How can retail brands develop an omnichannel strategy for market entry into China? This was the focus of an ecommerce panel at this week’s Retail Asia Expo in Hong Kong.
Filippo Gori, business development director, international brands, VIP.com and Paul Tinkler, general manager, Greater China & distributors, Dr. Martens, shared the different ways retail brands are engaging with Chinese consumers at touchpoints and channels both within China and beyond.
VIP.com is one of China’s biggest ecommerce marketplaces and specializes in retail and lifestyle brands. Once a discount platform, VIP.com now caters for full price goods and has moved beyond retail to include other lifestyle verticals such as hotels and travel.
1. The importance of real time inventory
Gori says a big challenge for brands is not having real-time inventory which creates a bottleneck to omnichannel.
Without real time information to stock availability, brands risk selling products they don’t have. The benefits however allow brands to link across channels and helps brands to push online buyers to offline stores.
Here’s how a Hong Kong retail group tested an omnichannel strategy for China using its partnership with VIP.com.
First, inventory from two of the brand’s stores in Shanghai and Beijing were uploaded onto VIP.com. Then using VIP.com’s geolocation data, notifications were pushed to the platform’s customer bases in Beijing, Shanghai and surrounding areas, alerting them to special offers. Customers could then buy products from the two shops online, pick them up in the bricks and mortar stores, or have VIP.com collect the products (from the stores) and deliver them.
Incentives to push consumers in-store and create some buzz, included discounts and having Western models deliver goods to Shanghai-based women in their homes.
Gori says the turnover of goods purchased online from the two stores in Shanghai and Beijing was RMB 5 million (US$760,000) in just two days.
2. Omnichannel for China market testing
Everyday, at any given time, Gori says the VIP.com platform is shipping 600,000 products, covering the whole of China. The opportunities therefore for new brands entering the Chinese market are boundless.
“If you are a new brand in China and you want to have an idea of where your customers might be, the easiest way to do that is to test online, with some offline marketing,” says Gori.
“Immediately you will start to have an idea of where your prospects can be.”
Having spent considerable time in China in previous roles with Gucci, Gori says he is still surprised to be discovering cities in China with significant volume. “I thought I had seen them all, but China is huge,” he says.
From his experience, many retailers will not consider a city that has less than two or three million people. However, while a retail presence in tier one cities can be great for branding purposes, profitability can be challenging. This is where a less known tier three or four city in China can be a lot more sustainable. And where ecommerce channels can be an effective way to reach them.
Cross-border ecommerce should also not be discounted, says Gori.
3. Developing an omnichannel strategy for China
The panel’s moderator, Napoleon Biggs, founder of Hong Kong’s Web Wednesday, asked what incentives there were for brands to join a marketplace platform like VIP.com if they had already invested heavily in other channels and partnerships in China.
Gori says brands are definitely weary of platforms because they are no longer in control of their customers. However, in China, a presence on a marketplace is essential for driving traffic.
“Ten years ago managers from luxury brands would come to Shanghai, see the boom, and think – I love this place, I want to open a store here. But then they would close it because they didn’t really sell anything. They needed to be in shopping malls,” says Gori.
He said online was the same. “You can open your stand-alone website and make it as nice as possible for the branding, but it will never have enough muscle traffic to generate a sustainable business,” he says.
Retailers including YOOX and ASOS have not been able to take market share in China, with ASOS pulling out of the market earlier this year. Even ecommerce giant, Amazon has a store on Alibaba’s Tmall after failing to generate traction for its standalone Chinese site.
Tinkler’s experience in Asia includes his current role with Dr. Martens and previously helping to bring UGG to China.
A key challenge for many brands are the overhead and exorbitant retail space costs across China and Hong Kong, he says.
“You can’t take a 5000-square-foot location for a mono-branded footwear brand and expect to be profitable,” says Tinkler. “You need smaller spaces, efficiency of inventory and real time visibility of all your inventory across all your stores.”
Drawing on his experience with UGG, Tinkler says the brand followed an untraditional omnichannel model, establishing a strong retail presence in China first, before opening a store in Hong Kong and launching an ecommerce platform for China around the same time.
While many brands have success with show rooming models, Tinkler says doing it again, he would launch an ecommerce platform to run in parallel with store launches and have them connected.
“Having that online connection, that online engagement and online brand environment where the consumer is important is just a missing piece these days. You can’t be successful in the omnichannel space these days without that.”
4. Managing franchisees and distributors
Tinkler manages seven distributors across nine markets in the region for Dr. Martens, and all of those have mono-branded Dr Martens stores. Problems occur however when the different channels are not in sync with each other.
This could be something simple like a consumer buying something online in the wrong size. Maybe they live nearby to a retail store and want to take the shoes back. However the store won’t take them because it doesn’t recognize the receipt.
“The consumer doesn’t care who owns it. Online or offline, it is all the one brand to them,” says Tinkler.
To fill that gap is to financially incentivize the franchisee – whether that’s through a rebate, a credit note, or to include that distribution partner as part of the omnichannel process, says Tinkler.
“Between the retailer and the franchisee, ecommerce doesn’t fit very well. The franchises see ecommerce as a threat and they are probably right to see it as so,” he says.
His solution it to engage them and help them to see how ecommerce is just another way to get customers to interact inside the stores.
A customer returning an online purchase is an opportunity to cross-sell them something else.
“The idea to give a portion of the sales you do online in a determined area that is maybe covered by the franchisee, to the franchisee, I think is also a viable way to make everyone happy,” Gori adds.
Tinkler also suggests centralizing the database and sharing data with the franchisee, to market accordingly.
This avoids having the consumer being sent different marketing and brand messages.
5. Generating traffic to your brand
The opportunities in China seem boundless, but getting brand awareness is a significant challenge.
Marketplace pure plays are increasingly popular in China and as a result, consumers are less likely to search on Baidu these days, but go to the marketplaces directly and search from there.
VIP.com gets 17 million views a day. Much of that traffic comes from within the platform itself – a form of online window-shopping.
Different marketplaces have different models.
For example, Alibaba’s Tmall relies on advertising. Anyone can set up a store on the platform but unless the brand invests in additional marketing, Tmall will not promote it and it will never get found. Tmall has the customer base, but the brand itself must pay for traffic.
VIP.com has a different model which works on recommendations using big data. Each new customer is “clusterized” in a bucket which is refined as the individual interacts with the platform. The more they click, look or buy, the more the system knows what they are looking for. With 90% of VIP.com transactions happening on mobile, from a user experience point of view, the consumer wants to see the first 10 to 20 brands most relevant to them and easily displayed.
Gori says conversion rates from its recommendation system sit between 5% and 6%.
6. Engaging the Chinese consumer outside China
More than 120 million Chinese consumers travel abroad each year.
“You read how powerful the Chinese consumer is outside of China and a dominant buyer of the luxury market, particularly in Europe, and so it’s all about being able to make that experience as seamless as possible – with click and collect in foreign markets,” says Tinkler.
For Tinkler, that means ensuring the Chinese consumer has the same experience whether they are in Hong Kong, or Shanghai.
With a lower tax rate in Hong Kong, it’s not uncommon for Chinese customers to purchase in store there, but request postage of the goods back to China, he says.
An interesting sales technique he has observed are the connections his Hong Kong store managers make with Chinese customers on WeChat. They connect on WeChat and when new stock arrives in Hong Kong, the manager sends a picture, telling the Chinese consumer it is 20% cheaper than buying it in Shanghai – and they can have it shipped to them today.
The panel concluded that centralized CRM for a global Chinese consumer isn’t far away.
*Featured image: VIP.com
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