China accelerates digitalization in the face of coronavirus

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█ “Each day, less than 10 people visit us,” says Nicole Ye via WeChat. Ye is a sales associate at the Saint Laurent store at IAPM Mall, a high-end integrated shopping centre in Puxi, Shanghai.

Shuttered shops and low foot traffic are familiar scenes for luxury and fashion brands in China these days, as the country’s retail industry has taken a hit by the coronavirus outbreak, which started spreading in January 2020. To combat the contagion, the central government has adopted measures, including the quarantine of around 35 million people in Hubei province and the isolation of most residents across the nation.

These radical containment actions have been at the expense of business interests. With consumers minimising their outdoor activities and working from home, consulting firm Boston Consulting Group notes that fashion and luxury retailers are likely to be one of the sectors that will be negatively impacted by this epidemic.

In past years, the Lunar Chinese New Year and Valentine’s Day were two important holidays for fashion brands, which usually experience a jump in sales thanks to people’s soaring spending on gifts. This year, that demand has been replaced by anxiety around Covid-19. Adidas’s Greater China team reports that, since 25 January, its sales have slumped 85 per cent, compared to the same period the previous year. According to a survey by China Chain Store & Franchise Association, around 70 per cent of fashion retailers have kept their doors closed since Lunar New Year.

Unlike daily commodities such as food and personal care and hygiene products, fashion and luxury goods are not essential for consumers. As a consequence, an increasing number of brands and retailers have embraced e-commerce channels and social media platforms in China to connect to consumers, spur shopping demand and facilitate sales.

Major Chinese e-commerce platforms, whose emergence and expansion was in part boosted by the 2003 severe acute respiratory syndrome (SARS) outbreak, responded to the crisis in a timely manner.

Chinese luxury e-commerce company Secoo formed an initiative on 1 February that called for premium brands and retailers to put their inventory on its platform. Li Rixue, CEO of Secoo, notes there is demand from consumers to shop online, but that’s currently being unmet because of low inventory and slower overseas deliveries. Meanwhile, fashion brands have products at offline stores that don’t have any foot traffic. Secoo’s new initiative allows offline stores to list products on its platform and can help deliver orders to consumers utilising its logistics network.

French luxury label Lanvin, owned by Chinese conglomerate Fosun, became the first big-name player to join Secoo after the outbreak. On 10 February, Lanvin set up an official flagship store on the e-commerce site, selling a range of products from ready-to-wear and leather goods to jewellery, including the Spring/Summer 2020 collection.

China’s second-largest e-commerce site JD.com, which has partnered with a slew of luxury brands like Prada, Tod’s and Ferragamo, confirms fashion brands’ rising interest in working with them. “We are currently negotiating with several brands to list on the site,” says Kevin Jiang, president of international business at JD Fashion and Lifestyle. “Brands are particularly interested in JD’s self-run logistics mode.” JD has a logistics system in China, which includes advanced technologies like automated warehouse and drone delivery. For luxury brands, the platform specifically offers a “white glove” delivery service, through which orders are hand-delivered by well-dressed staff in a private car, to ensure an upscale shopping experience.

Many other fashion and luxury brands are benefiting from having established stores on Alibaba’s Tmall, China’s top B2C marketplace. Jean-Paul Agon, CEO of the beauty giant L’Oreal Group, said during a call with analysts that the February performance of its brands on Tmall outperformed the same period in 2019, offsetting the negative impact caused by Covid-19. Lancôme, Helena Rubinstein, Maybelline and other L’Oreal-owned beauty labels have set up Tmall presence over the past several years. Allbirds China’s marketing director Tina Ting also says the brand’s Tmall traffic increased steadily after the outbreak, and the growth of online sales was stable. “While the epidemic affected the offline business, which temporarily curbed overall sales growth, our headquarters is still confident about the Chinese market and will not lower the full-year forecasts,” says Ting.

China’s insatiable appetite for entertaining live-streaming sessions provides another convenient tool for luxury fashion brands to face the offline sales slump caused by the epidemic.

When “lipstick king” Li Jiaqi resumed his daily live-streaming sessions on Taobao Live on 5 February, his comeback was warmly welcomed by millions of fans, who flocked to the session to show support and love.

Sales at traditional Chinese retail company Intime Group, which has been in partnership with Alibaba since 2013, has thrived through live streaming. Its official account on Taobao Live racked up RMB 2.54 million ($360,000) during a two-hour long session broadcasting Sisley products (priced from RMB 410 to RMB 2,245) to 935,000 people during the outbreak, according to Taobao statistics. Since 2019, the department store chain has turned its sales associates into amateur live streamers, as a part of the company’s transformation into an omnichannel retailer. The change has proven necessary during the coronavirus outbreak. Each day, sales associates host live-streaming events through their personal accounts to recommend products. For example, one sales associate sold 213 Estee Lauder products (priced range from RMB 690 to 980), scoring RMB 138,600 ($19,722) of sales in less than three hours.

Live streaming is also a crucial part of Secoo’s offering to premium brands. “We go to brand stores and multi-brand stores and use livestreaming to help sell their inventory as a first step in the collaboration,” says Li. “Especially when they are not e-commerce ready or during the process of our integration with their system.”

American athletic brand Nike not only uses live streaming to generate sales but also to convey its affection to Chinese consumers under the current situation. On 12 February, the brand hosted a 30-minute workout session via WeChat live streaming, which allowed viewers to exercise with a coach and browse Nike’s online shopping store at the same time.

The short-video app Douyin is another popular choice for fashion brands and retailers when it comes to livestreaming. American fashion brand Tommy Hilfiger broadcasted its new eco-friendly collections on the app and enabled viewers to purchase products online directly. Allbirds China’s Ting says they are considering setting up an official presence on the app in the near future.

With 1.1 billion people opening the app on a daily basis, WeChat is used by most fashion brands and retailers to maintain one-to-one customer relationships and stimulate consumption during the epidemic.

Ningbo-based fashion brand Peacebird’s investment in WeChat commerce is paying off. While the brand had to shut down more than half of retail stores in the country, it reported an average retail sales over RMB 8 million ($1.1 million) per day in February through selling among members, who registered with the brand on WeChat. Peacebird staff form special group chats to invite existing members to browse its products and direct them to place orders on the brand’s WeChat mini-program store. “Eight out of 10 people who have ordered online with us are old clients,” says Wang Mingfeng, general manager of Peacebird Men. Many other Chinese fashion brands including Li Ning, Bosideng and Shenzhen Ying’er Fashion Group’s Psalter use similar approaches to sustain consumption.

Shanghai’s high-end shopping mall IAPM, which is home to luxury brands, also turned to WeChat to make up for the losses caused by Covid-19. On 21 February, IAPM’s service account announced that nearly 70 fashion brands, including Versace, Tod’s, Saint Laurent, Chloe and Stella McCartney, have established their personal accounts. Consumers can add each brand’s WeChat to browse through their latest offerings in their Moments feed and chat with sales associates to place orders.

The coronavirus disruption has made obvious the importance of having online channels for traditional fashion brands and retailers. Those ahead in building these channels have proved to be more resilient to the current crisis than brands that have struggled to adapt to digitalisation.

The coronavirus outbreak also sheds light on the complexity and diversity of China’s digital ecosystem. From regular e-commerce platforms and live-streaming sites to social commerce apps, fashion brands and retailers have a range of options to improve their digital proficiency. None of these arenas, however, can be built in one day. Having a presence on these frontiers does not mean consumer trust will come automatically either.

In the long-term, the epidemic will motivate brands and retailers to speed up their omnichannel offering and improve supply chains. This year’s Valentine’s Day, a Chinese client who bought a Ballon Bleu watch on Tmall’s Cartier flagship store wrote in the review section that the online store allowed him to buy the gift that his loved one had tried on a few times at physical stores on time. When it comes to big-ticket items, an increasing number of consumers tend to try on products at physical stores first and then order online. Traditional retailers need to keep moving away from their reliance on bricks-and-mortar stores to adopt an omnichannel model. Supply chains, on the other hand, will likely be an increasingly important factor for brands and retailers to consider improving to better tackle similar situations in the future.