Ecommerce is big in China, but not nessessarily amnong luxury brands. This is perhaps mostly due to the nature of luxury brand products which are generally very expensive than the average ecommerce purchase, and difficult to fully appreciate from viewing pictures online. However, while investment and growth in ecommerce has been slower than other industries, luxury brands are steadily increasing their investment into ecommerce over time as the sheer size of China and the limited reach of retail stores demands new strategies for the modern marketplace.
Luxury Brands’ Slow But Steady Growth in Ecommerce
Growth in ecommerce for luxury brands has plateaued since 2015. However its projected to grow as competition and demand increases.
Luxury Brands Host Ecommerce on their Websites
Brand’s tend to use their own websites for ecommerce transactions. This is likely due to the number of fake products being sold in China. Customers can trust they’ve purchased real goods when buying from a luxury brand’s official website. Due to the popularity of WeChat, WeChat Shops have seen a recent huge jump in adoption. Though this is usually for sale of limited availability items during special campaigns, WeShops may eventually become more permantent ecommerce destinations for many brands.
Millennials spend a lot of time online versus other age groups. Being exposed to fashions and trends from all over the world has led to greater sophistication and independence when purchasing luxury products. They overwhelming choose products for themselves, rather than choose based on the opinions of friends or the media.
Chinese Millennials Spend the Most Time on Digital Per Week
Millennials spend an average of 21 hours online on the internet and social media than all other age groups combined. Digital is the best way to connect with a Chinese Millennial audience.
Chinese Millennials Get Luxury Info from Digital
Millennials tend to get their luxury information from digital channels such as social media and online websites and news sources.
When Purchasing Luxury Goods, Only Millennial Opinions Matter
Millennials are less likely to follow the opinion of others, and rather form their own opinion of what to buy and what to wear. This is a continuation of a trend of purchase sophistication.
Tier-1 cities like Shanghai Beijing and Guangzhou on average have citizens with greater than average wealth vs. the rest of China. However the most wealthy Chinese tend to live in Tier-2 cities, and growth of netizens able to afford luxury products is higher in Tier-2 and below cities as well. Since many brands do not have physical retail presence in these cities, it makes adoption of ecommerce and scalable education through digital platforms critical to sales growth.
Growth of Luxury Consumers Mostly Outside Tier-1
The vast majority of growth for consumers is outside Tier-1 cities like Shanghai, Beijing, Guangzhou and Shenzhen.
Growth in Luxury Search Terms Highest in 3rd Tier Cities
While total volume of luxury goods sales in 1st tier cities is higher, the growth in luxury demand is happening in 2nd and 3rd tier cities. Reaching these cities via ecommerce is key.
Luxury Consumers Prefer In-Store Purchase
Customers still prefer to purchase products from luxury stores. Luxury brands should consider a “trunk show” solution to regions that they do now have a physical retail presence.
Millennials in China have grown up during a very special time in China’s history. While they’ve definitely learned about China’s many troubles during the 20th century, China’s millennial’s themselves have only experienced the country’s massive prosperity boom. This makes the modern day Chinese consumer more optimistic than previous generations. Optimism has led to pride in Chinese culture and concern for national and environmental social issues.
Chinese Millennials More Optimistic Than Previous Generations
Millennials only know China as a prospering rising global power. Thus they are significantly more optimistic they do better than the previous generation than other millennials around the world.
Pride in Chinese Culture and Heritage
Age groups 18-25 and 26-40 have the highest levels of cultural consumption. China’s rising position on the global stage has led to an increase in pride and a newfound preference for Chinese cultural products that reflect China’s history and heritage.
Chinese Millennials Care About Social Issues
Climate change and Income Equality top the list of Millennial personal concerns. These concerns reflect a growing sophistication and awareness of a world beyond themselves.
Parklu recently released a report documenting trends in destinations discussed by China’s influencers and KOLs. While destinations mention fit closely with China top travel destinations, there are a few surprises, especially the differences in places mentioned between Weibo, WeChat, Little Red Book and Douyin.
Paris tops the list in most cases, but every now and then Los Angeles and Tokyo make it to the top. Other destinations such as Iceland rank higher for WeChat but very low for Douyin. Some small hints of Chinese digital behavior hide in between the lines, just waiting to be teased into the open.
China KOLs Most Discussed Destinations
Paris, Tokyo, and LA top the list with Paris as the big winner. It is no surprise that Paris has been a top travel destination for Chinese tourists for many years.
Tokyo is the Most Discussed Destination on Weibo
Tokyo, Paris, Bangkok and Seoul top the list of destinations discussed on Weibo by top KOLs. Tokyo, Bangkok, and Seoul are pretty close to China, so it isn’t a big mystery why these may be mentioned more by China’s influencers.
Paris is the Most Discussed Destination on WeChat
Paris, Switzerland, Iceland, and Singapore top the list for WeChat. Putting aside the popularity of Paris, it’s interesting to see how WeChat emphasizes Iceland. Iceland is one of those more “trendy” places to go, being it’s far, difficult to get to and bestows a bit of uniqueness to those who manage to travel there. This data may suggest that richer travelers who are looking to go to places different than others tend to discuss these places on WeChat.
Paris is the Most Discussed Destination on Little Red Book
Paris, Tokyo, London and Los Angeles are the top destinations for Little Red Book. It makes sense as Little Red Book is focused on fashion, and these are cities where fashion is important. New York scores pretty low here, perhaps that suggests that Little Red Book KOLs see New York as less essential than cities like Bangkok and Bali to their followers?
Los Angeles is the Most Discussed Destination on Douyin
LA, Paris, Turkey, and Seoul top the list for most discussed destinations on Douyin. As Douyin is an app about making short music videos, this data suggests that London is better for dance videos than Bangkok? Well, perhaps the dance videos made in Bangkok aren’t allowed on Douyin.. wink wink. Its great to see sunny LA at the top of the list just barely beating Paris. LA is the birthplace of Hip Hop, and the perpetual sun of SoCal is a great place to shoot a short music video. In contrast, Iceland doesn’t seem like it’d be a great place to get one’s “groove” on… go figure.
Social media has only woven deeper into the fabric of how China’s netizens make purchase decisions online over time. As shown below social’s role as a medium of discovery and research has a considerable influence on how millennials purchase products. After purchase on e-commerce, millennials also come back to social media to publicly share feedback on their new products, thus completing one digital cycle and readied to begin another ad infinitum.
Social Media Heavily Influences Prospective Buyers
About 75% of netizens will have their planned purchases somehow influenced by content they see on social media in China, mostly on WeChat and Weibo, but also other platforms. Content seen on social media causes them to change their plans and buy different products, buy more of a planned product, or buy a product they didn’t consider to purchase before.
Tmall is King of E-commerce, but VIP.com Has Traction Among Millennials
Although Tmall has the lion’s share, and JD is a close second, millennials also seem to disproportionately prefer VIP.com than non-millennials. That’s an exciting trend and could suggest that VIP.com is catering better to millennials than China’s other e-commerce giants giving them an edge in the years to come.
Netizens Actively Provide Feedback on Products
After China’s netizens purchase products online, many will then post reviews on social media, completing the online consumer journey cycle. Channels where product commentary is published, include BBS, WeChat and Weibo, and Online Stores.
It’s no secret that China’s e-commerce landscape is cut-throat. Of the many large e-commerce platforms, only 10% of stores make serious money. This is due to slower smartphone user growth and a growing number of e-commerce platforms which continuously increase customer acquisition costs. Against this backdrop, big and small players alike are looking to WeChat’s ecosystem for growth.
China E-commerce: 10% Winners, 90% Losers
For e-commerce in China, the “80/20” rule is a bit more of a “90/10 rule”. On Tmall, only 10% of online stores generate enough traffic to make more than RMB 5 million. On Taobao, earnings are even slimmer, with only 6% of shops making more than RMB 240k/year.
Intense Competition for Mindshare on Mobile
Around 75% of China’s use up to 35 apps on their smartphones. Between 2016 and 2017, we see a general upward trend, an increase in smartphones apps to 45 and above. This means more competition for attention leading to an increase in cost to retain the same attention that was easier to attain in the past.
E-commerce Competition on Mobile Intensifies
Consumers are moving from one primary e-commerce channel on their smartphone to multiple e-commerce apps. Whereas many netizens just have one e-commerce app on their smartphone, others have 5 or more. As competitors proliferate, current players need a strong strategy if they are to survive and win the coming never-ending battle of attrition.
Rising Costs of Customer Acquisition
With the cost of new customers close to or exceeding the average revenue per user, e-commerce channels will need to find new ways to increase revenue or face greater and greater losses in proportion to the new customers they acquire. However, as the primary reason customers use e-commerce channels is that they offer cheaper prices than rivals, growth with profit becomes a tricky catch-22.
E-commerce Finding New Growth in WeChat
On the brighter side, WeChat Shop estimated sales have grown by leaps and bounds. This gives e-commerce giants a new channel to explore as previous channels become hyper-competitive.
More Ecommerce Giants Use WeChat Mini Programs
While Taobao receives all of its traffic from its app, other e-commerce giants show significant amounts of traffic from WeChat mini-programs. By leveraging WeChat’s mini-program platform, e-commerce players have significantly increased their traffic, which may have also decreased their cost of customer acquisition.
The latest report from Millward Brown and WPP: Brand Z Top 100 Most Valuable Chinese Brands show us how Chinese brands are becoming more powerful around the world. This is largely due to Millennials who have shorter memories than older age groups; these younger consumers have only ever seen China as a growing economic superpower during their adult lifetimes.
As Chinese brands continue to broaden their audiences and break new ground in technology and innovation, what we’re seeing here could really just be the beginning of a century dominated by China’s continued growth and prosperity, and the world’s growing awareness and begrudging respect for a country that is turning “Made in China” into a label representing innovation and quality, a far cry from what the term represented in the 2000s.
Chinese Brand Personality
Due to China’s tremendous growth in the digital and mobile industries, more and more people have begun to perceive Chinese brands as being innovative.
Chinese Brands Perceived as Innovative by Younger Consumers
Positive perception of Chinese brands tends to come from younger consumers. This is likely due to younger consumers growing up during a time of unprecedented growth in China’s economy and position on the world stage.
Brand China Influence by Age
China’s recent economic growth and increasingly leading position on the world stage has changed the perception of younger consumers of Chinese brands.
Brand China Influence by Country
Chinese brands are most popular in France, Germany, and England. The perception of Chinese brands is generally based on how recent the recipient’s knowledge of China is. The more recent, the higher the score. “Old Knowledge” such as China’s past scandals, or its past reputation for poor quality products lead to a more negative impression of Chinese brands.
Digital Media Drives Chinese Brand Awareness
Digital media is the most important brand-building channel for Chinese brands. This is likely due to the penetration and ubiquity of mobile smartphones in China, allowing the shortest path to connecting with China’s modern consumers.
Greater China is top of mind for man of our clients. Recently we put together a few graphs comparing each of the markets digital opportunities. The key difference is China’s vast scale, which has yet to be fully optimized vs. HK and Taiwan’s already pretty mature digital markets. Below is a few slides that will take you through a quick overview of the difference between each market.
Scale of Digital Opportunity in CN TW HK
China has the largest population and therefore has the most people online, Taiwan consistently comes in second, and Hong Kong third. When seeing the differences in population so starkly, its clear why most brands target is the Chinese mainland; though of course the other Greater China markets are still very important.
Digital Market Expansion Ability CN TW HK
China has a lower penetration in internet and social media, suggesting that there is still more room to grow, and more customers still to reach. When coupled with the previous graph covering overall population, China can grow about 35 more “Taiwans” before it hits its maximum potential.
Where Consumers Discover New Products CN TW HK
Across each of the Greater China countries, online is the dominating channel where customers first come to know of new products and services and then subsequently purchase. However due to Taiwan and Hong Kong’s older infrastrucutre, awareness is more spread out that China.
Most Active Social Media Platforms in CN TW HK
While WeChat and Weibo are used across Greater China, their usage in HK and TW is more about keeping in contact with friends in China rather than as a primary social media platform. HK and TW are similar, except they swap Line (TW) and Whatsapp (HK) when it comes to chat.
Video an Important Part of Digital Content in CN TW HK
With the massive amount of content online, each of the Greater China countries favor video as the meduim to receive content. This makes sense as videos tend to be shorter, more interesting, and more to the point, which is a perfect antidote to an increasingly distracted audience.