China experiences an Online Boom

BEIJING — In a country obsessed with online shopping, China’s fashion retailers are having a hard time keeping up.

Online portals like 360buy and Taobao — China’s answer to eBay — are seeing record sales, with the former’s sales of $9.7 billion last year making it the country’s largest online retailer by volume. An estimated 564 million of China’s 1.35 billion people used the Internet last year, encouraged by a growing demand for smartphones and tablets; 242 million of them shopped online.

On paper, that makes the potential for clothing retailers enormous. But China’s young domestic fashion industry, deeply fractured with few labels achieving widespread recognition, is struggling to crack that market.

“E-commerce is a new channel and young people love it, and it is a new way of life that we need to adjust to,” said Yang Herong, director of Zhejiang Chisage Group,which operates domestic labels GXG and One More, on the sidelines of the annual China Fashion Forum in Beijing this week. His firm, which started its domestic brands in 2007, saw growth of 150 percent in 2011 slow to 41 percent last year. Nearly 90 percent of its sales are from brick-and-mortar stores rather than online, though not for lack of trying.

“If you want to sell clothes online, consumers only want to buy cheap, so you cannot make things the same prices as in stores. The platforms are crowded — the existing platforms are not enough. And the advertising and promotions are intense,” said Yang, whose firm is now developing a Web-specific brand to try to avoid poaching from store sales.

The issue confronts retailers at all levels. Japanese jeans label Evisu had the equivalent of $64 million in sales on the mainland last year after just two years of retail operations, capitalizing on a growing appetite for different, less-ostentatious luxury brands. Only 20 percent of those sales came from online operations, said Evisu China chief executive officer Tommy Zhao.

“Our online store serves two purposes. The first is so people from remote areas can see our products and access our products. The second is for information. We keep it updated so customers can come and see our new product lines. But when they want to buy, they still come to our stores,” he said. “It’s very hard to trust online sales and counterfeit is one of the biggest problems.”

Industry leaders say the average Taobao purchase is about 175 yuan, or $28 at current exchange, not a large commitment for something that may be counterfeit or of inferior quality. But ask that same consumer to spend significantly more for brand-name clothing, and they are likely to balk.

“Our clear goal over time is to build a bridge and to build customer confidence and trust,” said Morten Severon, managing director of German online retailer KeenOn Fashion. Its parent, The Otto Group, takes nearly half of its annual revenue of 11.6 billion euros, or $14.49 billion, from e-commerce sales.

Offering advice to his Chinese counterparts at the forum Thursday, Severon said his business is seeing an internationalization of brands and a steady drift to online purchasing. But the number of orders is shrinking as competition gets stronger.

Increasing the challenge, he added, is that buying clothing is not like buying a book, where a consumer needs to know only the title and author. With apparel, customers want to know the size, the fit, the color and feel before they commit. For that, he said, KeenOn has expanded its presence at fashion exhibitions and added a traditional sales team.

“We need to start where the customers are. The customers are in the old world, and we need to bring them into the new world,” he said. “They will start to buy more and more online, and in time we can reduce the offline strategy and go to more and more online.”

Despite their slow move to the online world, brick-and- mortar retailers here are generally still optimistic, given that overall retail sales growth — while slowing — is still hovering around 14 percent. The forum showcased models like Shanghai’s Seven Days, a project that includes a Web portal for up-and-coming designers as well as several stand-alone shops, as a way to promote domestic designers to a wider audience.

“I think that people’s lifestyles have changed. They spend most of their time online and they have less time to shop in stores, so this will inevitably lead to a change in their shopping patterns,” said Xia Guoxin, ceo of Shenzhen-based women’s brand Ellassay Fashion Co., whose online sales — restricted to heavily discounted inventory from previous years — now make up about 10 percent of its annual total. “We will have to actively work at this new way of selling on the Internet. But I am still confident in the traditional way of selling….The whole pie is getting bigger,” he said of the overall industry growth. “What happened this year and last is just a drizzle in the springtime.…Spring has just begun.”
Source:WWD