यह सदस्य संक्षिप्त विवरण विशेष रूप से के लिए डिज़ाइन किया गया है कार्यकारी सदस्यसदस्यता को आसान बनाने के लिए, आप नीचे क्लिक कर सकते हैं और सैकड़ों रिपोर्टों, हमारी डीटीसी पावर सूची और अन्य उपकरणों तक पहुंच प्राप्त कर सकते हैं जो आपको उच्च स्तरीय निर्णय लेने में मदद करेंगे।
Memo: China Strategy Revisited
This is a continuation of the original essay: The China Strategy (2018)
At 8 am on May 10, 2003, Taobao went online on the fourth day of the SARS quarantine. The homepage read: “Think of those who start a business in trying times.” Nineteen years later, and China’s online retail economy is the envy of the world. Currently with a nearly 37% online penetration and growing, analysts estimate that rate will reach 63.9% by 2023. It’s evident that online retailers like Alibaba, which owns Taobao, used the crisis to move China into eCommerce leadership that then belonged to the United States. China owes its eCommerce dominance to Alibaba, but its future may be with JD.com. This as the U.S. Government is becoming increasingly adversarial with Alibaba.
Shopify’s next geographical ploy isn’t in the early-stage metaverse, it’s in the late-stage region that’s been trickiest for America’s modern brands to find success. Context is necessary. In 2017, Alibaba wanted to partner with digitally-native brands, so it thought like Amazon and went on a public relations campaign to attract American retailers to the marketplace. I sat in a Detroit conference center as a guest of Alibaba when a charismatic Jack Ma stood on stage wooing middle America’s small businesses. He’d later say, “Alibaba’s existed for 18 years, and we are so influential in China–but nobody in America knows about us.” And he was right, even after Alibaba’s record-setting IPO in 2014.
The same year, JD tried to appeal to the same country but with a slightly different market: It invested $397 million in Farfetch to bring American luxury to China. It fizzled. In 2020, Farfetch revised its strategy and ended up partnering with Alibaba and Richemont in a deal structure that far exceeded the original JD partnership.
Alibaba CEO Daniel Zhang was quoted saying at the time:
This highly complementary partnership brings together some of the world’s leading luxury retail and technology platforms, representing another milestone in Alibaba’s strategy to meet the rapidly growing demand for luxury products in China. The Chinese luxury market — which is expected to account for half of global luxury sales by 2025 — consists of hundreds of millions of young, digitally native consumers.
Over the past two years, JD and Alibaba retooled their approaches to gain traction with America’s direct-to-consumer brands. Alibaba homed in on the luxury market and poached Farfetch from JD. Now, JD has made its counter move. It is teaming with Shopify, the leader in online merchant services for modern retailers by GMV (and potential). They’ve essentially switched strategies: one traveled from middle America up market and the other traveled down market in its focus on the American middle. It’s rare that JD outmaneuvers its larger Chinese rival; here it has its second chance to try.
This is take two for JD and it’s counting on Shopify’s direct relationship with a growing number of smaller brands. The Chinese mainland is perhaps the most coveted audience for North American retailers today but without a high level of sophistication and relationship development, it’s close to impossible for American merchants to market their products to the largest eCommerce audience in the world. GlobalData estimates that China’s online retail economy is more than double that of the United States:
According to GlobalData’s E-Commerce Analytics, e-commerce sales in China grew at a CAGR of 17.7% between 2017 and 2021 to reach the value of CNY13.8 trillion (US$2.1 trillion) in 2021.
Shopify found a way to help its merchants reach those trillions of CNY. It’s joining Chinese marketplace JD.com, and not Alibaba, in a partnership that portends to help its merchants succeed in a market that will be worth $3.3 trillion by 2025.
The deal is a win for both sides. Shopify’s business soared during the pandemic, and unearthing new areas of growth for its merchants is key to Shopify’s next level-up. Cross-border commerce is a logistical hurdle for many small and medium sized brands as they attempt global expansion. Shopify, which wants to be the internet toolbox for online sellers, will gain a competitive advantage by helping its brands make the jump to new markets.
In 2018, 2PM predicted that China would become the next growth market for DTC brands otherwise facing climbing customer acquisition costs. As believed then, the brands that could successfully go-to-market in China would be the haves; the rest will be the have nots.
Chinese eCommerce is a worthwhile investment for well-prepared DNVBs. McKinsey&Company estimates that by 2025, Chinese shoppers will account for nearly 45% of global luxury spending. This translates to “7.6 million Chinese households will represent RMB 1 trillion in global luxury sales, an amount that is double that of 2016, and equivalent to the size in 2016 of the French, Italian, Japanese, UK, and US markets combined,” according to the consultancy.
The Shopify x JD partnership levels the playing field, to be a part of the “haves” be a part of Shopify, or so the theory goes. It is now a conduit to the largest market and JD is now a pathway to bringing more products from East to West. As part of the partnership, JD.com will set up an accelerated channel for Shopify brands that will narrow the onboarding window from 12 months to three to four weeks. JD will handle logistics including warehousing and deliveries for the US brands.
For JD, Shopify is a coup considering that $SHOP’s current link to China is through Alipay, the financial wallet powered by Alibaba-affiliate Ant Group. That deal will likely go sour.
The Chinese government has set a target to increase national online retail sales by around 44% between 2021 and 2025. JD, Alibaba, and now Shopify will be a key part of that push. There are risks. Even with the support of Shopify and JD.com, business in China needs to be closely managed to tailor marketing, messaging, and even inventory selection to appeal to the region. In this way, there is only so much that a platform can do to facilitate opportunity for its brand partners. Shopify’s global success here will depend on the individual successes of the brands themselves. This is in line with Lütke’s philosophy who doesn’t love to play the king maker.
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Member Brief: Online Inflation
The online holiday shopping numbers are in from Adobe and we now have a better understanding of how the holiday season was impacted by the sociology of the times. The bottom line: people shopped online more, and it was more expensive. We recap the many why’s here.
Online inflation has raised prices across categories, particularly grocery, apparel, appliances, home improvement. Despite import taxes and issues with APAC container shipments: electronics actually saw prices decrease. Overall, online prices increased 3.5% in November over the same period in 2020, and increased 3.1% in December. Total online spending in 2021 increased 9% year-over-year, for a total of $855 billion, according to Adobe. The NRF’s November figures were exceeded by some $11.6 billion.
The data shows that convenience is trumping price in terms of the factors people seek out when they’re shopping. With higher prices, demand typically falls. But this season, demand sustained (if not exceeding in some categories). This reflected in online spend growing in total.
Adobe analysts say that there’s no sign of current inflation rates going down: the supply chain is still backed up, the Omicron variant is delaying production and uncertainty remains a constant. As reported in September here:
Since July’s COVID resurgence, there are now more than 60 container ships awaiting entry in the Southern California region.
This number exceeded 90 containers at one point in the fall season. Materials are still in short supply like aluminum and lumber. An increase in imports means there’s a bottleneck, slowing and delaying shipments into the US. And as the New York Times reported in June about a long-standing supply chain solution known as “Just In Time manufacturing”, where manufacturers receive components, materials and other parts only as they need them in order to minimize costs of overhead. The practice started in automotive production and rippled to other categories including fashion and food. We wrote a deep dive on logistics taking center stage here.
This has long term implications for retail and ownership trends, outside of a holiday season (which may be viewed as an anomaly). More effort is being put into digital goods that aren’t bound to supply chain woes. If these trends continue, consumers will continue putting their money elsewhere. In The Newly Rich, we explained:
With rampant inflation, wage stagnation, rising student debts, and NIMBYism preventing the wealth-generating benefits of home ownership for many, digital goods have become the new gold rush.
Adobe’s data proves that other holiday predictions came true. Customers shopped over a longer period of time and earlier, with sales figures particularly up the week preceding Thanksgiving, ahead of the Black Friday holiday shopping kickoff. The industry of online retail is no longer concentrated around specific events – it has permeated daily activities as incentives like curbside pickup have become normalized. That has led to a decline in discounting: According to Adobe, discounting levels were down across categories, with the exceptions of apparel and toys.
The 2021 holiday season is notable in the lessons it provides for retail year-round. eCommerce-first is a viable strategy (though stores are still valuable investments) as well as functions like buy now, pay later and buy online, pick up in store (BOPIS). These ancillary tools are now table stakes, along with inventory management. DTC brands have long used out-of-stock messages and waitlists as a marketing play, but retailers are nothing without product available to ship. Customers will follow that as they seek out convenience over price. This was expected. From October’s brief on the holiday season:
This means Black Friday will look different. In previous holiday seasons, pricing incentives were the sales hook. This year, retailers won’t need to offer flash sales or free shipping: availability is the hook. Plainly put, if a quality product is available to ship before the holiday season, it will likely be purchased. This is what Lowe’s is signaling with their premature focus on Christmas. If they waited until the normal beginning of holiday cheer, there may not be the stock to support the spike in demand.
The data from Adobe communicates what many of us have long known, eCommerce is becoming ubiquitous and we are beginning to see the data reflect the sentiment. Taylor Schreiner of Adobe Insights: “Like we saw during the Covid-19 pandemic, eCommerce has become a ubiquitous daily activity and a flexible way for shoppers to navigate product availability and higher prices.”
Edited by Hilary Milnes with art by Christina Williams