E-commerce in China: 2023’s biggest moves

This year has been pivotal for e-commerce China, which embraced new technologies and marketing strategies, significantly altering the way consumers interact with luxury brands. From the rise of virtual livestream anchors to the increasing influence of platforms like Xiaohongshu, Shein and Temu, we explore the five most significant trends that have defined e-commerce in China this year. Virtual livestreaming took over With a projected market valuation of $440.3 billion by 2031, according to Allied Market Research, AI-generated virtual humans are reshaping how brands engage with audiences, especially tech-savvy digital natives. Notable virtual influencers like Liu Yexi, Ayayi and Ling have captivated millions. Ayayi's collaborations with high-end brands like Shiseido and Tiffany & Co. underline the growing clout of virtual influencers in China's luxury market. Meanwhile, Ling has collaborated with prestigious brands like Bulgari, Tesla, and Tissot. These developments are part of a broader trend whereby virtual livestreaming is becoming a cornerstone of e-commerce in China. Chinese tech giants like Baidu and Tencent are spearheading this movement by creating platforms that allow for rapid, cost-effective creation of virtual influencers. Baidu's technology, for instance, can recreate a digital human anchor in under 30 minutes, significantly reducing the operational costs of livestream rooms. As the technology matures, virtual humans may become part of the marketing stack for success across China’s e-commerce retail landscape. Xiaohongshu is the app for luxury travel With over 200 million predominantly affluent monthly users, Xiaohongshu has become the essential app for Chinese travelers. The platform, home to around 270 million active daily users, mostly young, female, and from first- and second-tier cities, is a key destination for luxury brands seeking to engage with a younger, more sophisticated audience. Xiaohongshu's user-generated content (UGC) is central to its appeal. Users rely on it for honest reviews and travel tips, diverging from traditional platforms like Weibo. This shift towards UGC is echoed by luxury brands and governments. For instance, Tourism New Zealand partnered with Xiaohongshu in July 2023 to promote the country as a destination, recognizing the platform's influence among sophisticated Chinese consumers. In terms of e-commerce, Xiaohongshu's "quiet selling" approach, characterized by storytelling and a slower-paced livestreaming style, resonates with luxury consumers. Taiwanese singer Annie Yi's debut livestream attracted over 1 million viewers and generated nearly 6.8 million RMB ($953,000), showcasing the platform's potential for luxury e-commerce. This style is contrasted with platforms like Taobao Live and Douyin, with Xiaohongshu focusing on a more cultured and intimate shopping experience. Shein and Temu win out, Alibaba lags Two Chinese giants, Shein and Temu, are making monumental strides, while Alibaba, once the undisputed leader, seems to be losing its edge. Shein, known for its ultra-fast fashion model, has set a staggering revenue target of $58.5 billion by 2025, aiming to outpace retail giants H&M and Zara combined. This ambition is fueled by Shein’s grasp on Gen Z markets, achieved through a digital strategy centered around micro-influencers. In 2022, Shein dominated nearly 20 percent of the global fast-fashion industry, surpassing the market share of Zara and H&M. Temu's aggressive pricing and marketing strategies, including a significant presence on social media platforms like TikTok, have enabled it to rapidly acquire a substantial customer base. This year, PDD Holdings exceeded Alibaba in market value, achieving a market capitalization of $195.9 billion compared to Alibaba's $190.5 billion. Temu's founder Colin Huang's net worth rose to $37.2 billion, overtaking Alibaba's Jack Ma. Shein and Temu's success is a testament to their ability to resonate with modern consumers through innovative marketing, aggressive pricing, and an acute understanding of changing e-commerce dynamics. Shein and Temu continue to disrupt traditional retail models, even though Alibaba has spent years meticulously cultivating consumer trust and authenticity. Luxury retail executives will stick with the latter, while keeping a watchful eye on the emerging behemoths. AI the big winner of 2023 This year, AI became a transformative force in Chinese e-commerce, reshaping the landscape. During China's Singles’ Day shopping festival this year, Coach enhanced its personalization efforts across the mainland by introducing animated posters featuring cat themes, utilizing AI technology and drawing inspiration from the brand's unique characteristics. Meanwhile, JD.com deployed its virtual influencers, known as Yanxi virtual anchors, in more than 4,000 live broadcast rooms. Secoo, a luxury e-commerce platform, also leveraged AI to enhance its customer conversion rates. E-commerce giants like JD.com and Alibaba have been proactively deploying AI. Their AI platforms demonstrate the industry's shift towards AI-driven customer engagement and content generation. This AI revolution is not confined to online experiences. Sephora's Store of the Future in Shanghai exemplifies how AI can transform in-store experiences. With features like AI-based skin analysis and RFID-enabled product information, Sephora has set a new standard for luxury retail. Similarly, SkinCeuticals’ personalized cosmetics services, where AI helps create products tailored to individual skin types, demonstrate how AI can offer a bespoke luxury experience. As 2024 unfolds, the integration of AI in luxury e-commerce is expected to further grow and redefine the luxury retail experience. Viral scandals and innovation in the stream-sphere The livestream e-commerce segment in China has witnessed a slew of scandals and innovative trends. ‘Lipstick King’ Li Jiaqi, a renowned beauty influencer, stirred up a storm with insensitive comments about wages during a livestream, attracting over 1 billion views and a wave of criticism. Li's attempt at an apology did little to calm the furor, underscoring the inherent risks in depending heavily on a single influencer for brand promotion. A Douyin broadcast featuring YSL beauty products sold by Crazy Little Brother Yang's apprentice sparked another controversy, leading to accusations that the show had tarnished YSL's prestigious image. This incident has brought to the forefront the need for luxury brands to align with livestreaming personalities that reflect their brand values and image. But other brands have changed the typical tone. Zara, for instance, introduced a new, more composed and choreographed livestream approach on Douyin. This change resonates with the subtle shift in Chinese consumer preferences towards quieter, more understated luxury experiences. In summary, the Chinese livestreaming arena, while ripe with opportunities for luxury brands, demands a nuanced approach. Brands need to strategically navigate this space, balancing innovative content with a deep understanding of market trends and consumer expectations, all the while ensuring a commitment to enhancing the overall customer experience.

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E-commerce in China: 2023’s biggest moves