Fashion Market in China

Retail

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  • INTERNAL Fashion Market in China Sami Muneer, SAP
  • ©  SAP AG 2010. All rights reserved. / Page 2 China Luxury Market •  Growth, Demographics, Archetypes The Retail Challenge in China The Role of the Internet in Luxury Shopping in China Ecommerce Players So What?
  • ©  SAP AG 2010. All rights reserved. / Page 3 Growth of the China Luxury Market
  • ©  SAP AG 2010. All rights reserved. / Page 4 Luxury Segment* is Growing Driven by 3 Factors 1. Wealth Increase Within largest cities Rapid urbanization in new areas 2. First-hand Experience Overseas travel Local stores 3. Access to Information Internet: social forums, editorials Source: McKinsey, 2011 World Luxury Association Blue Book 15% online purchase in 2011 ($2.5B)
  • ©  SAP AG 2010. All rights reserved. / Page 5 Driven by Wealthy and Upper Middle Class Spending is Concentrated in Top 5M Households 80 B 50% 2010 2015 > 1 MM (700K households; 20% growth) 180 B Luxury Goods Consumption by Income Class* (RMB, US$ = 6.3RMB) Ø 200K- 1MM (4MM households; 15% growth) Ø 100K-200K (13 MM household; fastest growth) 12% 33% 40% 22% 26% Source: McKinsey, BCG *% don’t add to 100% due to other small segments Very Wealthy Own assets greater than 10MM RMB Well-traveled Wealthy Growing number residents in lower-tier cities Upper Middle Class Stretch budgets for occasional purchase
  • ©  SAP AG 2010. All rights reserved. / Page 6 But the Very Wealthy Travel and Spend There 60% of Luxury Spend is Overseas Luxury Goods Spend Bln RMB, 2010 (% CAGR) 40% China (27% CAGR) 35% HK & Macau (45% CAGR) 25% Overseas (38% CAGR) Drivers for Overseas Spend •  Higher prices on mainland •  Increased overseas travel by the wealthy •  RMB appreciation 212 Bln Total Source: McKinsey, 2011 World Luxury Association Blue Book, Bain Survey of 2000 consumers
  • ©  SAP AG 2010. All rights reserved. / Page 7 Most Local Spend is on Accessories, Cosmetics 70% of Mainland Purchase Source: Bain & Co.
  • ©  SAP AG 2010. All rights reserved. / Page 8 Growth of the China Luxury Market 1.  Market is growing 2.  Most shopping by the wealthy is overseas 3.  70% of luxury shopping on mainland is accessories, cosmetics
  • ©  SAP AG 2010. All rights reserved. / Page 9 Demographics and Archetypes
  • ©  SAP AG 2010. All rights reserved. / Page 10 China’s Luxury Consumer is Young Almost Half under 35 73% 50% 60% 55% China: % of luxury shoppers under 45 (and under 35) US: % of luxury shoppers under 45 (and under 35) Under 35 Trading Up: 35% traded up to more expensive brands last 2 years Seeking New Experiences: Spending on luxury services (spas, wellness, etc.) growing faster than that on luxury goods
  • ©  SAP AG 2010. All rights reserved. / Page 11 2 Categories of the Young Population Impulsive “Yu Guang Zu” and Tech Savvy China Population Structure in 2010 40 0M M 25% Ages 15-24 35% Ages 25-34 60% of consumers buying foreign brand perfumes are under 34 Source: Accenture
  • ©  SAP AG 2010. All rights reserved. / Page 12 Growth of Mid and High-End Brands Influence of The Post-1980’s and Post-1990s Post 1980s Born after “Cultural Revolution” Good jobs Sense of optimism Post 1990s Fast growth Fashion and Tech- Savvy More outdoor activities requiring “right” outfits
  • ©  SAP AG 2010. All rights reserved. / Page 13 Emergence of 3 New Archetypes Differing Emphasis on Luxury % luxury households Source: McKinsey, BCG 40% 22% % luxury consumption 51% 45% 3% 1% 10% 65% 5% 20% Role Models: Shape fashion trends Fanatics: Strong influence on consumers; online influence Core Buyers: Spends 12-20% of income on luxury goods (US$ 3K – 9K annually) Middle Class Aspirants: Infrequent buyers, cautious spenders Household Distribution and Luxury Goods Consumption by Archetype Emergence of 3 New Archetypes Differing Emphasis on Luxury
  • ©  SAP AG 2010. All rights reserved. / Page 14 Role Models (20% Spend) Rich, Young and Fashionable Socio-Income Profile: Corporate executives or self-employed Lives in Shanghai and Beijing Studied or worked overseas Buying Behavior: 10% of disposable income on luxury Most buying for at least 5 years Spontaneous Why they Buy: Feel unique rather than display wealth To indulge themselves What they Care About: Good service in stores is important Prefers to shop outside China
  • ©  SAP AG 2010. All rights reserved. / Page 15 Fashion Fanatics (5% Spend) Not Rich, But Researches and Spends More Socio-Income Profile: Earns $15K – 30K Incomes rising steadily Buying Behavior: 40% of disposable income on luxury Spends most free time on fashion trends Will buy on credit to be on cutting edge Why they Buy: Social acknowledgement of purchase Strong influence on others, sharing purchases and opinions online What they Care About: Planning and research: window shopping, online, editorials, celebrities, friends Cares less about store service
  • ©  SAP AG 2010. All rights reserved. / Page 16 Middle Class Aspirants (10% Spend) Occasional and Cautious Shopper Socio-Income Profile: Earns $9K – 30K Mid-level position in local or multinational Lives in Tier 2 or Tier 3 cities Buying Behavior: 9% of disposable income on luxury Less knowledge & experience Considerable research (2-3 months) Why they Buy: Aspire to higher social circles; feel successful Stand out from the crowd What they Care About: Price (hence fine with local brands)
  • ©  SAP AG 2010. All rights reserved. / Page 17 Top 5 Brands Account for 50% Sales Many Consumers Not Aware of Other Brands
  • ©  SAP AG 2010. All rights reserved. / Page 18 Demographics and Archetypes 1.  Young consumers are vital and relate to more and varied (price) brands 2.  Role Models primary shop overseas 3.  Fashion Fanatics should be targeted for adoption/promotion – they will attract the Aspirants
  • ©  SAP AG 2010. All rights reserved. / Page 19 The Retail Challenge
  • ©  SAP AG 2010. All rights reserved. / Page 20 36 Cities Constitute 75% of Luxury Market But This Will Change with Emerging Cities 75% 75% of luxury market captured by top 36 cities 25% Other 620 cities Top 36 cities Breakdown within the top 36 cities 28% 2 mega cities 32% 25 developed cities2 40% 9 large markets1 1.  Chongqing, Dongguan, Foshan, Guangzhou, Hangzhou, Nanjing, Shenzen, Tianjin, Wenzhou 2.  Includes cities as Xian, Taiyuan, Yantao Source: McKinsey, BCG, Reuters TO D AY B U T IN C O M E D IS TR IB U TI O N W IL L C H A N G E 0 20 40 60 80 100 120 2010 2020 Distribution of Upper Middle Class Top 100 Cities Next 300 Cities 85% 65% 10% 30%
  • ©  SAP AG 2010. All rights reserved. / Page 21 Retail Stores Need to Catch Up Particularly Difficult for Those W/ No Presence 45 20 57 38 50 8 Japan China Difference in Retail Presence between China and Japan Hermes Louis Vuitton Chanel ‘00s 20 ‘00s 70 ‘000s 5 USA China Difference in Retail Presence between China and USA Benetton Zara Gap Example Brands with No Presence
  • ©  SAP AG 2010. All rights reserved. / Page 22 But Brands Need to Strike a Balance Between Growth and Exclusive Experience Source: Bain & Co.
  • ©  SAP AG 2010. All rights reserved. / Page 23 The Brand Experience Matters The Brands Differentiate on This Factor Commercial Premium Market Upper Premium Market Designer Haute Couture Marco Polo Ralph Lauren, Boss, Seven Akris, Burberry Armani, Gucci, Prada Dior, Gaultier Luxury Market Source: h&p
  • ©  SAP AG 2010. All rights reserved. / Page 24 Difference in Exclusivity and Presentation Such Focus is Slowing Store Growth in China
  • ©  SAP AG 2010. All rights reserved. / Page 25 Exceptional Service In-Store Matters Primary Driver for Buying Decision in China 44% In-Store 14% Word-of-Mouth 21% Internet 13% Traditional Media 7% Direct Marketing Activities In-Store •  Evaluated product •  Spoke to salesperson •  Window shopping •  Read catalog Relative Importance in Buying Decision for Luxury Apparel Source: McKinsey, BCG
  • ©  SAP AG 2010. All rights reserved. / Page 26 Need to Position to Emerging Emotional States in China And be Perceived as Such Pursue Success and Status Professional Achievement, Social Status 60-70% of consumers relate More pronounced in high-tier cities Balanced Lifestyle/ Laid-Back Spend more on leisure and fun, “enjoy life” More pronounced in lower-tier cities Be Classic (Female) or Blend In (Male) Be comfortable More males skew toward laid-back Be Trendy (Female) or Stand Out (Male) Visible and Edgy More females skew toward being expressive More in high-tier cities
  • ©  SAP AG 2010. All rights reserved. / Page 27 The Retail Challenge 1.  Brands need insight of consumers in emerging cities 2.  Particularly difficult for many brands not yet in market (note: not haute couture) 3.  Need to position and be perceived to right emotional state 4.  Underscores need of influencers to shape perception
  • ©  SAP AG 2010. All rights reserved. / Page 28 The Role of Internet
  • ©  SAP AG 2010. All rights reserved. / Page 29 Role of Internet in Creating Awareness Unique Circumstances 21% Internet 52% Saw an ad 43% Checked reviews online 10% Brand’s website •  25% of e-commerce demand for products not found in physical stores •  Country size limits the coverage of physical retailers. •  For many consumers, especially younger ones, first contact with a brand or type of product is online •  Most shoppers start their search within Taobao (80% of 2010 volume) •  Taobao.com blocks the spider of the top search engine, Baidu.com •  Shoppers do not rely on search engine as in other countries •  Beyond discounts •  Uniqueness, convenience, fun of the discovery process Factors driving first awareness of brand online
  • ©  SAP AG 2010. All rights reserved. / Page 30 BUT Frequent Online Research but Fewer will Buy Rather Buy In-Store Source: KPMG study of 1300 respondents They search often Frequency of online search for luxury brands Most will not buy online Intent of purchase 43% Will NOT buy 22% Will consider buying Better deal Easier for comparisons Less time consuming Authenticity concerns After-sales service, returns Payment security Note: online purchase higher for other items
  • ©  SAP AG 2010. All rights reserved. / Page 31 Importance of Social Reviews Due to Distrust of Merchants 0 10 20 30 40 50 60 43% Read or posted reviews 20% 52% 19% Visits official brand websites US, Europe China Source: McKinsey, BCG Due to consumer wariness and distrust of merchants Importance of social reviews and “opinion leaders” •  Bulletin-board services (BBS) •  Social networking sites e.g. RenRen, Youku, Kaixin •  3rd party review sites on Sina •  Media firms (CIC) that aggregate comments •  Brand sites with BBS
  • ©  SAP AG 2010. All rights reserved. / Page 32 Consumer-Generated Content Effective In Influencing Brand Choice Source: KPMG study of 1300 respondents
  • ©  SAP AG 2010. All rights reserved. / Page 33 Digital Platforms Getting Crowded But Emphasis on Social Media Attributes Burberry on Kaixin Coach on Ren-Ren Lancome App on iPhone Bottega Veneta on Weibo
  • ©  SAP AG 2010. All rights reserved. / Page 34 Mobile Apps in Infancy For Search and Shopping of Lifestyle Purchases Source: KPMG, AdChina 0 20 40 60 80 100 120 % consumers using mobile to search % consumers using mobile to shop 17% 5%
  • ©  SAP AG 2010. All rights reserved. / Page 35 The Role of Internet 1.  Chinese spend considerable time on research 2.  They depend on social influencers for brand awareness, education 3.  But will not necessarily purchase high-end luxury items online 4.  Mobile is in its infancy for luxury shopping 5.  Social app attributes are key
  • ©  SAP AG 2010. All rights reserved. / Page 36 The Role of Chinese E-Commerce Players
  • ©  SAP AG 2010. All rights reserved. / Page 37 Fashion Brands Differ in their Online Sites On Presentation, Vividness and Information Brands   Tie r   Online Shoppin g   Store availabilit y   Vividness   Interactiv e   social share/ likes   Faceboo k page   own online communit y   Catalog (pricing info)  Zoom-in Design Christian Dior   1   No   Yes   No   Yes   No   No   Gaultier   1   Yes   No   No   Yes   No   Yes   Chanel   1   No   Yes   No   Yes   No   No   Versace   1   No   Yes   Yes   Yes   No   No   Armani   2   Yes   Yes   Yes   Yes   No   Yes   Gucci   2   Yes   Yes   Yes   Yes   Personal Likes   Yes   Prada   2   Yes   Yes   No   Yes   No   Yes   Fendi   2   Yes   Yes   Yes   Yes   Personal Likes   No   Dolce & Gabbanna   2   Yes   Yes   Yes   Yes   No   Yes   Burberry   3   Yes   Yes   Yes   Yes   No   Yes   Louis Vuitton   3   Yes   Yes   Yes   Yes   No   Yes   Boss   3   Yes   Yes   Yes   Yes   No   Yes   Calvin Klein   3   Yes   Yes   Yes   Yes   No   Yes   Ralph Lauren   3   Yes   Yes   Yes   Yes   No   Yes  
  • ©  SAP AG 2010. All rights reserved. / Page 38 Yet E-tailers Attract Consumers in China Brands Creating Stores on Sites as Taobao Own Site Partner Taobao Glamour Sales Penetration Description Purpose/ Operations Major brands as Armani, Bally $60Bln transactions 500k+ members Own ecommerce site, add-ons to corporate Brand site with own domain name + “Powered by Yoox” Brands establishing official sites for presentation Promotions targeting price- conscious Marketing and consumer education Yoox offers ecommerce solution; same price, products Event-driven promotions and limited inventory MONO BRAND MULTI-BRAND LEADING CHANNEL
  • ©  SAP AG 2010. All rights reserved. / Page 39 The Top 2 has 40% Market Share Taobao Mall and 360Buy
  • ©  SAP AG 2010. All rights reserved. / Page 40 And They Are Sticky Leading to Growth of over 30% for Leaders Other luxury segment players include: •  VIP Store: 500 luxury brand partnerships •  360 Fashion: social media news, new brands, integration to social platforms
  • ©  SAP AG 2010. All rights reserved. / Page 41 Examples of companies tremendously successful in China A ut os C on su m er G oo ds R et ai l E le ct ro ni cs Global Internet Players Have Failed While Other Global Brands have Succeeded Internet companies struggled in China failed to failed to BUT failed to failed to
  • ©  SAP AG 2010. All rights reserved. / Page 42 Different Social Networks
  • ©  SAP AG 2010. All rights reserved. / Page 43 The Role of Chinese E-Commerce Players 1.  Multi-label e-tailers are primary access points to consumers 2.  They are sticky and growing 3.  While foreign companies in other industries have succeeded in China, internet companies have failed
  • ©  SAP AG 2010. All rights reserved. / Page 44 Summary SO WHAT?
  • ©  SAP AG 2010. All rights reserved. / Page 45 Focus on the Entire Evaluation Process Takes 2-3 Months for Chinese Consumer To uc h Po in ts Time Awareness Info Search Evaluation of Alternatives Price, Avail. & Purchase Post- Evaluation Mono-label Stores: Armani, Burberry High-End Retailer: Neiman Marcus E-Tailers Brand Advertising Endorsements (celebrities) Editorial Stylists Social (friends, family) Window shopping In-Store experiences Focus and Motivate Key Influencers; Sensorial-rich mediated environment
  • ©  SAP AG 2010. All rights reserved. / Page 46 Examples of Growing Sites Awareness ! Decision Net-A-Porter: Comprehensive • Catalogs and shopping by designer, • What’s new, • Editorial • Many countries Asos: Engaging (1.6M fb likes) • Virtual wardrobes with tags to share, competitions • daily deals, marketplace for vintage • editorial; community reviews •  inventory check from other sites, own labels • Mobile, iPad, PC
  • ©  SAP AG 2010. All rights reserved. / Page 47 New Start-Ups Focused on Influencers: Stylists Boutine: New Incentive Model • Financial ncentives for “stylists” to sell items via virtual catalogs • Focused on emerging designers who post items Stylist Pick: Professional Stylists • Popular stylist consultants and handbag/shoes • Fixed price • Own label
  • ©  SAP AG 2010. All rights reserved. / Page 48 Summary Target and Position to Consider Young Consumers Multi-Tier Brands Brand Education of Middle Class Tier-2 and Tier-3 Cities Engagement TEST NON- CHINESE MARKETS FIRST Social Guidance: Awareness ! Purchase Influencers as Fashion Fanatics TARGET POSITION
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  • INTERNAL Fashion Market in China Sami Muneer, SAP
  • ©  SAP AG 2010. All rights reserved. / Page 2 China Luxury Market •  Growth, Demographics, Archetypes The Retail Challenge in China The Role of the Internet in Luxury Shopping in China Ecommerce Players So What?
  • ©  SAP AG 2010. All rights reserved. / Page 3 Growth of the China Luxury Market
  • ©  SAP AG 2010. All rights reserved. / Page 4 Luxury Segment* is Growing Driven by 3 Factors 1. Wealth Increase Within largest cities Rapid urbanization in new areas 2. First-hand Experience Overseas travel Local stores 3. Access to Information Internet: social forums, editorials Source: McKinsey, 2011 World Luxury Association Blue Book 15% online purchase in 2011 ($2.5B)
  • ©  SAP AG 2010. All rights reserved. / Page 5 Driven by Wealthy and Upper Middle Class Spending is Concentrated in Top 5M Households 80 B 50% 2010 2015 > 1 MM (700K households; 20% growth) 180 B Luxury Goods Consumption by Income Class* (RMB, US$ = 6.3RMB) Ø 200K- 1MM (4MM households; 15% growth) Ø 100K-200K (13 MM household; fastest growth) 12% 33% 40% 22% 26% Source: McKinsey, BCG *% don’t add to 100% due to other small segments Very Wealthy Own assets greater than 10MM RMB Well-traveled Wealthy Growing number residents in lower-tier cities Upper Middle Class Stretch budgets for occasional purchase
  • ©  SAP AG 2010. All rights reserved. / Page 6 But the Very Wealthy Travel and Spend There 60% of Luxury Spend is Overseas Luxury Goods Spend Bln RMB, 2010 (% CAGR) 40% China (27% CAGR) 35% HK & Macau (45% CAGR) 25% Overseas (38% CAGR) Drivers for Overseas Spend •  Higher prices on mainland •  Increased overseas travel by the wealthy •  RMB appreciation 212 Bln Total Source: McKinsey, 2011 World Luxury Association Blue Book, Bain Survey of 2000 consumers
  • ©  SAP AG 2010. All rights reserved. / Page 7 Most Local Spend is on Accessories, Cosmetics 70% of Mainland Purchase Source: Bain & Co.
  • ©  SAP AG 2010. All rights reserved. / Page 8 Growth of the China Luxury Market 1.  Market is growing 2.  Most shopping by the wealthy is overseas 3.  70% of luxury shopping on mainland is accessories, cosmetics
  • ©  SAP AG 2010. All rights reserved. / Page 9 Demographics and Archetypes
  • ©  SAP AG 2010. All rights reserved. / Page 10 China’s Luxury Consumer is Young Almost Half under 35 73% 50% 60% 55% China: % of luxury shoppers under 45 (and under 35) US: % of luxury shoppers under 45 (and under 35) Under 35 Trading Up: 35% traded up to more expensive brands last 2 years Seeking New Experiences: Spending on luxury services (spas, wellness, etc.) growing faster than that on luxury goods
  • ©  SAP AG 2010. All rights reserved. / Page 11 2 Categories of the Young Population Impulsive “Yu Guang Zu” and Tech Savvy China Population Structure in 2010 40 0M M 25% Ages 15-24 35% Ages 25-34 60% of consumers buying foreign brand perfumes are under 34 Source: Accenture
  • ©  SAP AG 2010. All rights reserved. / Page 12 Growth of Mid and High-End Brands Influence of The Post-1980’s and Post-1990s Post 1980s Born after “Cultural Revolution” Good jobs Sense of optimism Post 1990s Fast growth Fashion and Tech- Savvy More outdoor activities requiring “right” outfits
  • ©  SAP AG 2010. All rights reserved. / Page 13 Emergence of 3 New Archetypes Differing Emphasis on Luxury % luxury households Source: McKinsey, BCG 40% 22% % luxury consumption 51% 45% 3% 1% 10% 65% 5% 20% Role Models: Shape fashion trends Fanatics: Strong influence on consumers; online influence Core Buyers: Spends 12-20% of income on luxury goods (US$ 3K – 9K annually) Middle Class Aspirants: Infrequent buyers, cautious spenders Household Distribution and Luxury Goods Consumption by Archetype Emergence of 3 New Archetypes Differing Emphasis on Luxury
  • ©  SAP AG 2010. All rights reserved. / Page 14 Role Models (20% Spend) Rich, Young and Fashionable Socio-Income Profile: Corporate executives or self-employed Lives in Shanghai and Beijing Studied or worked overseas Buying Behavior: 10% of disposable income on luxury Most buying for at least 5 years Spontaneous Why they Buy: Feel unique rather than display wealth To indulge themselves What they Care About: Good service in stores is important Prefers to shop outside China
  • ©  SAP AG 2010. All rights reserved. / Page 15 Fashion Fanatics (5% Spend) Not Rich, But Researches and Spends More Socio-Income Profile: Earns $15K – 30K Incomes rising steadily Buying Behavior: 40% of disposable income on luxury Spends most free time on fashion trends Will buy on credit to be on cutting edge Why they Buy: Social acknowledgement of purchase Strong influence on others, sharing purchases and opinions online What they Care About: Planning and research: window shopping, online, editorials, celebrities, friends Cares less about store service
  • ©  SAP AG 2010. All rights reserved. / Page 16 Middle Class Aspirants (10% Spend) Occasional and Cautious Shopper Socio-Income Profile: Earns $9K – 30K Mid-level position in local or multinational Lives in Tier 2 or Tier 3 cities Buying Behavior: 9% of disposable income on luxury Less knowledge & experience Considerable research (2-3 months) Why they Buy: Aspire to higher social circles; feel successful Stand out from the crowd What they Care About: Price (hence fine with local brands)
  • ©  SAP AG 2010. All rights reserved. / Page 17 Top 5 Brands Account for 50% Sales Many Consumers Not Aware of Other Brands
  • ©  SAP AG 2010. All rights reserved. / Page 18 Demographics and Archetypes 1.  Young consumers are vital and relate to more and varied (price) brands 2.  Role Models primary shop overseas 3.  Fashion Fanatics should be targeted for adoption/promotion – they will attract the Aspirants
  • ©  SAP AG 2010. All rights reserved. / Page 19 The Retail Challenge
  • ©  SAP AG 2010. All rights reserved. / Page 20 36 Cities Constitute 75% of Luxury Market But This Will Change with Emerging Cities 75% 75% of luxury market captured by top 36 cities 25% Other 620 cities Top 36 cities Breakdown within the top 36 cities 28% 2 mega cities 32% 25 developed cities2 40% 9 large markets1 1.  Chongqing, Dongguan, Foshan, Guangzhou, Hangzhou, Nanjing, Shenzen, Tianjin, Wenzhou 2.  Includes cities as Xian, Taiyuan, Yantao Source: McKinsey, BCG, Reuters TO D AY B U T IN C O M E D IS TR IB U TI O N W IL L C H A N G E 0 20 40 60 80 100 120 2010 2020 Distribution of Upper Middle Class Top 100 Cities Next 300 Cities 85% 65% 10% 30%
  • ©  SAP AG 2010. All rights reserved. / Page 21 Retail Stores Need to Catch Up Particularly Difficult for Those W/ No Presence 45 20 57 38 50 8 Japan China Difference in Retail Presence between China and Japan Hermes Louis Vuitton Chanel ‘00s 20 ‘00s 70 ‘000s 5 USA China Difference in Retail Presence between China and USA Benetton Zara Gap Example Brands with No Presence
  • ©  SAP AG 2010. All rights reserved. / Page 22 But Brands Need to Strike a Balance Between Growth and Exclusive Experience Source: Bain & Co.
  • ©  SAP AG 2010. All rights reserved. / Page 23 The Brand Experience Matters The Brands Differentiate on This Factor Commercial Premium Market Upper Premium Market Designer Haute Couture Marco Polo Ralph Lauren, Boss, Seven Akris, Burberry Armani, Gucci, Prada Dior, Gaultier Luxury Market Source: h&p
  • ©  SAP AG 2010. All rights reserved. / Page 24 Difference in Exclusivity and Presentation Such Focus is Slowing Store Growth in China
  • ©  SAP AG 2010. All rights reserved. / Page 25 Exceptional Service In-Store Matters Primary Driver for Buying Decision in China 44% In-Store 14% Word-of-Mouth 21% Internet 13% Traditional Media 7% Direct Marketing Activities In-Store •  Evaluated product •  Spoke to salesperson •  Window shopping •  Read catalog Relative Importance in Buying Decision for Luxury Apparel Source: McKinsey, BCG
  • ©  SAP AG 2010. All rights reserved. / Page 26 Need to Position to Emerging Emotional States in China And be Perceived as Such Pursue Success and Status Professional Achievement, Social Status 60-70% of consumers relate More pronounced in high-tier cities Balanced Lifestyle/ Laid-Back Spend more on leisure and fun, “enjoy life” More pronounced in lower-tier cities Be Classic (Female) or Blend In (Male) Be comfortable More males skew toward laid-back Be Trendy (Female) or Stand Out (Male) Visible and Edgy More females skew toward being expressive More in high-tier cities
  • ©  SAP AG 2010. All rights reserved. / Page 27 The Retail Challenge 1.  Brands need insight of consumers in emerging cities 2.  Particularly difficult for many brands not yet in market (note: not haute couture) 3.  Need to position and be perceived to right emotional state 4.  Underscores need of influencers to shape perception
  • ©  SAP AG 2010. All rights reserved. / Page 28 The Role of Internet
  • ©  SAP AG 2010. All rights reserved. / Page 29 Role of Internet in Creating Awareness Unique Circumstances 21% Internet 52% Saw an ad 43% Checked reviews online 10% Brand’s website •  25% of e-commerce demand for products not found in physical stores •  Country size limits the coverage of physical retailers. •  For many consumers, especially younger ones, first contact with a brand or type of product is online •  Most shoppers start their search within Taobao (80% of 2010 volume) •  Taobao.com blocks the spider of the top search engine, Baidu.com •  Shoppers do not rely on search engine as in other countries •  Beyond discounts •  Uniqueness, convenience, fun of the discovery process Factors driving first awareness of brand online
  • ©  SAP AG 2010. All rights reserved. / Page 30 BUT Frequent Online Research but Fewer will Buy Rather Buy In-Store Source: KPMG study of 1300 respondents They search often Frequency of online search for luxury brands Most will not buy online Intent of purchase 43% Will NOT buy 22% Will consider buying Better deal Easier for comparisons Less time consuming Authenticity concerns After-sales service, returns Payment security Note: online purchase higher for other items
  • ©  SAP AG 2010. All rights reserved. / Page 31 Importance of Social Reviews Due to Distrust of Merchants 0 10 20 30 40 50 60 43% Read or posted reviews 20% 52% 19% Visits official brand websites US, Europe China Source: McKinsey, BCG Due to consumer wariness and distrust of merchants Importance of social reviews and “opinion leaders” •  Bulletin-board services (BBS) •  Social networking sites e.g. RenRen, Youku, Kaixin •  3rd party review sites on Sina •  Media firms (CIC) that aggregate comments •  Brand sites with BBS
  • ©  SAP AG 2010. All rights reserved. / Page 32 Consumer-Generated Content Effective In Influencing Brand Choice Source: KPMG study of 1300 respondents
  • ©  SAP AG 2010. All rights reserved. / Page 33 Digital Platforms Getting Crowded But Emphasis on Social Media Attributes Burberry on Kaixin Coach on Ren-Ren Lancome App on iPhone Bottega Veneta on Weibo
  • ©  SAP AG 2010. All rights reserved. / Page 34 Mobile Apps in Infancy For Search and Shopping of Lifestyle Purchases Source: KPMG, AdChina 0 20 40 60 80 100 120 % consumers using mobile to search % consumers using mobile to shop 17% 5%
  • ©  SAP AG 2010. All rights reserved. / Page 35 The Role of Internet 1.  Chinese spend considerable time on research 2.  They depend on social influencers for brand awareness, education 3.  But will not necessarily purchase high-end luxury items online 4.  Mobile is in its infancy for luxury shopping 5.  Social app attributes are key
  • ©  SAP AG 2010. All rights reserved. / Page 36 The Role of Chinese E-Commerce Players
  • ©  SAP AG 2010. All rights reserved. / Page 37 Fashion Brands Differ in their Online Sites On Presentation, Vividness and Information Brands   Tie r   Online Shoppin g   Store availabilit y   Vividness   Interactiv e   social share/ likes   Faceboo k page   own online communit y   Catalog (pricing info)  Zoom-in Design Christian Dior   1   No   Yes   No   Yes   No   No   Gaultier   1   Yes   No   No   Yes   No   Yes   Chanel   1   No   Yes   No   Yes   No   No   Versace   1   No   Yes   Yes   Yes   No   No   Armani   2   Yes   Yes   Yes   Yes   No   Yes   Gucci   2   Yes   Yes   Yes   Yes   Personal Likes   Yes   Prada   2   Yes   Yes   No   Yes   No   Yes   Fendi   2   Yes   Yes   Yes   Yes   Personal Likes   No   Dolce & Gabbanna   2   Yes   Yes   Yes   Yes   No   Yes   Burberry   3   Yes   Yes   Yes   Yes   No   Yes   Louis Vuitton   3   Yes   Yes   Yes   Yes   No   Yes   Boss   3   Yes   Yes   Yes   Yes   No   Yes   Calvin Klein   3   Yes   Yes   Yes   Yes   No   Yes   Ralph Lauren   3   Yes   Yes   Yes   Yes   No   Yes  
  • ©  SAP AG 2010. All rights reserved. / Page 38 Yet E-tailers Attract Consumers in China Brands Creating Stores on Sites as Taobao Own Site Partner Taobao Glamour Sales Penetration Description Purpose/ Operations Major brands as Armani, Bally $60Bln transactions 500k+ members Own ecommerce site, add-ons to corporate Brand site with own domain name + “Powered by Yoox” Brands establishing official sites for presentation Promotions targeting price- conscious Marketing and consumer education Yoox offers ecommerce solution; same price, products Event-driven promotions and limited inventory MONO BRAND MULTI-BRAND LEADING CHANNEL
  • ©  SAP AG 2010. All rights reserved. / Page 39 The Top 2 has 40% Market Share Taobao Mall and 360Buy
  • ©  SAP AG 2010. All rights reserved. / Page 40 And They Are Sticky Leading to Growth of over 30% for Leaders Other luxury segment players include: •  VIP Store: 500 luxury brand partnerships •  360 Fashion: social media news, new brands, integration to social platforms
  • ©  SAP AG 2010. All rights reserved. / Page 41 Examples of companies tremendously successful in China A ut os C on su m er G oo ds R et ai l E le ct ro ni cs Global Internet Players Have Failed While Other Global Brands have Succeeded Internet companies struggled in China failed to failed to BUT failed to failed to
  • ©  SAP AG 2010. All rights reserved. / Page 42 Different Social Networks
  • ©  SAP AG 2010. All rights reserved. / Page 43 The Role of Chinese E-Commerce Players 1.  Multi-label e-tailers are primary access points to consumers 2.  They are sticky and growing 3.  While foreign companies in other industries have succeeded in China, internet companies have failed
  • ©  SAP AG 2010. All rights reserved. / Page 44 Summary SO WHAT?
  • ©  SAP AG 2010. All rights reserved. / Page 45 Focus on the Entire Evaluation Process Takes 2-3 Months for Chinese Consumer To uc h Po in ts Time Awareness Info Search Evaluation of Alternatives Price, Avail. & Purchase Post- Evaluation Mono-label Stores: Armani, Burberry High-End Retailer: Neiman Marcus E-Tailers Brand Advertising Endorsements (celebrities) Editorial Stylists Social (friends, family) Window shopping In-Store experiences Focus and Motivate Key Influencers; Sensorial-rich mediated environment
  • ©  SAP AG 2010. All rights reserved. / Page 46 Examples of Growing Sites Awareness ! Decision Net-A-Porter: Comprehensive • Catalogs and shopping by designer, • What’s new, • Editorial • Many countries Asos: Engaging (1.6M fb likes) • Virtual wardrobes with tags to share, competitions • daily deals, marketplace for vintage • editorial; community reviews •  inventory check from other sites, own labels • Mobile, iPad, PC
  • ©  SAP AG 2010. All rights reserved. / Page 47 New Start-Ups Focused on Influencers: Stylists Boutine: New Incentive Model • Financial ncentives for “stylists” to sell items via virtual catalogs • Focused on emerging designers who post items Stylist Pick: Professional Stylists • Popular stylist consultants and handbag/shoes • Fixed price • Own label
  • ©  SAP AG 2010. All rights reserved. / Page 48 Summary Target and Position to Consider Young Consumers Multi-Tier Brands Brand Education of Middle Class Tier-2 and Tier-3 Cities Engagement TEST NON- CHINESE MARKETS FIRST Social Guidance: Awareness ! Purchase Influencers as Fashion Fanatics TARGET POSITION
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