#cross-border commerce

Alibaba Growth Powered By Lower-Tier Cities, Livestreaming And New Brands

Alibaba’s strengths include incredible foresight and long-term vision. Early on, management knew the market would get more competitive, so they laid the groundwork for new strategies long before they were needed. 

Their plan included focusing on lower-tier cities, integrating online-offline retail and building an ecosystem of livestreaming influencers on Taobao. 

Lower-tier cities: 102 million new users participated in Singles Day this year, mostly from lower-tier cities. Alibaba claims more than 70% of new users in fiscal 2019 came from lower-tier cities.

New product launches: Over 1 million new products launched for Singles Day. Launching limited-edition products like MAC lipstick help Alibaba to stand out from competitors with exclusive products.

Livestreaming: Chinese e-Commerce web site Taobao raked in $1.4 billion worth of sales within the first eight hours and 55 minutes of Singles Day. Over 100,000 brands used livestreaming to promote their products during the day, including U.S. and foreign brands MAC, Levi's, Ralph Lauren, Sisley and Burberry. 

While Taobao’s livestreaming feature has been around for years, in 2019 it became a major focus due to intense competition as brands seek to capture customers' attention. 

Livestreaming effectively activates potential customers who have browsed your products for a long time without making a purchase. It is most useful for marketing visual products like apparel and cosmetics. 

Who Were The Top Sellers?

This year, 299 brands each brought in more than $15 million in revenues on Singles Day, up from 237 in 2018. 

Top brands included Estée Lauder, Apple, Li Ning (sportswear), Bosideng (apparel), Perfect Diary (cosmetics) and HomeFacialPro (skincare).

Brands earning over $15.1 billion in GMV across multiple platforms (not just Tmall) include: Uniqlo, Semir (apparel), Gree (air conditioners), Anta (sportswear), Linshimuye (furniture), Estee Lauder, Xiaomi (smartphones), Haier (white goods appliances) and Midea (white goods appliances). 

These results mean: 

1. More sales are concentrated among a few big brands. The amount of capital required to compete effectively during such holidays has increased. 

2. Chinese brands are becoming more popular, as foreign brands previously dominated this list.

How Cross-Border E-Commerce Fared On Singles Day 2019

In total, 22,000 cross-border e-Commerce brands from 78 countries participated in Tmall Global's Singles Day promotions, selling more than 620,000 imported products, most of which are unavailable in China for various reasons. 

Over 120,000 new products were launched just for Singles Day, indicating the retail extravaganza effectively builds brand awareness. 

To further entice customers, 2,500 of these brands covered the costs of import duties and shipping; Alibaba also provided interest-free installment loans for 24 months. 

The hottest categories according to Tmall were beauty tech gadgets, imported cultural products, sleeping pills/aids, pet food, products for the elderly and male skincare products. 

Japanese beauty tech brand Ya-Man sold 6,000 products within just 30 seconds. Notably, each of these products costs more than $1,500.

Which trends did Azoya see this year? Top trending categories included beauty, skincare and health products. 

Specifically, we saw increased demand for facial masks, tooth whitening products, perfume, eye shadow, skin moisturizer, anti-wrinkle cream, laxatives and ginkgo leaf extract. Many of these products include ingredients that cannot be found or manufactured in China, or cannot be imported due to animal testing laws cosmetics brands have to abide by. 

Key Takeaways

1. Despite its size, Alibaba maintained strong growth this year by focusing on lower-tier cities, helping brands launch new products and using livestreaming influencers to activate sales. 

2. More brands surpassed the $15 billion GMV mark, indicating more sales are concentrated within the larger brands; however Chinese brands are gaining in popularity.

3. Cross-border e-Commerce continued to perform well. Popular subcategories included beauty tech gadgets, pet food, sleeping aids, tooth whitening products and other products with ingredients that are difficult to find in China.

Here's what's going on, as well as some alternative paths for U.S. and foreign retail companies to succeed in China.

Cross-Border Retailers Increasingly Compete With Tmall's Direct Retailing Business

Retailers on marketplaces such as Tmall Global face an increasingly precarious situation. While Tmall Global is an online marketplace for third-party global sellers, it also runs its own direct retailing business, Tmall Direct Import. This store procures inventory in bulk from leading global brands and sells directly to consumers.

This business model puts it in direct competition with multi-brand retailers such as Macy's and Watsons. Tmall Direct Import items are almost always displayed in top-ranking search results and sell for competitive prices, making it difficult for third-party retailers to compete.

Below, a snapshot shows search results of The Ordinary skincare products on Tmall, with Tmall Direct Import conspicuously highlighted in bright purple.

Tmall Direct Import ranks at the top of the search results for The Ordinary’s nicotinamide products.

Source: Tmall Global Official Web Site

Tmall Direct Import has an economies of scale advantage — it can buy a larger selection of products at lower bulk prices, and pass those savings on to the consumer. Tmall also can stock top-selling items in bonded warehouses for faster shipping. A newcomer to the market cannot do this without incurring large inventory risk.

On top of all this, there isn’t much room on a large marketplace’s web site to differentiate oneself with banners and brand logos. To compete, retailers such as Macy’s and Watsons have to decide whether or not they want to invest in a stronger customer experience or pull out of the market altogether.

Retailers Fail To Provide A Unique Proposition For Chinese Consumers

Multi-brand retailers like Macy’s are often selling the same brands that other retailers sell, prompting consumers to pick the retailer with the lowest prices and fastest delivery.

The snapshot below shows a number of different retailers all selling the same Swisse products. In this type of situation, it’s very easy for the customer to compare prices.

Source: Tmall Global Web Site

It’s hard for new market entrants to compete on pricing and logistics, so U.S. and foreign retailers should curate products that better reflect Chinese tastes. This requires procuring new inventory from sources that may not be part of the original inventory in the home market.

But it’s hard for apparel retailers like Macy’s or New Look because there are so many different colors and sizes for each product. Retailers do have to provide a wide selection to drive traffic, but localizing that selection for a market as large and diverse as China can be a nightmare.

Retailers Aren’t Making Much Money On Marketplaces

On marketplace platforms, retailers have to spend money on platform ads to drive traffic and clicks. In 2017, the average customer acquisition cost on Tmall grew to over 310 RMB ($46), outstripping the average revenue per user at 225 RMB ($34), according to market intelligence firm Analysys International.

They are also pressured to discount their goods for large platform-wide sales holidays such as Tmall’s Singles Day and JD.com’s 618 Festival in June. Discounting eats heavily into one’s margins, as these holidays often drive a large percentage of sales in a given year.

Lastly, for large e-Commerce platforms, upfront setup fees and deposits can cost tens of thousands of dollars, not to mention commissions that can erode profits.

To give an example, Tmall charges an annual fee of $5,000-10,000 USD, a deposit of $25,000 USD and commissions that range from 0.5% to 5% for the most popular categories. There also is a 1% payments processing fee charged by Alipay

For many, the costs are prohibitively high and the ROI can be much lower than in developed markets.

What Should Retailers Do?

The environment for global retail has been difficult in recent years. Many retailers are just trying to stay afloat in their home markets, and lack the resources to invest in a stronger customer experience in China.

But the competition in China has intensified in recent years, and it’s not possible for a U.S. or foreign retailer to rely solely on their brand name to drive sales anymore.

Multi-brand retailers have to figure out how to differentiate themselves, and it often comes down to product selection, price or shipping.

Proven Tips:

1. Set up a multi-channel China strategy to reduce the risks associated with relying on a single platform. Setting up an official China e-Commerce web site and a store on WeChat, China’s most influential social media platform, can differentiate you from competitor retailers selling the same brands, and enable you to build up your own loyal customer base.

2. Procure and sell a compelling mix of top-selling and emerging brands at competitive prices.

3. Enhance the user experience to win over customers. This includes moving inventory to Hong Kong or Chinese-bonded warehouses as soon as possible to speed up shipping times, and establishing your own Chinese customer service system.

4. Try to differentiate yourself through branding events. UK beauty retailer Feelunique invited Chinese influencers to tour their facilities in London, recording the event on social media and driving a strong uptick in sales.