Exclusive Report: China’s E-tail Giants Aren’t the Only Answer for Cross-Border Sales

For a brand with little to no presence in China, it can be tough to maneuver through the retail landscape without a local partner. But with Chinese shoppers set to spend more than US$1 trillion this year online, China’s cross-border e-commerce, or haitao (海淘), ecosystem can offer plenty of opportunities for brands to get their foot in the door without having to set up a physical base. Cross-border marketplace giants like Tmall and JD.com seem like obvious launch pads, but a closer look reveals it’s much more complicated than that.

“There are many different players large and small in the China market and each one of them seem to tout themselves as the leading one or the best one, so from the outside it’s hard to differentiate who is really good at what,” U.S. managing director at China e-commerce solutions provider Azoya, Franklin Chu, tells Jing Daily. “One of our clients asked us, given the lack of success on the major marketplaces why have so many prominent American brands have continued to set themselves up this way? … It’s because they see other recognized brands doing it, so they feel like they should do it.”

A new report compiled by Azoya and business consulting firm Frost & Sullivan, shows that only one-third of retailers with an online-only approach in China are satisfied with their sales results, compared to about three-quarters of those who also have a physical presence in China. Among these retailers, only 21 percent of those that use marketplaces are satisfied with their online sales performance, compared to just below 40 percent of those using standalone online stores.

Main Channels & Satisfaction by Platform

Main Channels & Satisfaction by Platform

The report, “The Cross-Border E-Commerce (Haitao) Opportunity in China,” surveys 1,000 online shoppers and 100 international brand owners and retailers, to learn more about what strategies brands and retailers can use to navigate the cross-border e-commerce market. China’s quickly growing online shopping market is now made up of approximately half a billion consumers and accounts for over half of global online sales.

Specifically, cross-border e-commerce shows no signs of losing steam either—the cross-border e-commerce market for luxury goods in China is growing at more than 20 percent per year, says managing director, of Frost & Sullivan Mark Dougan, as Chinese consumers are convinced that “international goods are of higher and more consistent quality and are much less likely to be fakes than products bought from domestic suppliers.”

Shoppers by Product Category

Shoppers by Product Category

Cross-border categories that are particularly popular and have been examined for this report included mom and baby products, cosmetics and skin care, health and wellness, food and grocery, and fashion. Chinese consumers’ appetite for these goods is growing so rapidly, that marketplaces like Tmall Global have recently announced they will be opening up more global procurement centers to help bring even more products into the country.

Yet, regardless of demand from Chinese consumers determined to purchase trustworthy goods, the obstacles merchants face in connecting with customers and raising brand awareness in China’s cross-border e-commerce world are tenfold, especially when a physical retail space isn’t an option. Of the retailers and brand owners interviewed, 30 percent listed regulations as being a major hindrance to online sales, 21 percent listed “investment is too high” as a factor and 18 percent simply don’t generate enough sales.

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“Online-only retailers are entirely dependent on the online channel to build brand awareness and promote and sell their brands,” Dougan tells Jing Daily. “This is increasingly challenging, especially if they use marketplaces, due to the crowded nature of these channels with many retailers of similar products vying for attention. Hence, for online-only retailers, establishing brand awareness and building direct relationships with consumers is a major challenge.”

Meanwhile, only about one-fifth of retailers and brand owners surveyed felt that their online capabilities are enough to “thrive” in the China online market.

Azoya works with its retail partners to determine the most viable cross-border method independent of China’s major e-commerce marketplaces. For example, in 2015, the company established British vertical beauty retailer Feelunique in China by helping them to create a standalone, direct-to-consumer Chinese website, and since then, according to Azoya, Feelunique’s sales have boosted its China market to its number two global market, just behind the UK. To achieve this both with Feelunique and in general requires a fair amount of localization.

“To build a brand that Chinese consumers trust, which commands long-term healthy growth, it’s crucial for foreign businesses to step by step develop the infrastructure as well as leverage a series of localized marketing methods to acquire the customers,” Don Zhao, CEO and co-founder of Azoya, tells Jing Daily. This includes a range of China payment options, optimized website performance, local logistics networks, relationships with Key Opinion Leaders (KOLs), and a grasp on China’s fast-changing market trends.

Establishing a standalone online website can be costly and risky, so Zhao says that if brands are seeking to test the waters, there are a number of other avenues that are beginning to pop up. WeChat is one of the newer players on this front as it has created a number of e-commerce options for retailers, including its latest development, Mini Programs.

These, Zhao says, “require very little for entry investment and technical development and allows customers to complete the entire shopping journey within its ecosystem.” Plus, brands can connect to consumers through multiple touchpoints on the app, from official accounts users already follow and offline QR codes, to WeChat search and location-based services through its payment system.

However, Zhao cautions that this is only a good option for retailers in the short term. “The model isn’t a good fit for brands who want to establish long-term sales and brand awareness in China because it cannot provide sufficient flexibility to build a brand’s style and tone within the Mini Program, and it can’t acquire fixed traffic from users.”

Zhao emphasizes that retailers need to also take in to account China’s quickly changing e-commerce rules and regulations, social media environment, app development, and the increasing demands of cross-border shoppers when thinking about making inroads on China’s online shopping platforms.

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