappa in China observed this too: “in the international market, sports distributors and sports brands are equally competent when it comes to branding or sponsoring. But in China no, in China it’s the brand that nurtures the distributors.”

One explanation is that, compared to home appliances, sports equipment has a shorter life cycle and emphasizes more on personal experience

This gives more power to sports brands rather than the channel. As sports equipment poses a greater need for direct feedback between brands and end consumers, there is less need for the existence of distributors. Nike for example, disclosed in its annual reports that sales revenue coming from self-owned channels has increased to 30% of total sales revenue in 2018, a big jump from 13% in 2009. What’s more, according to China Merchants Securities, while the Year-on-Year growth rate of self-owned channels kept at remarkable double digits from 2010 onwards, that of Nike’s distributor only fluctuated around 5%.

[Data source: Nike, China Merchants Securities, “Self-operated stores increased for sports equipment brand Nike”]

A second reason is related to the timing

The sports equipment market in China only started developing in the late 20^th century, while in the United States the sports equipment market was already growing at an annual 10%. Consequently, China entered into digital era so quickly that the traditional distribution pyramid had not fully matured compared to the Western countries. This enables sports equipment brands to further take power away from the distributors by setting up direct online sales channels. Take Nike again for example, its e-commerce sales revenue has risen from 12% (2013) to 27% (2018) out of the total revenue from self-owned channels, making the e-commerce a major driver for self-operated growth.

A third reason is the lack of brand sense and brand awareness in the reasoning of Chinese sports equipment distributors

Having a strong distributor brand is not yet appreciated by consumers from 2^nd or 3^rd tier cities, therefore not a strategic asset for distributors. Also, brands seldom choose only one distributor, as exclusive rights to sell can feed into complacency and under-exploitation of market. Having multiple dealers give brands more bargaining power but puts distributors under pressure. Naturally, the primary concern of distributors is to cut down cost and not build up own brand equity. In order to outcompete other distributors and have more customer, they have to offer a bigger variety of sports equipment in the store, which, unfortunately, resulted in even thinner branding.

A chronological review of sports equipment industry in China

In the 80s in 20^th century, the budding sports equipment industry in China developed elementary retail outlets scattered mostly around department stores and gymnasiums. The retail stores were small, under decorated, selling a collection of products manufactured by various factories and enjoyed minimum brand awareness.

From the 90s on, Chinese sports equipment brands such as Li Ning and KangWei started to roll out their distribution network though a combination of franchised retailers and self-operated outlets. The characteristics of this decade include:

1. A traditional pyramidal distribution chain with multiple intermediaries,
2. A strong bargaining power on the side of manufacturers for the convenience of downstream logistics,
3. Wholesalers were of small scale and only influential in a limited geography.

These attributes on the one hand laid out a solid ground for rapid development in the coming decade, on the other hand resulted in a lack of understanding of the end customers due to the long distribution chain for products, information and cashflow.

The first decade in the 21st century witnessed a big stride in the development of sports equipment distribution in China

The 2008 Beijing Olympics boosted not only a general passion for sports, but also a fierce growth and competition in the sports industry. According to China Merchants Securities, the industry annual growth rate was at an amazing 20%. Internationally, Nike and Adidas entered the Chinese market by working with top national distributors such as BaiLi (who owns Top Sports) and PaoSheng (who owns YY Sports) in the top tier cities, and Puma, Kappa, Misuno followed suit. Domestically, new brands such as 361, Anta, ERKE appeared and also further developed their distribution foothold, mostly in 2^nd and 3^rd tier cities.

Distributors were working hard to expand and consolidate, and brands needed that partnership, but brands were also exploring self-owned distribution channels to bypass all the intermediaries. Li Ning for example, had almost 90% of its retail stores franchised to distributors who were selected rigorously. While the self-managed stores grew 30% from 2004 to 2006, the franchised stores grew 70%, showing Li Ning’s determination to obtain deeper grip in the distribution.

The distributors had similar logic. Naifeng Cai, CEO of YY Sports said in an interview with Sina: “We lifted our original goal of 1000 retail stores up to 4000 by end of 2009, because we’ve reached the 1000 target 3 years ahead of schedule.”

In fact, everyone knew that distribution depth and width is the key strategic advantage, so everyone did just that. By end of 2010, according to China Merchants Securities, the 5 top brands of Nike, Adidas, Li Ning, Anta and 361 together claimed 44.7% of total sportswear market share, largely thanks to the increase in retail stores.

[Data source: China Merchants Securities, Sales revenue soared for sports equipment in China]

The 3-year inventory crisis from 2011 to 2014 had forced both brands and distributors to rethink about their strategy

The huge increase of distribution veins seemingly strategically important, however, led to three years of inventory crisis and sector-wide slowdown from 2011 to 2014. The revenue of PaoSheng international, the biggest sports equipment distributor in China even hit negative growth rate in 2013, according to its annual reports.

[Data source: PaoSheng International annual reports, “Negative growth for biggest sports equipment distributor in China in 2013”]

There were several reasons contributing to the downturn

Firstly, consumers’ needs turned slowly from leisure equipment to high-performance sports equipment, and their shopping habits were moving from street stores to online shops or shopping malls. Secondly, brands had focused too much on distribution development that product R&D and innovation were neglected, then marketing problems such as unclear brand positioning and low differentiation followed. Third and most importantly, the competition among distributors were fierce and they were under pressure of getting rid of a surplus of inventory. They did so by cutting margins for market, to the point where many shut down and the rest reduced order amount and delayed payments to brands.

This crisis eliminated the brands who didn’t differentiate in product features and the distributors who harbored too much inventory from overestimating the demand. It also tested the strength of partnership between brands and their dealers.

Everyone knew that it was only by working together, could the industry restore prosperity

Li Ning took out 2 billion RMB to reform its distribution channels by better locating and decorating its stores, as well as opening experience boutiques in shopping malls. Anta did a very good job turning around. It took several effective measures all with the end goal of clearing excessive inventory and upgrading brand position in the turbulent time:

1. Bought back the inventory excess at a very low price
2. Set up its e-commerce and channeled all these stocks
3. Introduced an ERP system to have full transparency in retailers’ KPIs such as stock-to-sales ratio
4. Finally made organizational changes to flatten out the distribution pyramid.

Thanks to Anta’s distributors who were exclusively serving Anta, and therefore better mobilized and teamed up with the brand, Anta surpassed Li Ning in market share by 2012.

The recent years witnessed integration of digital solutions in the sports equipment distribution chain

E-commerce has been an indispensable part of sports equipment brands’ self-operated sales channel

Brands can either build up its own e-commerce site or open an official account on third-party B2C e-commerce platforms such as Tmall, JD and VIP Shop. The benefits of e-commerce are as follows:

1. Its real-time feedback and big data generation offer invaluable insights into customers psychology and segmentation, which in turn better instructs distribution.
2. It shortens and flattens the supply chain, cutting down costs and margins of errors all along the distribution channel.
3. E-commerce also transcends the geographical and time limits, making the most recent product launches immediately available at the fingertips of consumers across the country.
4. It offers the possibility of drop shipping and pre-ordering, thus mitigating the make-to-stock pressure from the distribution chain.

Those benefits clearly attracted sports equipment brands. According to a sportswear industry full report by China Merchants Securities, Adidas has achieved 2 billion Euro in e-commerce in 2018, up from 55 million in 2010, which puts its CAGR at a startling 57%. Amer Sports had appeared on 100 e-commerce sites in 2018, 80% more than in 2012. Li Ning also hit a remarkable 61% of CAGR of its e-commerce sales.

However, it is to be warned that e-commerce in China might imply counterfeits, so sports equipment brands have to be careful and monitor the e-commerce outlets that are not entitled to sell their branded sports equipment.

Another important digital transformation for sports equipment brands is their self-developed APP

For example, Nike China has developed Nike+Run Club, Nike+Training Club, and Nike SNKRS. These applications not only empower the end consumer to produce user generated contents and build up a digital community, but also integrate digital marketing, e-commerce and offline distribution into a comprehensive whole.

[Source: Nike self-developed apps, “The digital transformation of Nike”]

Information system also plays an important role in upgrading sports equipment distribution in China

Nike has put in place an information system that shares the real-time inventory data of 90% of retailer stores across China to its HQ, which enables better decision in stock order quantity and replenishment frequencies. Anta, being the first to recover from the inventory crisis, also understood the importance of information transparency. Its ERP system coverage rate improved from 43% in 2008 to 98% in 2017, and maintained at 100% at present.

The future of sports equipment distribution in China

Newcomers never stops disrupting the traditional sports equipment distribution in China

Hey Sports (Hei Yun Dong in Chinese), a B2B e-commerce platform for sports equipment founded in 2016, is a product of Internet+, the Chinese way of saying digital transformation. It provides integrated supply chain services of lead generation, logistics, payment and information to help manufacturers quickly establish a flat retail channel to their end clients, in the hope to downsize the supply chain cost by 30%.

Xusheng Wang, its founder mentioned in an interview with Sohu Sports: “The sports equipment distribution in China is a fragmented business represented by local wholesale markets, each fighting its own battle. Other than the professional and high-end sportswear brands such as Nike, Adidas, Anta, most brands with limited annual sales cannot afford a nationwide sales network, and that’s how the idea of a B2B e-commerce for sports equipment came into being.”

The brands listed on the website of Hey Sports are mostly manufacturers for physical training in schools and gymnasiums. Thanks to years of experience in the sports equipment distribution in China and a solid network of over 30 thousand retailers in 22 capital cities, Hey Sports became the first digital disruption in the B2B sports equipment distribution domain, making the B2B sector more visible.

[Source: heiyd.com, “Examples of sports equipment brands listed on Hey Sports”]

Another disruption comes from the fitness industry in China

Keep, China’s largest social sports APP, was founded in 2015 and reached 14 million monthly active users in January 2020. Its first genius is to implant the sales of sports equipment in the context of digital course offerings, naturally and precisely grapping the target customer. Its second genius, is to build its proprietary e-shop inside the mobile APP. It fully understands that the package delivery industry is so mature in China that consumers can order a treadmill on this app.

[Source: Keep, “E-commerce is embedded in the social fitness app Keep”]

These 2 disruptions constantly remind players in the Chinese sports equipment industry that new opportunities never cease to germinate, and that no one is ever too safe in a competitive landscape.

Author: Della Wang

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This article Sports Equipment Distribution in China is the first one to appear on Daxue Consulting - Market Research China.

Matthieu David interviews David Beutin, Sales Manager – HORECA Food Service at Lactalis International. HORECA was and is one of the most impacted business industries by the Coronavirus outbreak. How does a food service company manage to recover from such a crisis in China and how different is the business model of such a company compared to the West? Find out the answers to these questions and many more in this new China Paradigm podcast.

• 0:10 Guest introduction
• 02:53 State of the HORECA industry right now
• 08:48 How has the outbreak affect distribution in China?
• 13:29 What advice does David Beutin have for the HORECA companies in the west that are going through the outbreak?
• 18:38 China is back in business – how should foreign companies react?
• 21:31 Back in business after the outbreak – what challenges does that pose?
• 24:01 Hygiene can mare or break a HORECA business
• 26:29 How does the business look like for Lactalis in China compared to the West?
• 30:47 A China Paradigm for Lactalis – does the business model need to be different?
• 34:42 Does Lactalis externalize any department?
• 40:04 How does Lactalis handle deals with its distributors?
• 46:46 Outsourcing distributors vs direct sales
• 51:12 What’s missing in the Chinese food market?
• 55:20 Top priorities to consider when trying to sell food in China
• 01:00:19 What sources does David Beutin use to stay up to date with China?
• 01:02:27 Outro

 Discussing dairy products and food distribution channels in China

The relevant episode

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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 97: Distributing food products in China is the first one to appear on Daxue Consulting - Market Research China.

Read more about market entry in China

Taobao is Asia’s largest network retail business, founded by Alibaba group in 2003. As the largest online shopping platform, current business includes both C2C and B2C transactions. Today, Taobao has also become the most used online entrepreneurship platform. How can foreign businesses set up a Taobao shop and enter the Chinese market?

Why it can be profitable for a foreign brand to sell on Taobao

China has a huge number of online shoppers

According to the China Internet Network Information Center (CNNIC), the number of Chinese internet users reached 828.51 million in 2018. It shows an increase of 56.53 million new Internet users from 2017. The Internet penetration rate in China also climbed to 59.6 percent at the end of last year, compared to 55.8 percent in 2017.

When it comes to online sales in China, the growth is even more apparent. Last year, Chinese shoppers spent ¥9 trillion online. The Chinese online retail market has increased at a spectacular 70% average annual growth rate since 2009. Since 2014, China’s five-year online shopping retail sales have increased by ¥621.6 billion.

Why sell on Taobao? Low cost and low operating risk

Starting a business on Taobao includes no inventory pressure, space limitation or management risk. Selling on Taobao eliminates traditional business obstacles as a logistics, rent, storage, and personnel management fees. This will reduce the cost for the seller on a per-product basis and then reduce the final price for the consumers. As commodity prices are the most important influencing factor of consumer buying decision, compared to traditional brick and mortar shops, Taobao has absolute advantages in the operating cost and operating risks. This significant advantage of selling on Taobao will naturally attract a large number of consumers quickly; Business on Taobao can be very profitable method of market entry in China.

It is easy for foreign brands to quickly adapt their marketing strategy on Taobao based on consumer feedback and the information gathered about their specific market. As entering China’s market brings the risks of strategic mistakes and cultural misunderstandings, selling on Taobao can be a good opportunity to reduce these risks.

Taobao Alipay, the secure payment system

Like Taobao, Alipay is a service founded by Alibaba group. It is an independent third-party payment platform looking to provide a “simple, safe and fast” solution for the Chinese e-commerce online payment.  When a buyer purchases a product, the money is put in escrow until the product is safely delivered. This system creates a safety net for the customer to ensure their money will not be sent to the seller if something is wrong with the product.

However, the aim of this solution is not only to ensure the safety of users’ online payment, but at the same time let the users from both side, buyer and seller, build up mutual trust through the platform, to establish a pure Internet environment in accordance with the Chinese business culture of trust and friendly relationship. Once you set up a Taobao shop, the next step is marketing.

How to make a marketing strategy on Taobao 

Pay attention to your keywords

When online shoppers look for specific goods, they will more than likely use the  “search” bar. This is why keywords you have defined for each product will be important.

However different buyers who search the same goods may use different keywords. So how can your business on Taobao appear on the first page of search results?

Keywords can be the brand, the model, the product features, the promotions, the product characteristics, adjectives describing the product, the shop name, and even the credit rate. Thus, these keywords can be developed with a wide variety of combinations such as store name + brand + model; Promotions + commodity characteristics. This will require some research about the most searched keywords on Taobao, insight from native Chinese speakers or those in the industry.

Use opportunely your community

Taobao is a place where buyers and sellers can meet each other. Animating the community of users will reinforce their loyalty and will make the networking between buyers and sellers easier. By posting hot discussion topics you will step up attention rate, create awareness for your shop, improve organic views and extend your business.

Secondly, popular discussion posts will be ranked higher in the Taobao community and possibly elsewhere on the internet to become viral. The Taobao shop associated to the discussion will be more likely to be found by shoppers. Moreover, multiple quality posts can make your shop appear more professional and gain the trust of buyers.

Developing an attractive Taobao promotion

Price value is still one of the most important factors in determining the demand for goods. Thus discount promotion are one of the most effective ways to attract buyers.

Taobao offers a specific solution for promotion activities with a specific page dedicated to  showing the best promotion offered in the Taobao shops.

Another solution to offering relevant and efficient promotion with your Taobao shop is to take advantage of festivals such as Valentine’s Day, New Year’s Day, Spring Festival and the most important for online shopping, the Single’s Day, also known as Double 11. These festivals are marked by a significant increase in online shopping in Chinese households. Offering special promotion during these days can allow a foreign brand to make a great entry on the market as well as showing good expertise of China’s culture and shopping customs.

Gain the confidence of your potential customers

The brand image is an important factor to influence consumer behavior. In a virtual online mall, this statement is even more important.

Even if the low price and attractive communication can temporarily catch the eyes of the consumer, poor quality goods, service, and the publication of false information will contribute to losing customers. This is especially true in China where the trust and the safety are culturally important criteria of decision. According to online marketing experts, having only positive product reviews can signal to consumers that your brand is buying fake reviews.

Enter the Chinese market through Taobao

Establishing a company on Taobao: how to create your account

Chinese can easily generate a Taobao account, just by completing  the  registration form and submitting the application. However, if you are not Chinese, T-Mall Global enables businesses abroad to sell (and deliver) their products to the Chinese market. Creating an account is the first step to set up a Taobao shop.

Promoting your store to reach more customers

“Taobao hot shop” is a value-adding tool which allows store owners to customize the appearance of their online store.,and offers programs to help with promotion.

Being active on Taobao’s forum

Every item mentioned can be displayed on Taobao’s forum, which could also be an effective way to promote, as individuals reading the article can click the link to your store.

Participating in the sales campaign

Taobao often sets up campaigns on different topics, which is a good opportunity to gain more exposure for the Taobao store.

Therefore, the use of reasonable and effective networking marketing methods to run shops should be favored. It is the key to gain credibility and trust from Chinese online shoppers.

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This article How to set up a Taobao shop | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Lancôme Paris, better known as Lancôme, is a cosmetics brand founded by Armand Petitjean in 1935. As a French luxury cosmetics house, Lancôme is part of the luxury products industry, which offers skin care, fragrances, and makeup at higher-end prices. Its brand has operated under L’Oreal since 1964. The beauty philosophy of Lancôme is simple: deliver the beauty and elegance of France to the rest of the world. The iconic golden rose of the Lancôme logo is inspired by the roses of Le Château de Lancôme. Lancôme in China has notched up 22 years of profit, which makes worthy of understanding as a successful cosmetics case study in China.

In 1997, Lancôme became the first high-end overseas brand entering the cosmetics market in China. In 2018, Lancôme China had 272 stores in 115 cities. Additionally, Lancôme has been the No. 1 best seller of high-end cosmetics market in China since 2005. “The sales revenue of Lancôme in China has increased 400 times in 22 years” according to Ma Xiaoyu, the GM of Lancôme China. The high growth revenue has proved the economic boom of China and Lancôme’s ability to keep pace with the times.

How Lancôme leverages celebrity endorsements in China

Lancôme is known for its use of very influential celebrities as endorsers, in the West this includes Kate Winslet, Anne Hathaway, Julia Roberts, Penelope Cruz, Emma Watson, Lily Collins, Lupita Nyong’o, and Zendaya. Clive Owen was the first male spokesperson for Lancôme’s Men’s skincare products and the fragrance Hypnôse Homme to explore the male market.

The cosmetics brand has localized their celebrity endorsement strategy to the Chinese market. Kris Wu, a Chinese singer and actor who is very popular among young women, has become the first Asia-Pacific Lancôme brand ambassador since 2019. This news was explored among millennials and received good responses. Up to January 16^th, 2020, the topic of “Kris Wu, the new face of Lancôme China (吴亦凡代言兰蔻)” has 400 million views and 71.6 thousand discussions on Weibo, one of the biggest microblogs in China.

[Source: Weibo ‘Kris Wu endorsing Lancôme in China’]

Lancôme China tests the E-commerce waters through Rosebeauty and Weibo

Although Lancôme remains a major player in China’s traditional media market, it has created China-specific sites of its own as well. Lancôme’s e-community site in China, Lancôme Rosebeauty, was one of China’s top online beauty forums in terms of website traffic, according to CIC, a company that tracks the social media impact and gives strategic advice. Lancôme’s e-commerce site was one of Lancôme’s biggest point-of-sale venues, reaching over 1,000 cities throughout China. From 2009 to 2010, online mentions of the Lancôme brand rose from 5,000 to 50,000 a month (a number almost directly related to the rose in popularity of the Rosebeauty e-community) and the Lancôme e-commerce site in China was one of the brand’s largest points-of-sale. However, Rosebeauty is no longer a popular platform, and rather platforms like Xiaohongshu and Weibo have taken its place.

Xiaohongshu Marketing

Xiaohongshu had 200 million users in 2019. The platform uses KOL marketing to create an interactive social-commerce experience which focuses on the fashion and cosmetics market in China. Both professional makeup artists and cosmetics consumers in China share their product evaluation and shopping tips on this platform. To satisfy consumers’ demand on import goods, Xiaohongshu has established strategic partnerships with many overseas brands, including Lancôme.

Weibo Marketing

Lancôme owes a significant success on Weibo as well. In 2019, Lancôme launched a campaign themed “May I Pink You” on Weibo for the “520 Festival”, the Chinese cyber Valentine’s Day. Lancôme reached over 140 million potential cosmetics consumers in China, and its media interaction hit a million landmark through this campaign. Lancôme did not only complete its sales goal for “520” limited pink boxes but also won good reputations within the Weibo platform.

L’Oreal officially authorized Jumei (聚美优品) Lafaso (乐蜂网), another step to E-commerce in China

In 2012, L’Oreal authorized jumei.com(聚美优品) and lafaso.com(乐蜂网) to sell its products on their website, which represented another step towards the increasing use of ‘e-commerce’ by the cosmetics industry. This meant brands under L’Oreal like Lancôme could be bought directly on these sites. Cosmetics consumers in China began favoring to go to shopping mall counters to try the products and then go on jumei.com(聚美优品), lafaso.com(乐蜂网) and Taobao.com(淘宝网) to screen the prices, sales promotions and peers reviews. More and more consumers are buying their products from these sites. However, these sites must ensure that there are no questions or concerns about the products they sell. Once one consumer claims that a product is not what it seems, consumers will choose not to buy that particular product from the site no matter how much cheaper it is than the ones sold in shopping malls.

Taobao (淘宝) and VIPSHOP(唯品会) start a new E-commerce era for Lancôme in China

Lancôme opened its Taobao flagship store in 2014 to extend its consumer segment to younger age and nurture more potential consumers. The online flagship store melts away the mistrust from consumers and guarantees product quality and service, which is another successful cosmetics case study in China of Lancôme. Taobao flagship store is more than a distribution channel for sales, but also a promotion channel. Lancôme has joined the “Double 11”, a Chinese shopping carnival since 2015 on Taobao. It opened shopping strategy and pre-sale subpages for the shopping spree, and also released “Double 11” limited gift boxes.

Lancôme’s 11.11.2019 Drone light show

On October 11^th, 2019, Lancôme warmed up the shopping carnival with a combination of light show and drone, flew over Paris and four Chinese cities with the countdown of November 11th. Lancôme reached ¥100,000,000 sales revenue in two hours after the “Double 11” started.

[Source: CBO News “Lancôme China recreates Double Eleven miracle: French romance flying from Paris”]

Jumei.com(聚美优品) is fading away from cosmetics consumers in China, and Lafaso.com(乐蜂网) was merged by VIPSHOP and closed down in September, 2019. VIPSHOP is a Chinese website specialized in discount sales online. Lancôme succeeds cooperating with VIPSHOP by selling the excess inventory at discounted prices.

Lancôme China emphasizes deep-level service mode

Meanwhile, Lancôme China is accelerating its offline development. It declared to open two more offline flagship stores in Beijing in 2020 to satisfy consumer demand. In the first China International Import Exhibition in 2018, Lancôme revealed a new technology, Le Teint Particulier color customization foundation. Consumers could customize their perfectly matched foundation on site by taking a simple skin tone test. Compared to online platforms and counters, offline flagship stores would create more value and provide better service, like customization for consumers.

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This article Lancôme in China: Case study is the first one to appear on Daxue Consulting - Market Research China.

Chinese are consuming more meat than ever

China’s meat market has less to do with company and brand shares than sector growth: local consumers eat far greater quantities of fresh meat than they did before economic reforms were launched some 40 years ago. Not only are today’s consumers able to buy more meat than ever before: they also have a far wider choice of meat from which to choose. Traditionally, China’s meat of choice is pork, however recently there has been growth in more diverse meats, for example, the veal meat market in China.

China’s role in the global meat market

China is now the world’s largest producer, consumer, and importer of meat. In 2019, the country consumed around 28 percent of the global meat supply, which accounts for 73 percent of the Asia-Pacific meat market value. In the same year, the monthly import of meat products in China reached 1 billion U.S. dollars, with Brazil being the leading meat supplier whereas imports from the EU countries including Netherlands, Spain, and Germany growing the fastest. In 2013, a Chinese meat processing company Shineway acquired the world’s largest pork company Smithfield to meet heavy Chinese demand for pork. According to the industry profile, the Chinese meat market consumption volume increased with a CAGR of 2.4% between 2014 and 2018, reaching a total revenue of $209 billion in 2018 and is expected to rise steadily over the next three-year period 2020-2023. China, therefore, will continue to play a significant role in global growth of meat products. 

Pork makes up 80% of the market

Pork sales accounted for the highest value in the Chinese meat market

As food scandals and the general interests in healthy food rises, fresh meat sales are representing strong growth in the Chinese meat market. Fresh meat sales in China make up nearly 80% of the market value. Among all the types of meat, pork sales dominate the market, followed by poultry, beef. It is expected, however, that the Chinese beef and veal meat market will witness a rising demand, with the current per capita consumption rates increased by at least 25 percent in the next decade, whereas pork market growth will slow. These trends are in line with the growth of the overall meat market value. It is also not hard to believe that the prolonged increase in pork prices will have an impact on the domestic consumption behavior, leading to lower per capita pork consumption rate and greater demand for beef/veal in the near future. 

[Source: Statista – The prolonged increase in pork prices will lead to the growth in pork market value]

The local meat market is mature and constrained by limited resources

Chinese domestic big meat retailers: Shineway and Yurun 

Shuanghui Group, now WH Group, is the largest meat processing company in China and offers high-temperature meat products, low-temperature meat products, fresh meat, and frozen meat. It was the first meat processing company to pass ISO9001. It was established in 1994 and is headquartered in Luohe, Henan. The company mainly focuses on hog slaughtering and pork processing, and fresh frozen meat consists of more than 30 percent of the company’s total revenue. The group’s beef and poultry meat sectors have increased in recent years, in response to the rising demand in the market.    

Yurun Group Limited is one of the largest meat product manufacturers in Mainland China. It is headquartered in Nanjing (南京), Jiangsu (江苏). It operates in two segments, chilled and frozen meat and processed meat products. Its products are marketed under its brand names of Yurun, Furun, Wangrun, and Popular Meat Packing.

China will continue to import meat from foreign markets 

With domestic meat production constrained by limited land and water reserves, China will continue to import a significant amount of meat from foreign markets. In the first 9 months of 2019, China’s frozen beef imports showed a y-o-y growth by 48.3%, while poultry imports increased by 46.1%. China’s rising import needs had also lead to an influx of foreign direct investment in China’s meat market, and food inflation in China has now reached an all-time high.  

Moreover, as new middle class and fitness trends sweep across the country, Chinese shoppers are likely to shift towards premiumization. This includes the desire for premium, fresher, and healthier meat. This will create opportunities for foreign meat suppliers that can offer organic meat and premium beef/veal products to meet consumers’ more sophisticated tastes. 

[Source: Statista – China’s import demands showed an upward trend]

Distribution in the Chinese meat market

Hypermarkets and supermarkets are becoming the leading distribution channel in the Chinese meat market 

Improved choice stems in part from vast improvements in China’s distribution networks – thanks, in turn, to expanding transportation networks, which have helped to develop more regional trade in fresh and processed meats. More produce is, therefore, reaching consumers in less populated regions. Processed meat products are mainly sold through new retail formats such as supermarkets and hypermarkets, dominated by Hema Fresh (盒马生鲜) and Yonghui (永辉), the former has developed an innovative online-to-offline (O2O) value proposition. This suits the increasingly sophisticated and demanding needs of urban fresh-food shoppers with rising incomes. People are now able to buy more expensive cuts of meat than before, leading to greater demand for variety and quality of produce. Foreign hypermarkets like Walmart, ALDI, and Costco also have been reaping the benefits of China’s growing meat market.

eRetailers are gaining popularity as a retail place for purchasing meat  

The popularity of online shopping has surged in China, paralleled with China’s rapidly growing e-commerce market. Hypermarket and supermarket chains now are gravitating towards offering a seamless online-to-offline shopping experience. Hema Fresh, Alibaba’s grocery chain, is one of the leading fresh food retailers that offer mobile applications for online orders as well as in-store catering and offline shopping.

Around 60 percent of the sales in Hema are made via the Hema mobile application, and shoppers can have the orders delivered free within 30 minutes within a 3-kilometer radius of each store. Hema’s successful pilot in China’s “new retail” landscape has given rise to food retailers to rethink their distribution networks, and perhaps through creating opportunities for partnership or licensing. It is reported that the RT-Mart’s online sales have grown from 3 percent to 20 percent of total sales after the partnership with Hema and is on track to increase profits.  

[Source: Hema Fresh mobile application – Hema Fresh makes fresh-food shopping more convenient]

Drivers of China’s meat market

Premiumization

Various sociocultural, economic, legal factors have collectively led to the general growth of the meat market. From the customer side, premiumization and the desire for a healthier diet, along with the rise of disposable income, will be key growth drivers across all categories, especially the food and drinks sector. As food and drinks account for almost one-fourth of the total household spending, the growth in household income will go to food expenditure. Due to more Chinese being lifted out of poverty, more families can afford meat and eat it daily.

Busy lifestyles

Moreover, the strong growth of processed food could be attributed to the fast-growing supermarket and hypermarket chains and the busy lifestyle of Chinese consumers. Improved farming techniques and management are leading to larger-scale operations that increasingly rely on automation in production, packaging, and transportation – a process that ultimately will create significant meat supply companies. However, frequent food safety scares, especially related to hygiene, disease and the use of food additives, have all added to reluctance among consumers about the meat they buy. These issues have the potential to seriously harm the market.

Why foreign farmers should export their meat to China 

Following the end of the Trans-Pacific Partnership (TTP), farmers wishing to pursue business in Asia can select China to export their products, where demand for meat is on the rise. Since China cut tariffs on 859 consumer goods including frozen pork from 1 January 2020, it is, therefore, easier for foreign meat suppliers to reach the meat market in China, a $209 billion market. Indeed, many multinational manufacturers have voiced their interests in establishing a local production system and new deals to be made in the profitable Chinese meat market, where imported goods and organic products are increasingly in demand. Lower entrance barriers, ever-growing demands of the population, and China’s rising import demand will benefit more foreign meat suppliers in the future. 

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This article The meat market in China: Pork making way for the growth of Beef is the first one to appear on Daxue Consulting - Market Research China.

Brand independence refers to a brand not relying on any other third party channels such as online marketplaces to sell products. In this case, the traffic will be driven from independent sales channels such as the brand’s own website. Brands, in turn, can manage their own identity, assets, and digital assets to drive traffic, covert purchase, retain customers and build their own community. In this article we learn about the advantages of brand independence in China.

Why is Brand Independence important in China?

E-commerce and Brand Independence

China is the largest e-retail market in the world with over 610 million digital consumers. However due to the dominance of e-marketplaces in China, it is all too easy to overlook the advantages of independence from marketplaces. Now is the time to reconsider our options and evaluate whether brand independence is the right choice for your brand in China.

At this phase in E-commerce evolution, many global retailers and brands are leaving the marketplace platforms as they are becoming increasingly precarious. Brands are seeking independence once again so they can exert full control and retain full ownership over their e-commerce traffic and consumer data.

Online marketplaces vs Brand.com

Although online marketplaces are easy to set-up and are interlinked with Chinese consumers’ daily life, many potential problems need to be considered. Large marketplaces have tense competition between brands and leave little room for bands to differentiate from one another. This makes it harder for retailers to effectively deliver their unique proposition to target consumers. Most of all, brands cannot make much money on marketplace platforms as administration fee, advertising fee and price wars all cut profits.

On the other hand, brand.com may provide solutions to problems created by online marketplace platforms. The brand, having full control over branding and how their products are displayed online, can decide on how to differentiate itself among competitors. With control over their website, brands can also decide how to deliver their unique proposition to target customers.

E-commerce marketplaces control how much or how little consumer data is shared with brands. When brands sell through self-owned platforms like their own website, they can own and analyze their own consumer data, giving them an advantage in understanding consumer habits.

As many cross-border marketplaces in China are often criticized for offering fake goods. Selling on self-owned platforms eliminates the risk of brand products being perceived as counterfeits. Hence, consumers trust that the brand owned channel is authentic goods.

Brand independence in China is indeed becoming increasingly important for those who wish to master a better business.

Key advantages of brand independence in China

Private traffic

Private traffic in China is a growing phenomena. While online marketplaces generate high traffic, there is no guarantee that the traffic will flow to your brand. Additionally, when traffic does go to your brand’s products, your brand sees only the limited data that the platform is willing to share. However, with self-owned E-commerce platforms, brands do not have to share traffic with competitors in the marketplace. This will allow brands the advantage to create a tailored experience to target existing or potential clients as they are all private traffic that have shown direct interest to a particular brand. Brand website or brand App is where the experience and customer interaction will begin, and in turn, the interactions will likely transfer into future conversions.

Stronger brand image

Brands can more effectively manage their brand image, brand equity, brand value etc., with a brand independence strategy. A successful brand independence strategy in China will allow a brand to create a strong linkage with customers, in which they will prefer to shop from the brand’s platform directly over visiting different online marketplace platforms. Moreover, brands can manage their own community with brand independence. Once community members connect to your brand, it increases customer loyalty and retention, creating a higher barrier to switch brands. Brands will find it easier to deliver a unique value proposition as all features and modules of its self-owned platforms can be directly controlled and modified according to target consumers’ needs.

Cost effective

Brand independence could be potentially more cost-effective than online marketplace platforms. Brands must give around 2%-10% of their sales commission to leading public marketplace platforms, not to mention other types of platform fees and higher commissions required for flash sales. In this case, all sales revenue gained from self-owned E-commerce platforms will flow directly to the brand itself.

Online marketplace platforms offer convenience, while self-owned E-commerce platforms offer control. However, control will eventually become more critical as your E-commerce business continues to grow.

[The costs of selling on the top Chinese e-commerce marketplaces in 2019]

Make your brand independent again!

Join daxue consulting’s one-day training on brand independence to learn how to gain independence from marketplaces, define unique propositions, develop private traffic and build community for your own brands.

Date:  March 5th, 2020 from 9:30 am to 6:30 pm (including breakfast and lunch)

Location: Jiaotong University

Price: 390 RMB for MBA students, 520 RMB for start-ups, 590 RMB for established companies (include breakfast, lunch and all the coffee you need to be full of energy).

Discount: –30% for early bird booked before February 20th. For group prices (more than 3 people), we apply special discounts, ask us!

To register for the event, scan the QR code below! More information about the event location will be emailed to you shortly.

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article Advantages of Brand Independence in China is the first one to appear on Daxue Consulting - Market Research China.

Location: Jiaotong University

Within one day, learn how to:

Gain independence from marketplaces like Tmall, JD, and others;

Define a Unique Positioning for your brand website;

Develop your private traffic and your community.

Price: 390 RMB for MBA students, 520 RMB for start-ups, 590 RMB for established companies (include breakfast, lunch and all the coffee you need to be full of energy).

Discount: – 30% for early bird booked before December 25th. For group prices (more than 3 people), we apply special discounts, ask us!

What is brand independence?

Brand independence is when brands manage consumer traffic, also known as “private traffic”. Independent brands also do not sell through marketplaces like JD, Tmall, and Kaola, rather they sell and draw traffic to their own website, also known as “brand.com”. Brands’ independent channels mainly include brand.com, brand apps, mini-programs, and brands retail stores.

What are the advantages for brands to be independent?

First, brands can save money related to promotional activities. Second, brands can directly engage with consumers by using a more comprehensive CRM system. Additionally, consumers’ brand loyalty will rise since the brand becomes more visible, and the consumers’ experience improves based on a better understanding of consumer demands. Last but not least, consumer decisions will be less price-driven and more loyalty driven.

To register for the event, scan the QR code below! More information about the event location will be emailed to you shortly.

This article Increase Brand Awareness with Brand Independence | Business event in Shanghai is the first one to appear on Daxue Consulting - Market Research China.

Date:  March 5th, 2020 from 9:30 am to 6:30 pm (including breakfast and lunch)

Location: Jiaotong University

Within one day, learn how to:

Gain independence from marketplaces like Tmall, JD, and others;

Define a Unique Positioning for your brand website;

Develop your private traffic and your community.

Price: 390 RMB for MBA students, 520 RMB for start-ups, 590 RMB for established companies (include breakfast, lunch and all the coffee you need to be full of energy).

Discount: – 30% for early bird booked before February 20th. For group prices (more than 3 people), we apply special discounts, ask us!

What is brand independence in China? Brand.com vs Marketplaces

To register for the event, scan the QR code below! More information about the event location will be emailed to you shortly.

Brand independence is when your brand’s sales and customer engagement take place in an environment your brand has full ownership. How can a brand take ownership of customer engagement? Two simple ways first are by using the brand’s website instead of marketplaces like JD.com and Taobao. Second is by creating private traffic with consumers so the iterations are in control of your brand and not owned by social media networks. Brand independence in China makes sense when most of your business or a sizable amount of your business is linked or managed by a marketplace, and you don’t want to be managed or linked to a marketplace.

China has built its e-commerce through marketplaces: Tmall, JD – and many others which are on small verticals, the new once like Xiaohongshu or Kaola for instance, is one of them.

All brands are welcome to join our Brand Independence workshop in Shanghai, where we will share what we’ve done so far for various brands, and teach you how to make your brand independent.

Watch a video about Brand Independence in China in French.

This article What is brand independence in China? | Workshop by daxue consulting is the first one to appear on Daxue Consulting - Market Research China.