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Factors to Consider When Opening a TMall Shop

  |  May 22, 2013   |  Comments   |  

Setting up a TMall shop without understanding the Chinese language or having a trusted local partner can be challenging. Here's a breakdown of the main facts.

In my previous piece on TMall - Gateway to China's Growing E-Commerce Market, we looked at why TMall is becoming a force to be reckoned with on the global digital stage; one that can't - and shouldn't - be ignored.

Besides having impressive sales figures, TMall is a straightforward way to reach out to consumers living remote from tier one cities where foreign brands usually establish a physical presence on entering the market. However, setting up a TMall shop without understanding the Chinese language or having a trusted local partner can be challenging. Here's a breakdown of the main facts.

TMall has three different store formats:

1. Flagship store: Only brands with a trademark (either ® or ™) can open flagship stores. The owner of the store must be formal representative of the brand or hold exclusive authorization documents for setting up a TMall flagship store provided by the formal representative of the brand.

2. Specialty store: Merchants with brand authorization documents giving them distribution rights to sell products without geographical restrictions in the Greater China region are eligible to open this store format.

3. "Monopolized" store: Merchants with two or more brands within one of TMall's product categories can open this type of store. Only one "monopolized" store can be held per merchant in one product category.

For smaller brands and those wishing to test the water with TMall before committing to their own store, there's also the option to set up shop in the virtual equivalent of a department store. This has the dual benefit of allowing retailers to promote their products in the same space as other respected brands, while keeping costs and potential risks to a minimum.

Costs depend on the type of shop you opt for, but within this there are other factors that define the cost structure. In general, TMall costs can be broken down in three categories:

1. Deposit: This is for reimbursing consumers if a TMall shop breaches the "Taobao Mall Service Agreement" and has sold counterfeit products. The deposit is based on the chosen store format and the trademark status.

2. Technical service fee: This is an annual fee that varies according to product category. The merchant has the chance to redeem either half or the full service fee, if they reach TMall's predefined sales targets for the product.

3. Sales commission: For every transaction made, TMall keeps a percentage of the sales value as commission.

These key considerations should provide a good starting point for brands planning to take their place on the TMall sales platform. However, the dozens of product categories and sub-categories will require more in-depth planning to accurately assess the costs.

Long-term planning over short-term testing

TMall has quickly developed to become the sales platform of choice for people in China when researching and buying branded products online. It provides a strong sales channel for brands that want to target consumers outside of the cities where they have a physical presence. With nationwide broadband coverage still developing and an official commitment to improvement (the number of broadband users in China is currently around 159 million, or 11.7 percent penetration, and the Chinese government has said that it aims to increase broadband coverage to 95 percent by 2015), TMall should not be seen as a temporary addition, but rather as a long-term channel that needs a strategic approach to meet consumer demand and build a successful, stable brand presence in the territory.

Unexpected items in the (digital) bagging area - 5 popular purchases on TMall that might surprise you

While clothing, household items, and accessories lead the way, some more unusual items are becoming increasingly popular with buyers:

  • Lamborghinis, Mercedes, and other luxury cars: TMall is promoting the Internet as the most convenient way to buy imported luxury cars and its automotive products category has grown 400 percent year-on-year.
  • Baby formula: Following a food safety scandal that led to high demand for formula made outside of mainland China and the subsequent government-imposed purchase limit, TMall is officially working with overseas manufacturers to sell it online, ensuring quality, authenticity, and freshness.
  • Face masks: Pollution is a concern for citizens in major cities such as Beijing and purchases of face masks increased 130 percent after a recent spike in air pollution.
  • American cookies and other classic U.S. foods: Availability of international goods, in particular items such as cookies, dried fruit, and nuts - has led to a surge in pre-orders for previously unavailable foods, with retailers regularly experiencing "sell-out" campaigns.
  • Fine wine: China is fast becoming the biggest online market for wine, topping global Internet sales ahead of more traditional wine-buying nations such as Brazil, the U.K., and France. It's predicted that 47 percent of the Chinese population will buy wine online by 2020.

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ABOUT THE AUTHOR

Elisa Harca

With a background in running high-profile campaigns for major brands while at Glue, Digitas and now Red Ant, Elisa has spent the past 13 years exploring and developing new ways for global brands including Swatch, MTV, MAC Cosmetics, Samsung, and Ericsson to engage with their audiences. She has worked with clients extensively in the North America, Europe and most recently Asia. Recommended as an expert digital and mobile consultant by market leaders, she is recognized worldwide for her professionalism, integrity and her ability to help brands navigate the increasingly complex global digital landscape.

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