Fashionistas Hold The Key to Online Profits in China
It would be hard to imagine Mark Zuckerberg or Tim Cook leaping into the fashion realm, but plenty of other tech geeks are becoming part of China’s burgeoning e-commerce market, where fashion is the largest sector. David Zhao, once a T-shirt wearing software engineer, is now the CEO of Shangpin, which sells in-season, full-priced clothing from 80 international designers. The career change seems to be paying off: though it has yet to turn a profit, Shangpin has generated $30 million in the past two years with a gross profit margin of 40% (compared to e-commerce giant Amazon’s 26% gross margin).
While the average piece at Shangpin goes for $322, another website, Vancl – geared toward the young and price-conscious — offers apparel basics like those found at H&M for just $25 on average. With the help of celebrity endorsements, Vancl earned nearly $1 billion in revenue in 2011. More recently, Vancl has been hit with a slew of bad publicity regarding delayed shipments and slower sales.
On one hand, Chinese e-commerce sites are being used by brands who want to avoid the expensive process of opening brick-and-mortar stores. But they are also sought by enterprising entrepreneurs who want to launch specialty sites as a way of carving their niche in an e-commerce market that is expected to be worth $370 billion in 2015, according to Boston Consulting Group.
Although the growing popularity of Chinese e-commerce sites suggests that some of the stigma of online retailers selling fake goods is receding, the biggest inhibitor to further growth are shoppers who want to unplug and go out. “People are still looking for brand experience of going to luxury stores. They value this,” said Aaron Fischer, head of Asian consumer research at CLSA in Hong Kong.
Still, some stores lauded for their in-house luxury experiences are happy to tap into the e-tail business. American department store Neiman Marcus has invested $29.4 million in Glamour Sales Holdings, based in Hong Kong, which hosts flash-sale websites in China and Japan.
Some just want to expand their e-platforms. The UK’s Net-a-Porter acquired Shouke.com for a cool $10 million and wasted no time setting up a Chinese service. Even Vogue China has partnered with a website – Yoox.com – to promote local designers.
CLSA expects luxury consumption to grow by 20% this year, while BCG estimates that 58% of Chinese spending on luxury goods and services is done overseas, where savings of up to 40% on domestic prices can be had. While brands are making huge investments in Chinese e-commerce websites, it is likely that their profits will be won by tapping into bargain-hungry fashionistas.
photo credit: theoutnet.cn