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.

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The incredible success of bubble tea in China since 1996

The story behind the success of bubble tea in China

Bubble tea is a drink made from tea (usually black tea), milk, syrup, and a special ingredient that captivates the hearts of Chinese people: tapioca pearls. Bubble tea is also known as 珍珠奶茶 (Zhen Zhu Nai Cha) directly translates to pearl milk tea, but is also known as boba tea in parts of the world. Far from healthy, the drink contains a lot of caffeine and sugar, especially due to syrup sweetener. 

What is captivating about this drink is that it is both drank and eaten at the same time. Tapioca pearls, which can be different sizes, offer a unique chewy texture and a sweet taste.

Where does such a successful drink in China’s beverage market come from?

Bubble tea originates from Taiwan, in the city of Taichung. It was reportedly created in the 1980s in a tea shop called Chen Shui Tang where the owner, Liu Han-Chieh, was selling oolong tea. With the innovative idea of changing the way Chinese people consumed tea, and a bit of influence from the Japanese way of drinking cold drinks, mixed tea, milk, and ice in a cocktail shaker. Following the popularity of his cold drinks, he experimented with pouring tapioca pearls into the milk tea. This marks the birth of the world-famous Bubble tea beverage in China.

The rest of the story is well known: bubble tea has been a great success, spreading throughout Asia and even gaining popularity throughout North America. Today, bubble tea is an integral part of Taiwanese and Chinese culture.

More and more brands on China’s beverage market

Source: iiMedia – Number of milk tea shops in China

China’s bubble tea market seems almost saturated: at the end of 2018 iiMedia counted 450,000 milk tea shops offering bubble teas in China. The number of milk tea shops in 2018 increased by 74% from 2017. Bubble tea is the best-seller in almost every milk tea shop. There are dozens and dozens of players in the milk tea market in China. Equal Ocean ranked the 19 most powerful brands in this sector earlier this year listed below:

Bubble tea brands in China can be divided into two types: traditional and new style, embodied by the famous Heytea brand. The differences are mainly in price and design. The new ones attract younger consumers who see them as a way to show a cool and international lifestyle.

Among these bubble tea brands in China, some will catch your attention, either by the pertinence of their marketing strategy or by their product innovation or even their financial power.

Top bubble tea brands in China

• Yi Dian Dian is one of the three most powerful bubble tea brands in China, coming directly from Taiwan. It is considered a classic brand, serving traditional bubble tea milk. Yi Dian Dian has more than 600 stores in China and is now conquering Europe and other Asian countries such as Japan. Yi Dian Dian keeps their prices lower than most bubble tea stores.

• Coco or Coco Fresh is also one of the 3 brands mentioned above, with more than 2,000 stores worldwide and 20 years of experience.Coco offers a wide variety of toppings and the adjustment of all recipes, and have entered the coffee market in China.

• Heytea, whose success has made a lot of headlines in Chinese media, the Starbucks of Bubble Tea, is one of these new styles brands and has easily competed with Coco and Yi Dian Dian. Attracting mainly Chinese millennials, they are an example of innovation in a standardized sector and successful brand launch. With their first boutique opened in Shanghai in 2017, they are now also present in Singapore and Hong Kong, and with higher prices, hey are positioned towards the premium end of the bubble tea market in China.

• The Alley is probably the brand that has focused the most on the aesthetic side of beverages. Known for its brown sugar tapioca pearls, and layered matcha and black tea drink, its drinks are also among the most caloric bubble teas in China. The brand has succeeded in its commitment to be present throughout the world, on all continents.

• With its first boutique opened in Shanghai in 2006, Happy Lemon is also an interesting bubble tea brand in China because its identity differs slightly from that of its main competitors with design and values more focused on freshness and fruits.

In search of innovation for tea beverages in China: format is constantly evolving

Although most tea shops offer two main options (milk teas and fruit-flavored teas), harsh competition boosted the number of innovations. Non-fruit flavors such as avocado, ginger, mango green tea, taro or mocha are very often available and toppings such as tropical fruits, lychee, coco cubes, aloe jelly, coffee jelly, coconut jelly, pudding or chia seeds can be chosen as well.

The segment of cheese teas, also known as milk cap, is also new: Heytea is very well known for adding salty, creamy cheese to its beverages. The idea is to add creamy cheese to the tea. This helps to compensate for the bitterness of tea, which is less popular with younger generations of Chinese people. This salty cheese balances the sweet taste of the tea and fruits that are added to the drink. Surprisingly, cheese tea seems to appeal to people who care about their health thanks to the low-fat options available.

Happy Lemon has also developed Oreo Milk Tea which consists of adding oreo pieces to a milk-cap tea. But innovations do not stop at taste, design, and format. Shops try to offer the best customer experience. This is the case of Happy Lemon. They went viral on social media thanks to their robotic arm present in some of their shops, which embodies their desire to embrace the trend of new retail.

A report from Mintel recently showed that Chinese people prefer to buy their tea in physical stores. That is why many bubble tea brands in China try to innovate offline. The owner of the boutique explained that it was a pure marketing initiative, to attract consumers in a very competitive landscape.

Instant milk tea in China: different marketing, different codes

China’s tea market is by far the biggest in the world with a retail value of US$9.6 billion. Where it becomes particularly interesting is that 38% of its value comes from the instant tea category. One of the top segments of the instant beverage market in China is milk tea and bubble tea.

China’s instant teas imitate the flavors of bubble teas that can be bought in shops and sometimes even add real tapioca pearls to drinks. How does it work? In a cup, often made of plastic, you can find a sealed pouch of instant tea, a straw and another small pocket with tapioca pearls. Then add hot water, mix and in two minutes, bubble tea to take away is ready. Consumers’ favorite instant bubble tea brands in China are U-loveit and Xiangpiaopiao.

Packaging plays an important role in this market: on-the-go packaging is perfectly adapted to the fast-paced lifestyle of urban and overbooked Chinese millennials. Although more limited than what can be found in the shops, the choice remains quite wide: Xiangpiaopiao offers milk tea with green tea, chocolate, caramel, strawberry, sweet potato, etc.

The brand U-loveit has even worked with celebrities and KOLs in China to promote its bubble teas, collaborating with the world-renowned actor, singer-songwriter, Jay Chou.

The conclusions that can be drawn from the success of bubble tea in China

Drinking bubble tea is something you need to show on social media, that you share with your followers to show your very cool lifestyle, especially with the increasingly aesthetic drinks

On Chinese social media, the bubble tea trend is definitely huge and several pictures of milk teas are posted every single minute. Indeed, bubble tea is fashionable, fun and the most beautiful drink in China’s beverage market. The tapioca pearls and the colors of the tea mixed with milk make very shareable pictures. On Xiao hong shu or Weibo, there are thousands of photos of all brands. The Alley has particularly succeeded in making drinks beautiful enough for social media.

Social media is a showcase opportunity for Chinese consumers

This success of bubble tea in China shows us once again how much social networks are an integral part of Chinese life and that sharing with friends is the daily activity of millennials.

However, social media are also used by brands to advertise. Thirst marketing is thus leveraged by a large amount of bubble tea brands in China, such as Heytea which success relies heavily on its smart use of social media. The brand used the ‘network effect’ of social media and is mainly famous for the extremely long waiting time to get its products.

It uses a controversial technic: scarcity marketing. Heytea posted several pictures of lines in front of their stores explaining that waiting time could reach 6 hours! This went viral online and encouraged customers to share a picture when they finally got the precious beverage. Heytea’s famously long waiting time actually became a selling point.

China’s tea market, an invincible market

One of the first conclusions that can be drawn from the success of bubble tea in China is that the Chinese are still tea drinkers. It should be recalled that tea was discovered in 2737 BC by the Chinese Emperor Shen Nong. An emperor that became mythical precisely because he taught agriculture, medicine and the art of using plants to the population. Since the Tang dynasty, tea has become the main drink in China’s beverage market. Despite the growing success of coffee and the arrival of new coffee brands, tea remains a staple among Chinese. Moreover, the consumption of milk tea in China has exceeded the consumption of coffee. According to Ibzuo, Chinese people consume five times more milk tea than coffee.

Starbucks trend going to an end?

The success of bubble tea in China also leads us to question Starbucks’ supremacy in China. With existing 3,300 stores in over 90 Chinese cities and around 2,700 new stores expected to open by the end of the 2022, Starbucks’ success in China is undeniable. The American and international way of life promoted by these coffee chains has pleased Chinese people for years. Costa Coffee used the same sales argument, with nearly 350 stores in mainland China.

However, the atmosphere of these coffee shops and the values they convey still appeal to the Chinese.

What a tea entrepreneur says about the threat of coffee consumption

In an expert interview with tea entrepreneur Martin Papp, he shared his experience conducting market research in Starbucks in China.

 “China is still a tea-drinking country. I did some market research in 2014 when I was planning on starting this company. So I went to multiple Starbuck stores in China and surveyed customers in the store on whether they prefer drinking tea of coffee. I found that about 50% of Starbucks’ customers prefer tea over coffee. ”

Papp’s research suggests that people who prefer tea still went to Starbucks because tea shops did not offer the desired atmosphere in 2014. However, now things are changing, and milk tea chains have begun to adopt the same codes. People no longer have to go to Starbucks to find a hip place to socialize over a drink. Whether in the names of the drinks, the aesthetics of the drinks, the decoration of the shops and the values conveyed in the advertisements, everything reflects the enviable codes of Starbucks. Recently, HeyTea and Nayuki have even created tea rooms which are comfortable spaces for their customers to relax. So going to Heytea has become just as cool, even cooler given the long queues in front of the shops in Shanghai.

Healthy or unhealthy: a still difficult choice?

Finally, bubble tea drinks with a lot of sugar, raise the issue of healthy drinks in China’s beverage market. According to the Daxue Consulting report on healthy snacks in China, Chinese people, and especially women, have been paying attention to what they buy, the composition of products and the origins of ingredients.  Baidu Index demonstrates searches on healthy products has been stable throughout the past year, showing a real interest in better products. Although, searches for healthy products takes a dive during the spring festival when Chinese people tend to eat more sweet things and other family dishes.

Source: Baidu Index, Daxue Consulting report – The search frequency of “healthy snacks” in 2018 and 2019

How does bubble tea adapt to this trend?

A mix of milk and tea seems not caloric but because of the added sugar and tapioca pearls, bubble tea is a very caloric drink, heavy in carbohydrates. The typical glass contains more than 200 calories and 33 grams of carbohydrates.

According to Meituan, who delivered more than 210 million orders of milk tea last year, Chinese women are the largest consumers of milk tea and bubble tea, far ahead of men. 95% of women under 26 who use the Meituan app typically order milk tea every week. This means that bubble tea brands in China have had to adapt to new health concerns by offering more healthy alternatives and being more flexible on the amount of sugar. It is anyway a trend that is going to reshape the whole F&B industry in China.

Thus, in a highly competitive market, there is no shortage of innovations. Bubble tea brands in China are working hard to keep their current customers and attract new ones. Despite the growing trend of a healthy lifestyle, bubble teas in China still have a bright future ahead of them. The craze for bubble tea is so huge that we are even starting to find bubble sushis, bubble sandwiches, bubble noodles, and bubble pizzas…

Author: Steffi Noël

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The O2O food delivery market in China is estimated to be worth over 37 billion USD, and it is growing rapidly. Among the products sold online, food is one of the most promising categories: online food sales rose by 36.8% year-over-year in the first two months of 2018. Food delivery apps have an estimated 355 million users, meaning that a quarter of all Chinese people are ordering food from their phones. There are more than 1.8 million food delivery orders placed every day in Beijing alone.

Transformation of eating habits in China

Getting takeout food is a relatively recent phenomenon in the country. The trend started with foreign fast food franchises such as McDonald’s in the 1990s. Homegrown local restaurants, such as noodle houses and those offering regional specialties, followed suit. But it was not until the rise of online food delivery platforms that the O2O delivery market in China took off.

Since 2009, when the first food delivery app Ele.me appeared, the number of customers using these platforms has gone up from zero to 406 million at the end of 2018. Nearly half of China’s internet user base has ordered takeout food through apps at some point in their life.

The development of online delivery has improved the food processing and supply capabilities of offline restaurants. At the same time, it has also stimulated new demands due to convenient and fast services. As of 2020, the growth rate of O2O food delivery market in China is more than 10%. It exceeds the growth rate of the traditional catering industry. Due to the development of diversified consumption habits of Chinese people, the food delivery market in China will exceed 300 billion yuan in 2020.

Fast food category dominates in terms of O2O food consumption

In the first half of 2019, fast food accounted for 69% of O2O food consumption. Western food and local dishes had second and third place. Such categories as seafood barbecue, milk tea, desserts also were popular among Chinese consumers when ordering food.

The number of seafood O2O orders increased in 2019

The proportion of seafood in China‘s O2O delivery market increased. It is an important category for night delivery consumption. In the first half of 2019, users consumed more than 150 million seafood barbecues on the Meituan takeaway platform. It had a year-on-year increase of 55.3%. In the first half of 2019, the order volume of crayfish has exceeded 20 million orders. It is about 300 million crayfish.

Semi-prepared food and vegetables as a new trend in the O2O food delivery market in China

Online shopping for semi-prepared dishes has become a new choice for young consumers. This new trend has led to a rapid increase in sales of semi-prepared food. In 2019, 800,000 semi-finished dishes have been sold. At the same time many elderly people have changed their habit of hoarding vegetables for Spring Festival. They started to order home delivered fresh vegetables. Sales on the platform Taoxianda increased 172 percent compared to 2018. “The semi-prepared dishes satisfy young people’s enjoyment of cooking at home,” said Yongcheng, a sales clerk at Tmall.

Penetration rate of the O2O food delivery market in China continues to increase

As the market scale continues to grow rapidly, the penetration rate of the food delivery industry continues to increase. In 2018, the penetration rate was 10.8%.  By the third quarter of 2019, this figure had increased to 15.9%.

Breakdown of the O2O food delivery market in China

The food delivery services in China work through apps, which show lists of food providers nearby or allow the user to search for specific restaurants. Clicking on the restaurant brings up the menu and the ordering system, which uses online payments or bank cards. The apps also allow users to rate the food and service, as well as show the location of the delivery driver so an order can be tracked. The apps take about 20% of the order revenues.

The Chinese food delivery industry is high growth and highly profitable, but it is hard for outsiders to enter the space because two platforms control 90% of the food delivery app marketplace.

Who are China’s food delivery industry’s consumers?

The food delivery industry in China is so large and profitable because of how often consumers make purchases. 256 million people in China used online food ordering services in 2016, and in 2017 that number rose to 346 million. Now it is 355 million.  35% of food-delivery app users order food one to three times a week, and a separate 35% of users order food four to six times a week, according to a report by iiMedia Research.

Online food delivery service users are primarily white collar workers. In 2015, about 63% of online food delivery app users were white-collar workers and 30.5% were students. Now, 83% are white-collar workers, and only 10% are students.

Consumers are clustered in top tier cities, with Shanghai boasting the highest number of users per capita.

Consumer demographics are split nearly evenly by gender, with women making up 51% of food delivery app users. Users are overwhelmingly young, with 75% between ages 18 and 39.

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Food delivery in China is popular among all income demographics. Consumers are split nearly evenly by income level, with high-income consumers boasting only a small edge.

Why is food delivery so popular in China?

Because of the intense competition between delivery apps in Great China, consumers often receive steep discounts and coupons when they place an order. This can often make ordering food cheaper than eating it in a house. The intensive couponing practice is a result of price wars between the industry’s two major players, Ele.me and Meituan. The rivalry has hit both companies hard, with Meituan’s operating losses crippling year-over-year to USD 510 million in the third quarter of 2018. Ele.me will also face pressure soon as their parent company Alibaba copes with slowing revenue growth. Coupons are no longer as high as they once were, but consumers still receive them often.

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Meal delivery in the Chinese market is significantly more popular in China than in the West, owing in some part to the fact that food delivery costs in China are about 10% to 20% of what they are in the US.

Which apps dominate the food-delivery industry in China?

The food delivery market is a duopoly dominated by Chinese tech giants Alibaba and Tencent, who own Ele.me and Meituan respectively. Combined, these two delivery apps control a 90% share of China’s food delivery market.

Longtime rivals Alibaba and Tencent have been competing across industries for years, and China’s meal delivery is just yet another sector for them to battle in. The two giants are not just competing for the O2O food delivery market in China, but they are racing to gain new users who can be guided to other Alibaba or Tencent services. Owning Ele.me gives Alibaba a treasure trove of consumer data, and the same goes for Tencent’s ownership of Meituan. Data derived from Chinese meal delivery apps provides insights about consumer spending power, eating preferences, and payment profiles.

Chinese meal delivery app: Ele.me

Ele.me is China’s largest food delivery giant with 53.4% market share. They have 260 million users, 3 million couriers, and are estimated to have delivered nearly 300 million orders. Alibaba in 2018 valued Ele.me at USD 9.5 billion.

Chinese meal delivery app: Meituan Waimai

Meituan Waimai, commonly known as Meituan, controls 40% of China’s food delivery market. Similar to Ele.me, Meituan is an online-to-offline (O2O) food delivery app that provides users with online ordering, food delivery, and some other related services in China. Significantly, Meituan offers more non-food delivery services than Ele.me, such as flowers, office supplies, and more.

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What are the benefits/drawbacks for restaurants of being on food delivery apps in China?

Listings on food delivery apps give restaurants in the Chinese market new profit sources, widened service awareness, and new consumers. App operations can be so profitable that some “virtual restaurants” operate out of the kitchen only. However, profit margins for restaurants are declining swiftly. To gain Chinese market share, Ele.me and Didi provided restaurants with subsidies to entice them into selling food on their apps. But as the apps struggle to become profitable, they are raising commission rates on the food providers. Commission rates vary by restaurant location, size, and type, but most restaurants give the apps 20% of order revenues. For restaurants operating on low margins, this can hit hard. To keep profits stable, restaurants must shift the burden to consumers and raise menu prices. Otherwise, they are forced to absorb the new costs – keeping consumers happy but hitting their profit margin hard.

The Chinese food-delivery industry: Looking ahead

Ride-hailing app Didi recently threw its hat into the food-delivery ring, starting in March 2018. Didi provided subsidies and incentives to restaurants and consumers, forcing Meituan to follow suit before local authorities stepped in to demand an end to the “extreme” marketing practices. As Didi expands to other cities, the subsidy battles will likely continue.

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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.

Internet retail in China is unique in many ways. Chinese consumers value the convenience offered by internet retailing. It makes shopping possible at any time, anywhere, as long as there is a computer or mobile device with internet access. Product comparisons and price comparisons are just a click away. Home delivery and competitive prices are also good news for time-pressed working consumers. 

Moreover, improving online security, the convenience of payment method, and the mushrooming of various business-to-consumer (B2C) online shopping platforms increasingly ensured that Chinese consumers felt at ease with purchasing online, resulting in the rocketing growth of internet retail in China. While JD.com, Suning.co, and Alibaba remain the major players, the growth rate of internet retail in China is forecast to slow down.

[Source: Statista “The Internet Retail market in China is fairly concentrated, with the leading players taking up over 90% of the transaction share.”]

Emerging trends in internet retail in China 

The industry grows into a collaborative ecosystem as retailers seek  M&A opportunities as a solution of growth

Over the past few years, the internet retailing market has undergone rapid changes and many retailers struggled to keep up with those changes. Amazon marketplace exited China due to fierce competition from local players. Alibaba-owned Hema had taken over Wal-Mart in the rapidly growing domestic online supermarket. As leading local retailers continue to modernize and transform at a rapid pace, multinational retailers are now seeking support from their local comparatives. For instance, in June 2016, Walmart sold its Chinese e-commerce website, Yihaodian, to JD.com, which would enable Walmart to access a broader range of potential customers. Carrefour, a French-owned hypermarket chain, sold 80% stake of its business in China to a local grocery retailers Wumart.

 Many local players also partook in mergers and acquisitions in China.  For example, in September 2019, Alibaba acquired Kaola (网易考拉) for $2 billion, Netease’s cross-border e-commerce platform, and integrate it with Tmall to form the largest cross-border e-commerce platform in China. The internet retail in China presents increasingly more industry M&A activities like JD and Tmall’s. 

The internet mindset prevails in the increasingly transparent internet retailing industry

As the current customers have been acclimatized to an increasingly transparent internet environment, mainly ascribe to the data-driven AI technology in China, the future customers will be likely to have total transparency about every purchase and consumption choice they make. According to Ernst Young’s consumer research, to attain the consumer of 2030, companies need to rethink their deliverables. Today, companies try to engage consumers by delivering the brand promise of product or service, while the extent to which it actually delivers can be vague, and consumers often need to take it on trust. 

[Source: Taobao.com “Taobao offering deep discounts has become a way to show price transparency to the consumers of today, which makes brands and companies to adjust their business model to pass the savings to consumers.”]

The future retailing we are modeling will likely to be more transparent. Companies will have to fill the uncertainty along the decision-making journey, delivering measurable, personalized outcomes to the consequence of every quantifiable purchase. To do that, some companies have already taken preliminary measures on optimizing their business models. They look for opportunities to cut costs through outsourcing or divesting some of their current operations, to form strategic partnerships, and to focus exclusively on where and how they can add value. 

Lower-tier cities and demographics other than the youth and females display strong potential 

As the domestic internet retailing reaching maturity in the higher tier cities, retailers are looking for expanding their reach to rural areas or lower-tier cities, where the customer profitability is still high and competition is less fierce. According to the National Bureau of Statistics of China (NBSC), from 2013 to 2017, the per capita disposable income and consumer goods expenditure of rural household (9.3% and 7.6% respectively) increased at a faster rate than that of in urban households (8.3% and 5.4% respectively), suggesting a strong potential for the development of internet retailing. Moreover, the Chinese government is also in support of expanding e-commerce to the lower-tier cities. 

Besides, as the profitability of younger and middle-aged, female demographics are saturating, new demographics such as male and the older generations offer strong potential for e-commerce in China. Interestingly to see is that recent studies have identified the growth of male skincare and cosmetics in the retail market in China. Expansion into emerging geographic and go beyond traditional demographic help to sustain dynamic growth within the industry. 

Cross-border e-commerce targeting emerging markets

According to statistics, China accounts for over 50% of the Asia-Pacific online retail sector value, followed by Japan (10.4%) and South Korea (8.1%). The rest of Asia-Pacific amounted to 11.8%. The recent years have witnessed the South-east Asia countries including Thailand, Vietnam, Singapore, Malaysia emerging in the growth of online retail. These countries have shown significant development in internet service and logistics, which offers strong potential for internet retailing. With Internet giants like Tencent and Alibaba tapping into these markets, the Chinese government is also encouraging to export domestic productions and a surplus of production capacity to foreign markets.  

Chinese e-commerce platforms are not playing in the top league of e-commerce in Southeast Asia as consumers prefer local e-commerce sites. However, they are quite competitive and with their strategic focus shifting towards emerging markets, those leading Chinese retailers will keep pace with the local platforms in the coming years. They might achieve this by M&A or investing in local platforms to reach a wider pool of customers. For instance, Alibaba invested in the Southeast Asian e-commerce platform Lazada, and Tencent invested in SEA, a Singapore-based gaming app and Internet company that owns the e-commerce platform Shopee.

[Source: KrAsia, App Annie “Lazada and Shopee are leading the e-commerce retail in Southeast Asia.”]

Future internet retailing landscape: Shaped by key players but watch out for disruptive innovation 

Leading internet retailers experimenting on the O2O integrated model

Given the explosive growth of the channel, it seems apparent that more store-based retailers are likely to enter internet retailing. However, recent years have witnessed the major internet retailers expand to offline. For instance, Tmall has opened up Tmall Xiaodian (天猫小店) convenience stores to gain offline traffic while addressing the growing convenience store sector in the country. Vip.com (唯品会), an online retailing channel of Guangzhou VIPSHOP Information and Technology Co., also has had their physical stores in department stores in lower-tier cities. These exemplify that traditional retailing does have its advantages, and will continue to attract a fixed group of consumers. This is mainly because consumers are expected to continue to rely on brick-and-mortar stores for grocery products such as fresh vegetables and fruit. Meanwhile, there are consumers who are not internet-savvy. 

Consequently, the future internet retail in China will see more pure e-commerce players increasing their reach and the outcome of experimenting with the O2O integrated business model. For those companies which are not pure e-commerce retailers, the major issue to resolve will be how to avoid cannibalizing their sales from store-based outlets with sales from their online sales platforms. After all, the investment in setting up an online platform for store-based retailers is not small.

Collaboration as an avenue of growth will further consolidate the industry 

To consolidate their leading positions, the top internet retailers are expected to strengthen their business model over the forecast period to keep pace with changing consumer needs, to fulfill unmet needs, and to gain economies of scale. As they look for chances to cut costs, raise capital, and improve performance, more than half (53%) plan to outsource or divest some of their current operations, according to the industry research. This may lead to more collaborations from the delivering end to the receiving. 

As the future internet retailing demands a more collaborative ecosystem, it is likely to see the industry becoming more consolidated with the internet moguls acquiring the underdogs that offer significant transitional capacities. On a global scale, China has leading retail technology and innovative customer experience, it has become an attractive destination for acquisition. 

What Daxue can do for you 

While the incumbents are looking for changes to adapt to future consumers, the extent to which they can actually transform can be hard to tell. This is mainly because the existing players so often have established their systems from day one and changes might be difficult to implement. However, for new entrants, it’s relatively easier to apply disruptive changes due to the inchoate business model they are experimenting with.

Therefore, the newly entered retailers have the luxury to change fast enough or stay relevant, whilst the existing players need to stay vigilant on the disruptive forces in the market.

What Daxue Consulting offers are insightful analysis of the market and an integrated solution for businesses in the market or planning on entering. With a real understanding of the market, we make sure a balance between what

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This article Key Growth Engines of Internet retail in China is the first one to appear on Daxue Consulting - Market Research China.

[Data Source: China Chain Store & franchise “Annual Sales Revenue of the Convenience Store in China”]

Blooming convenience store market in China

In 1992, Seven-Eleven opened its first convenience store in Shenzhen, marking the beginning of the foreign chain convenience stores’ China market entry. Later, China’s domestic convenience stores started to become popular and established chain brands. The combination between convenience stores and online life platforms is also thriving and brings more convenience to customers.

The government issued supportive policies to contribute to the development of convenience store market in China as well. In 2018, Beijing has unveiled new policies to encourage the establishment of neighborhood convenience stores to ensure that there is at least one convenience store in every neighborhood. According to the policies, Beijing is encouraging the establishment of chain-supermarkets and convenience stores in residential neighborhoods. Enterprises will be given 30% of total investment in governmental fixed asset investment subsidies for each convenience store or supermarket successfully set up in residential neighborhoods.

After initial expansion in China, Japan’s convenience stores face an evolution.

Japanese convenience stores expanded aggressively, where they see vast new markets being created by China’s rapid urbanization. However, they face the challenges of a retail culture of poor customer service and shoppers who value price over convenience. Seven-Eleven is the largest convenience store in Japan, but did not adapt to the Chinese market as well as Family Mart and Lawsons. It sells cold food like sandwiches which do not suit Chinese appetite, and the prices are a bit high. Family Mart takes more measures to adapt to the Chinese market. Now, Family Mart is the largest Japanese convenience store operator, with 2,571 stores in China. Family Mart provides customers with their preferred goods based on the research of customer preferences. Their sites selection is also sensible, people can find their stores in subways and other transportation junctions.

[Source: Family Mart “Food designed for Chinese appetite”]

Wal-Mart reopens its Chinese convenience stores after the first failure

The world’s top retailer, had launched a pilot program to open convenience stores in China. Wal-Mart China opened three convenience stores named Hui Xuan in 2009, in the South China city of Shenzhen in a low-key initiative. Unfortunately, these stores closed in 2012. Wal-Mart claimed that they closed these stores due to the end of the test. However, the stores’ operational staff revealed that the competitive market environment and the upstream production also caused the closure. Meanwhile, Brand Hui Xuan started to appear in tier 3 and 4 cities.

In 2018, Hui Xuan re-entered Shenzhen with its technology evolution. Now, Hui Xuan takes an omni-channel retailing model, allowing customers to buy products in multiple ways. Customers can purchase products in retail stores and pay by traditional methods like cash, Alipay, and other payment platforms. Additionally, they can utilize the WeChat’s Mini Program, Sao Ma Gou, to scan products’ bar code to pay without waiting in line. Hui Xuan also cooperates with JD Daojia. Customers can make orders in JD Daojia application and get their goods in 29 minutes within 2 kilometers. Beside product sales, Hui Xuan offers many convenient services including free hot water, and shoe repair.

The rise of domestic convenience store brands in China

During the 1970s, the usual convenience stores were stores in gas stations. After the reform and the opening up, convenience stores gradually appeared in residential areas. In 1993, Shenzhen had had mature local convenience stores brand named Polison with 300 stores. With the support of government policies and the boom of the economy, China’s domestic convenience store chains are flourishing.

Currently, local chains occupy 8 out of the top 10 convenience stores brands in China. These domestic brands present the characteristics of the region that they are from. For example, Hi-24 concentrates on the Beijing market. Hi-24 researched the Chinese characteristics to improve their sales. Rather than cold sandwiches, they sell hot food like pies, Douhua and other food with Beijing features to satisfy Chinese appetites. Domestic convenience stores also have irreplaceable advantages. Alldays, a state-owned convenience store brand, has the license to sell cigarettes while foreign enterprises are forbidden from selling cigarettes in China.

Convenience stores plus O2O is becoming popular in China.

As technology develops, numerous convenience stores gradually combine their sales with O2O platforms in China. Some convenience stores choose to use popular online sales platforms. Sina Finance reported that Seven-Eleven in Beijing did not want to join online sales at the beginning. However, as its competitors joined Meituan, Elema and JD Daojia, Seven-Eleven decided to make their products available on these platforms. In January 2016, the sales of Seven-Eleven in JD Daojia surged 400% over the same period last year. There are also many convenience stores that establish their own O2O platforms, like WeChat miniprograms.

[Source: Meituan “Seven-Eleven Online Store in Meituan”]

Convenience stores in China under Coronavirus Outbreak

Due to the impact of China’s Coronavirus outbreak, all shopping sites were shut down. Only convenience stores, supermarkets and pharmacies remained open. Thus, it triggered the boom of convenience stores sales. Meanwhile, the post-pandemic economic recession may also influence the convenience store market in China, which is a recession-proof market.  

The contributions of convenience stores under the epidemic control period in China

Convenience stores Coronavirus crisis management was quick and flexible. During this time, people have to stay at home, so many ones choose to make online orders to supply necessities. Hangzhou.com reported that Lawson stopped providing cooked food to avoid possible virus infection and replenished more instant food. The online orders of the convenience store Hangzhou.com increased by over 3 times. Meanwhile, many convenience stores use their ways to support anti-virus. Lawson started to sell fresh vegetables, and fruits that it did not replenish before. It also provided free breakfasts and food delivery to people who are against the epidemic now.

After Coronavirus, convenience stores may face more challenges in China.

According to OSTRICH’s data, its daily sales were around 8,000 yuan per store during the epidemic. In 2018, the daily sales of sample convenience stores in China was 5,299 yuan per store. In a short time, the sales of convenience stores may be intact. However, Wang Wei, the founder of Sheng Xian Chuan Qi, reminded us that retail enterprises may face the inflation brought by the economic downturn and the sluggish consumptions caused by the price rising. Convenience stores are forced to think about their future operation due to the potential economic recession.

The convenience stores market in China is promising and competitive.

Convenience stores in China have experienced several decades’ evolution and especially during the Coronavirus period, they reacted efficiently. Now, even facing challenges, the convenience stores market in China is still promising and competitive.

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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

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 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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Sam’s Club is a world leading membership store, which serves more than 2 million members in mainland China. In 2018, Sam’s Club in China achieved 8% same-store sales growth in China’s market, with almost 80% membership renewal rate.In 2019, Sam’s Club had double-digit sales growth driven by higher sales across all channels.

Sam’s Club China market strategy: Integration of online and brick-and-mortar store locations

“Offline channel (brick-and-mortar stores) is our primary channel, supplemented by online channel.” said Andrew Miles, President Sam’s Club China, “For online channels, self-own channels come first and cooperating with other ecommerce platforms to reach more customers.” 

From offline to online

Sam’s Club in China started its journey by launching its first store in Futian district of Shenzhen in 1996. Currently, the brand has 26 brick-and-mortar stores on the Chinese mainland and will have 40 stores opened or under construction by 2022.

In order to meet the need of increasing number of online shoppers, Sam’s Club China began to pay attention to e-commerce development in 2010. In 2010, Sam’s Club China opened its official online store (www.samsclub.cn) to provide direct delivery service in cities where Sam’s Club stores located. In 2014, Sam’s Club launched its own APP to offer more convenient shopping process. Thus, the club’s members can benefit from both the advantages of Sam’s digital platforms and the offline convenience of personal service and experiencing physical products. Thanks to online delivery services and electronic membership card introduced, the revenue of Sam’s Club increased by 8% in 2018.

Strategic cooperation with third-party e-commerce platform

Since both Sam’s Club’s official website and APP only serves its members live around offline stores, the brand is badly in need of expanding its customer base in China. Consequently, Sam’s Club China started the strategic cooperation with JD (one of China’s largest third-party ecommerce platform) in 2016. The cooperation helped Sam’s Club reach a large volume of potential consumers who are originally regular users of JD. In May 2019, the sales of Sam’s Club flagship store on JD global grew by three digits compared with the same period last year.

In addition, Sam’s Club is focusing on creating more online-to-offline experiences by bringing together its strengths in digital and physical retail. For example, Sam’s Club has introduced a new shopping method, which enables customers place orders in it’s JD store by scanning the QR code in offline stores. This way of “offline commodity display + online purchase & delivery” is now quite popular among members.

Currently, Sam’s Club China is continually opening more offline stores, and actively developing new business formats at the same time, such as compact hypermarkets, community stores and cloud depots. The Sam’s Club’s strategy of developing online and offline in coordination works well and enables it to implement omni-channel strategy successfully.

Sam’s Club’s membership system on online and offline channels

Sam’s Club China membership operation based on physical stores

The club, a pioneer in operating a membership model in China, achieved excellent results in recruiting members over the past 23 years, according to Andrew Miles. So far, Sam’s Club in China has about 2.8 million paid members (individual members & business members), made up largely by individual customers.

Based on the physical retail properties, members can enjoy two aspects of benefits: price-based benefits and value-added services. Sam’s Club offers two types of membership for retail members in China, one is the 260-yuan ordinary membership and the other is the 680-yuan premium membership. The premium one was introduced in 2018 which targets families that are looking for personalized purchasing experiences. Compared to ordinary members, premium ones enjoy five extra benefits. They are a 2 percent cash reward on membership fees for qualified purchases, 12 free delivery coupons per year, dental care at private clinics valued at 8,000 yuan per year, 12 free car wash coupons per year and 365-day free return policy on large home appliances.

[Source: Sam’s Club China official website, “Membership types and benefits”]

Sam’s Club membership operation on online channels in China: Membership-centered CRM

[Source: daxue consulting, “Sam’s Club membership-center CRM”]

Based on the membership–based CRM system which integrates membership data from all channels, Sam’s Club China is able to manage its customers’ information in one place and get a 360-degree view of members for greater insight.

For the external ecommerce channel, Sam’s Club is able to reach more customers on JD and JD cross-border platforms. By binding the JD account and club membership, customers who purchase goods from Sam’s JD flagship store become the club member system. And these customers’ data will be available in Sam’s Club membership system.    

Integrating data and driving traffic to brand-owned channels

For brand-own online channel, Sam’s Club in China integrates the membership data from WeChat, Brand official website and Brand APP. At the same time, the Club can drive a large volume of traffic from WeChat to Self-owned online stores and the Brand APP. In this case, the membership system can collect valuable information and data from the integration of self-owned online channels.

The Sam’s Club membership-centered CRM create a powerful loop between multiple channels and its membership system to transform membership data. This CRM system enables Sam’s Club to know every single transaction that happens in the club or online as well as each customer’s expectation by analyzing customers’ data. Thus, Sam’s Club China will know how they can maximize multi-channel’s shopping experiences both to satisfy member needs but ultimately to drive the types of behavior they want. With such membership-centered CRM Sam’s Club can exert full control and retain full ownership over their e-commerce traffic and consumer data.

Sam’s Club’s WeChat-centered digital membership system

Sam’s Club China opened its official WeChat account in August 2017, and made it as the center of the brand’s online membership system.

[Source: daxue consulting, “Sam’s Club’s membership service on WeChat”]

Apart from registering membership in offline stores, the “membership center” in Sam’s Club’s WeChat public account is the only channel for e-card membership registration. Through the member’s center in the mini-program, existing members can activate e-card and manage their membership while non-members can easily register and become the club’s members.

Sam’s Club’s e-commerce strategy in China

Self-owned online channels in China: Brand APP & Brand official website

Brand official website and brand APP are the online sales channels owned by Sam’s Club China. These channels are designed to provide exclusive service for club members. Most of the goods (except fresh food and imported products) can be delivered within one day. In 2017, Sam’s Club China started to offer “1 Hour Delivery”, which includes a large selection of food and drinks items that can be delivered in just one hour.

Self-owned online channels in China: Ensuring high quality services

[Source: daxue consulting, “Ratings of Sam’s Club APP & Consumers’ perceptions of Sam’s Club’s brand APP on Weibo”]

Sam’s Club in China is able to create a strong connection with customers on its own channels by serving exclusive members directly. With fully management of the brand APP and official site, Sam’s Club can create a tailored experience to target existing clients and ensure members can get premium service (higher quality after-sale service, one-hour delivery, etc.).

The ratings of Sam’s Club China APP on APP store show the club’s APP enjoys a good reputation among Chinese customers. From consumers’ perceptions on Weibo, we can see that most consumers are satisfied with the service and products provided by Sam’s Club’s brand APP. Thus, by ensuring high quality services provided by the club’s own channels, Sam’s Club successfully increase the customer stickiness.

Partnership with JD.com: Reaching more Chinese customers

Besides own channels, Sam’s Club also cooperates with largest Chinese e-commerce platform-JD. In Oct 2016，Sam’s Club China opened exclusive flagship store on JD.com and 7 months later Sam’s Club launched its Global Flagship Shop on JD Worldwide, the cross-border site of JD.com. In April 2018, Sam’s Club China joined the JD Daojia 京东到家 platform to offer fast delivery of orders in one hour.

[Source: daxue consulting, “Benefits provided by double membership”]

Sam’s Club in China uses a collaboration strategy to convert regular buyers on JD into brand’s own asset. Doubled benefits provided by Sam’s Club JD flagship store persuade more consumers to become the club’s members. In this case, Sam’s Club China is able to attract more members and broaden its consumer base beyond its current city-scope.

Leveraging e-commerce platforms for expanding consumer base

Since e-commerce platforms like JD are interlinked with Chinese consumers’ daily life, the cooperation with JD will expand Sam’s Club’s opportunity in e-commerce by access to JD’s online traffic. By servicing both club’s members and non-members on JD platform, Sam’s Club China is able to reach customers all around the country. However, since JD keeps Sam’s Club’s products in its own warehouse and then delivers to buyers, the quality of service and products cannot be control by the club.

Currently, Sam’s Club China and JD are expanding their cooperation to further integrate their platforms, supply chains and customer resources in China. Hopefully, the further partnership with JD will give the club a huge advantage in reaching China’s rapidly expanding target consumer class and will let the brand leapfrog its expansion.

Sam’s Club’s promotion strategy in China

Selling on brand official site increases brand visibility

[Data Source: similarweb, “Total Visits of Sam’s Club site in China”]

Here, we compare the visits of Sam’s Club official site in China. The line graph shows that in a 6-month period, Sam’s Club site attracts 2 times more traffic than Walmart’s site, since Sam’s official website in China has online shopping while Walmart’s site does not. Besides, Sam Club’s membership system ensures its website stable traffic volume in a long term.

Besides converting purchase, Sam’s Club China also benefits from a high-traffic site by improving its brand visibility and building the brand image among Chinese customers. Moreover, the official site allows Sam’s Club to create a strong linkage with customers through the membership system, which will retain customers and increase the customers’ loyalty.

Brand APP and WeChat account increase purchase demand

[Source: daxue consulting, “Posts connected to shopping page on Sam’s Club APP”]

Sam’s Club China APP and WeChat account are not only online shopping channels, they also create demand among customers apart from selling to members.

There are regular recipe posts on the “discovery” page of Sam’s APP, the products shown in the post will stimulate purchase desire and readers are likely to tap the link to buy the products directly. As for Sam’s Club WeChat account, most article posts are correlated with various products promotion and marketing campaigns. The attractive images of food or user-friendly products in the posts can always trigger purchase demand.

Sam’s Club China has good reputation among customers without frequent presence on media

[Source: daxue consulting, “Promotion strategy in China on variety show and WeChat”]

Sam’s Club China has relatively less presence on media and it only runs promotion for new store arriving and sales promotion. However, Sam’s brand promotion strategy in China based on high-quality products and service helps it build a power brand image and enjoy a good reputation among customers. For example, Sam’s Club advertises on a popular variety show, which presents Sam’s offline store in real scenario. Also, Sam’s Club did collaborate promotion with influential local media on WeChat to reach their members in different cities. With high volume and engagement, such strategies worked quite well and do attract more customers and drive high traffic to Sam’s online and offline stores.

[Source: daxue consulting, “Consumers perception on WeChat”]

From customers’ perception on social media, we can know that Chinese customers see Sam’s Club as a well-reputed brand. By offering high-quality goods for over twenty years, Sam’s Club has a good reputation among Chinese and becomes the top of mind when people mention bulk buying.

From the case of Sam’s Club, it is not difficult to see that if traditional retailers intend to seize a piece of cake in the fierce market competition in China, they need to develop online and offline in coordination to realize digital transformation. Besides, implementing omni-channel strategy works well with respect to building brand image and improve brand awareness. Last but not least, good brand reputation based on offering high quality service outweighs frequent promotions. 

Sam’s Club China’s strategy of driving traffic to their brand owned channels is known as brand independence, and your brand can do it too! Just contact our project team at dx@daxueconsulting.com to get started on your brand independence strategy.

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This article Sam’s Club in China: Case study on successful Digital Marketing is the first one to appear on Daxue Consulting - Market Research China.