It seems like many of US’s direct-to-consumer startups are having a change of heart.
Many US’s direct-to-consumer brands are considering getting a piece of the pie in China. In fact, footwear brand Rothy’s has entered the Shanghai market in 2018 and has been selling there earlier this year. Even Everlane has started shipping to Chinese customers as well. Moreover, investors, like GGV Capital whose focus is U.S. Brands, see the potential to capitalize in China too.
Gone are the days of having need to go through a series of “joint ventures/third parties” in China to make a sale, such as manufacturing partners, distributors, and agencies, as these require a series of requirements that add to the actual cost of the product. Direct selling is now the most effective means to penetrate the large Chinese market, with the help of global e-commerce, new tariff regulations and the influence of giant e-commerce players such as WeChat, Alibaba and JD.com. Now, brands can sell online to their Chinese customers through their e-commerce platforms and monitor performance with the help of the customer demographics and purchasing patterns data provided.
There are even studies to further prove the huge potential China’s e-commerce market has, especially to retail brands. China’s e-commerce sales is projected to reach $2.6 trillion in 2021, increasing 22% from $1.2 trillion in 2018, according to an article from Digital Commerce 360. This is already 2.8 times the size of the US market! This figure is attributed to the high spending power Chinese millenials have, especially at a younger age, and they are keen to trying out new brands, a report by KPMG notes.
In fact, this particular type of customer demographic makes it lucrative for young brands to launch in China, especially when success is measured if a brand is able to do “globally”. And by becoming popular in China, these brands are able to pass the test of making it anywhere.
However, take into consideration that infrastructure is different in China as it is in the U.S. Facebook, Instagram and Google are non-existent, so there are no online ads to bank on. Hence, WeChat and e-commerce sites like Tmall are the best alternatives to advertise and sell in the said country. Moreover, it is also a prerequisite for brands to employ commerce partners such as a native China team and a local agency and PR firm to handle the necessary logistics for the brand to operate. Employing these largely plays a huge part of Rothy’s success in launching the brand into the Chinese market.
Additionally, having manufacturing factories in China gives brands an edge as well, as this allows shorter lead times in completing the sale and simultaneously announces their local presence in the Chinese market. Aside from Rothy’s, apparel brand Grana also maintains a partnership with its Hong Kong factories, allowing it to be able to do business both in U.S. and China, in which half of its sales coming from both Hongkong and China. Additionally, Ellie Kai, a known fashion brand, operates an e-commerce store in China after receiving positive reviews from women working in its factories.
Yet, there exist other barriers to entry for small brands launching in China. One example of which is the hair care brand Function of Beauty. Due to differences in core values, the brand is not too keen to launch in the East, as the Chinese law requires all beauty brands to be tested on animals. Given the anti-cruelty stance of the brand, the brand decides to simply ship its items from the U. S. and not pursue marketing and direct selling in China. Despite this, big budgeted brands will not see this as a major road-block with their quest to penetrate the Chinese market. Big e-commerce brands such as Alibaba will be eager to strike a deal with them, given the record of the brand’s current following in the West.
As the U.S. consumer market achieves its saturation point, direct-to-consumer brands will be needing new avenues for growth. And soon, China will become a huge player in the this particular dialogue. It is known the long time and effort it takes to build a brand, and businesses and experts believe that there is no better time to start doing business in China than now.
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