With more than 500 million users, Tmall offers a gateway into ecommerce in China, says its international business development boss Janet Wang.
Ask a major UK retailer or brand where future growth will come from and the likelihood is one of two (or both) responses: ecommerce or international expansion. With Tmall, China’s online shopping centre, UK fashion businesses are hoping to kill two birds with one stone.
Part of Hangzhou-based Alibaba Group, which also owns Taobao, an online marketplace through which consumers sell directly to other consumers, Tmall has come to dominate etail in China. It provides the framework for foreign retailers to host web pages and is responsible for more than 50% of all business-to-consumer fashion sales online in China. It has 500 million registered users generating sales of CNY200bn (£21bn) in gross merchandise value in 2012,
up 100% on the year before, with fashion sales accounting for 40% of the total. Overall, online sales in China reached £123bn in 2012 and are expected to rise to £422bn by 2020, according to research firm McKinsey Global Institute.
Janet Wang, Tmall’s director for international business development, is tasked with overseeing the 100-plus international brands on Tmall’s platform, which include Marks & Spencer, Uniqlo and GAP. “A lot of Chinese consumers are not familiar with international brands, so having a presence on Tmall becomes a very important window for them to showcase what the brand is about and then educate consumers about their product and history,” says the former fashion journalist, who previously worked for Vogue China.
Once a retailer has registered its trademark in China or worldwide and secured a business licence to operate in the country, it then takes Tmall around 14 days to review and verify an application to confirm enrolment on the platform.
Wang says doing so will put a retailer “in front of most of the eyeballs in China.”
But there’s a price to pay for this brand awareness, of course. In the fashion category - Tmall sells everything from furniture to home appliances - the pricing structure starts from a deposit of CNY50,000 (£5,290) for a standard Tmall store, to CNY100,000 (£10,584) for a flagship store and CNY150,000 (£15,876) for a multi-brand store. The store classifications depend on a number of factors including whether a brand directly operates the store or whether it is run by a franchisee. The deposits are required as insurance in the event of a dispute between a merchant and a customer.
An annual technical services fee of CNY30,000 (£3,173) to CNY60,000 (£6,348) is also required, which can be clawed back if a retailer’s sales surpass CNY1.2m (£130,000) in the clothing and sportswear category, or CNY600,000 (£64,000) in the bag, lingerie and footwear categories, and its DSR rating (detail seller rating - a measure of customer satisfaction from 1 to 5) reaches over 4.6/5 within a year. Tmall will also take a 5% commission on each transaction, as well as a 0.5% cash-back loyalty per transaction, which is paid to the consumer.
What Tmall offers in return is the infrastructure to host a retailer’s web pages and the opportunity for them to access the customer data captured from its millions of registered users, as well as use of its analytic tools. These enable international retailers to gain insight into how the Chinese consumer is shopping, what they are searching for, clicking on and ultimately buying, as well as where they are located. The platform also offers paid-for ad words and ad banners, and free themed promotions that retailers can take advantage of.
Tmall also promotes its retailers and brands via its account on social media platform Weibo [China’s answer to Twitter], where it has 4.5 million followers, and registered users can also favourite retailer web pages, which then appear on their personal Tmall profile. Alibaba Group’s in-house Alipay payment system, where the customer only pays for their goods once they are happy with the product, also encourages the Chinese consumer to shop with peace of mind.
Retailers must allow consumers to return products within seven days if the product is resaleable, while the retailer has to provide return shipment within 72 hours of a complaint being lodged, and ensure all of the products it sells are genuine.
So far, only a handful of British brands and retailers have launched on Tmall: Accessorize sells via the platform, Marks & Spencer launched at the end of last year, Clarks launched last month, and Oasis’s Chinese joint venture partner, which is also called Oasis, will begin selling on the site soon. Reports suggest Zara could also follow suit.
“China is an exciting yet complicated market that offers one of the biggest and fastest-growing ecommerce opportunities to retailers. Since 2008, we’ve been building our brand awareness in China through our Shanghai stores and have learnt a lot from our customers,” says Laura Wade-Gery, executive director for multichannel ecommerce at Marks & Spencer.
“Our presence on Tmall is an important step to getting a true understanding of the Chinese ecommerce market and the best way to serve customers across the country as we develop our online capabilities there.”
However, Andrew Waters, chairman of ecommerce and multichannel specialist China Retail Group, says that with the notable exceptions of international fast-fashion retailers such as H&M and Zara, few foreign retailers have made a success of their Chinese operations. “In China the secret is that you need to operate locally. As soon as you don’t operate locally your costs are higher. You need to be able to have a local cost infrastructure,” he says, adding that it is best to employ local Chinese partners rather than other foreign companies operating there.
Waters adds that, while Tmall is a great first step for international retailers into the Chinese market, the fact it doesn’t offer website design, operational support, logistics, warehousing or customer service can cause problems,
and international retailers often go in with unrealistic sales expectations. “Tmall is a great start with training wheels but the problem is that it’s not very good at dealing with the foreign retailers. It’s the expectations of the foreign retailers, because I think Tmall is pretty upfront about it, but it’s lost in translation. They just add these things up and come to the conclusion that it’s going to make a lot of sales, but it’s like a needle in a haystack,” he says.
“The secret in China, especially in the second and third-tier cities, is that people will search out brands that aren’t available in the mainstream because that’s what they like to buy. So if you have the social media and the elements that will lead to that then Tmall is a platform to transact on. The problem is that people miss out that bit.”
UK retailers and brands shouldn’t rely on Tmall for their complete Chinese strategy, says Waters. Instead, he says, retailers should take a multichannel approach, with their own website and potentially even bricks-and-mortar in the form of concessions or franchise stores. “Tmall is good for awareness, but actually the fewer products you put on it the better,” he says.
Unsurprisingly, Wang argues that lesser-known western brands will struggle to establish themselves in China without Tmall. “A lot of them choose to only have an online shop on Tmall [rather than their own standalone website] because this is where they attract the most consumer awareness; we have all of the infrastructure and payment solution ready and this is where the largest transaction volumes are taking place. However, there are also other brands that do set up their own standalone ecommerce websites and then it is a complementary channel.”
Wang says standalone sites attract only “super loyal” fans, so Tmall is essential to reach the 90% of Chinese living outside first-tier cities. “They are in second-tier cities and beyond - basically somewhere that isn’t Shanghai, Beijing, Guangzhou - and then they might never see your brand. So it would be impossible for them to Google the brand and go to the official site.”
Tmall was launched in 2008, partly in response to demand among Chinese consumers for authentic branded product, and the business retains a tough stance towards counterfeit goods. “Tmall has zero tolerance to counterfeit, and any merchant that is caught selling counterfeit will have their deposit taken away and the shop will be shut down right away. We also actively help international or domestic IP owners to fight infringement,” says Wang.
Martin Newman, chief executive of ecommerce consultancy Practicology, says signing up to the platform is essential to crack ecommerce in China. “If you’re serious about entering the Chinese market online, you must have a presence on Tmall. There’s a strong argument to say that you’d launch a store on there before you’d even launch
your own standalone localised website, such is the volume of traffic and sales. You need to get advice from Tmall about what best practice entails in order to hit the ground running.”
With a multinational business development and operations team in place to advise international retailers, Wang says help is available. “We actually do a lot of hand-holding for these important international clients to help them understand why Chinese consumers are behaving differently, and then sometimes even advise them on the website design.
“Sometimes in the beginning, international retailers just adapt whatever they present in their official site or in western markets to their Tmall site. Then they realise it’s not performing very well and we tell them that’s because Chinese consumers are interested in reading more detailed information about their product and that they like to see tips on how you mix and match, or interact with the [retailer via] surveys.”
Wang adds: “Those small aspects look natural to a lot of domestic brands because they have been doing business here for a long time, but it’s unfamiliar and very new to international retailers.”
There have been concerns about the Chinese economy slowing, with forecasts for GDP growth in 2013 at around 7.4% (compared with 2012’s 7.8% growth to £5.345trn), and slipping to 7.1% in 2014. However, ecommerce is expected to make up 7.4% of all retail sales by 2015 - at present it is about 6%. “Ecommerce is becoming a larger slice of the retail pie in China, so we don’t see that the slight slowdown in the economy will affect it,” says Wang.
Waters agrees, and says it is wrong to talk about the Chinese economy in terms of 6% or 7%, as it is made of many micro-economies. “You’ve got places growing at 30%. You’ve got 650 cities all developing. I don’t think there
is another economy in the world that is as developed and mature that still has as much growth potential,” he says.
Wang says there are no plans for Tmall to launch English language or foreign sites. “The demand [for Tmall] in mainland China is still growing and hasn’t been fully met. So that is why our policy is to recruit more brands and products that can fulfil our domestic needs before we even think about launching an English page.”
However, she does say that this year and next Tmall will focus on developing its mobile strategy. It launched a mobile-optimised site 18 months ago, and mobile transactions have since risen from 1.7% in 2011 to 7% across Tmall and Taobao in 2012 as a result. Wang says Tmall is looking at how to create a truly mobile experience, rather than just a mobile version of its website, but what that will look like has yet to be decided.
On a final note, Wang adds that she would like to see the number of UK businesses with a presence on Tmall increase. “I’ve noted that British businesses tend to be a little more conservative than US companies or even French [brands], so don’t be intimidated - the demand for your product is already there.”
Story in numbers
70,000 Chinese and international brands from 50,000 merchants
37% Of users are aged between 25 and 31
£2bn Record-breaking value of one-day retail sales across Tmall and Taobao on November 11, 2012
500 million Number of registered users on Tmall
11 million Transactions processed each day by payment system Alipay [source: King & Wood Mallesons]
7.4% Proportion of total retail sales in China that ecommerce is forecast to provide by 2015, up from 6% at present
30% China’s broadband penetration, highlighting the market’s potential [source: McKinsey Global Institute]
90% Of Chinese population lives outside first-tier cities such as Beijing and Shanghai
£123bn Size of China’s online market in 2012
20% Of online transactions are business to consumer [source: China Retail Group]