A Blog by Jonathan Low

 

Mar 3, 2018

The Trend In Online Shopping? Not Shopping Online

Offline is the new black...JL

Li Yuan reports in the Wall Street Journal:

New online users are also getting harder to come by with growth having slipped last year.Unlike the U.S., where traditional retail is very developed, retail is relatively new in China so there are many opportunities.” Going “brick and mortar” is a hot trend in China’s internet industry. The line between online and offline retail is blurring, and companies are learning the importance of leveraging both.
In the prospectus for its mammoth 2014 stock listing, Alibaba Group Holding highlighted online-only women’s fashion brand Inman as a success story in China’s e-commerce world.
Inman, which specializes in cotton and linen apparel, was one of the first flagship stores when Alibaba launched its business-to-consumer platform Tmall in 2008, says the prospectus, and it became one of Tmall’s best-selling female fashion brands.
Since mid-2015, Inman founder Fang Jianhua has gone in a surprising direction. He’s abandoned the online-only model to open physical stores. To date, Inman has opened 450 stores, mostly in China’s smaller cities.
Last year, while Inman’s online sales rose about 39%, its offline business, which is newer and smaller, grew 300%, to 330 million yuan ($52 million), and reached 35% of total revenue. Mr. Fang expects the online-offline breakdown to be 40%-60% in the future.
“Many people said my offline push was doomed,” says Mr. Fang, chairman of Inman’s owner, the Guangzhou Huimei Fashion Group Co. “But the fact is, unlike the U.S., where traditional retail is very developed, retail is relatively new in China so there are many opportunities.” Going “brick and mortar” is a hot trend in China’s internet industry, and Inman is a pioneer.
In changing strategy, Inman had spotted several long-term problems. Online sales growth for brands such as Inman is slowing as China’s e-commerce market becomes more competitive, with megabrands such as Uniqlo, Vero Moda and Gap making big online drives. Meanwhile, the costs of online advertising are rising as are the challenges of standing out in a crowded field.
China is home to the world’s biggest e-commerce market and has the highest online penetration as a percentage of total retail. In 2017, China’s 533 million online shoppers purchased 5.5 trillion yuan ($865.8 billion) worth of food, apparel and other consumer products, or 15% of total retail sales of consumer goods, according to government figures. New online users are also getting harder to come by with growth having slipped to 5.6% last year, from 6.2% the previous year.
Many analysts expect e-commerce to experience a few more brisk years of growth. Improved logistics—long a problem for retailers in China—are creating greater efficiencies.
Zhao Yingguang, founder of the online fashion company Handu E-commerce Group, an Inman competitor, says the momentum is still toward e-commerce. “The big trend is offline brands will get online, not the other way around,” says Mr. Zhao.
One certainty is that the line between online and offline retail is blurring, and companies are learning the importance of leveraging both.
Xiaomi, which burst on the global smartphone scene as an online-only brand in 2011, has opened over 300 stores since 2016. Its founder and chief executive, Lei Jun, has said that ignoring offline retail contributed to a sales slump in 2015 and 2016. He attributes Xiaomi’s comeback last year partly to its physical stores.
Alibaba and its archrival, the internet giant Tencent Holdings, are buying and investing in department-store and supermarket chains.
A competitive advantage that companies gain in navigating both online and offline retail is the access to more consumers and better data about them.
With the easy growth behind them, online retailers are having to work harder to reach new users in smaller cities as well as older and lower-income demographics.
In 2015, Mr. Fang figured it would cost less to reach customers in smaller cities through a physical store than via an online store. Given its years of insight into its millions of customers, Mr. Fang thought Inman could manage its supply chain and stores better than purely brick-and-mortar competitors. For example, women in China’s cold, northeastern rust belt aren’t big fans of Inman’s understated cotton and linen clothes, so no need for stores there.
Inman would charge no franchise fee, take back all unsold inventories, charge the same prices online and offline and provide all store software-management systems.
Initially, Inman had no brand recognition in the offline world of shopping-mall operators. Yan Yaling, a yoga teacher who wanted to open an Inman store in the southern city of Nanchang, recalls getting turned down repeatedly before a shopping mall full of empty space said “yes.”
While that mall struggles, Ms. Yan says, her store is often crowded because customers can try on clothes and know that the offline and online prices are the same. In 2016, she opened her second Inman store, in Nanchang’s busiest mall.
About 80% of Inman customers pay with Tencent’s WeChat electronic-payment service in stores, says Mr. Fang. In doing so, they will automatically follow Inman’s official WeChat account and become a “member.” These customers get updates on new products and promotions via WeChat, bringing them back to the stores.
In the latter half of 2017, Inman started attaching radio-frequency identification chips on all products, feeding a stream of information to the company’s headquarters in Guangzhou about when a product is tried on, when it’s sold or when it isn’t doing well. That information helps Inman reduce inventories.
“The question is not whether a fashion brand needs to be both online and offline,” says Mr. Fang. “The question is how big you want to be in the two worlds.”

1 comments:

Mia said...

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