JD.com Targets Fashion as Key in 2016
By Casey Hall
SHANGHAI — Fashion, budget-conscious consumers and cross-border commerce are all high on the agenda for JD.com in 2016.
The Nasdaq-listed company is China’s second-largest e-commerce provider by sales after Alibaba, with gross merchandise volume during the three months to the end of September (the most recent figures available) surging 71 percent to 115 billion yuan, or $17 billion at current exchange, compared with 67.3 billion yuan, or $10.2 billion, a year earlier.
According to Haoyu Shen, chief executive officer of JD Mall, the company’s business-to-consumer e-commerce department, the rise of the apparel sector on the Chinese online shopping platform has taken even the company itself by surprise.
“We are seeing tremendous three-digit growth over the past few years in this category. Many people don’t know this, but when I was looking at these numbers I was surprised to find it’s actually the category with the highest penetration of our customers,” he said. “All of our nonelectronics categories are growing faster than the electronics categories. We want to be the one-stop shop for all shopping needs.”
During China’s major yearly e-commerce shopping event, Singles’ Day, JD.com sold more than 14 million articles of clothing and pairs of shoes. In earnings reports for the first and second quarters of 2015, the growth of the apparel and footwear category was 230 percent and 150 percent on the year, respectively. Growth in the third quarter was simply described as being “triple-digit” over the same period in 2014.
According to Patrice Nordey, ceo of digital inception agency Velvet, JD.com’s focus on fashion is a natural step for the company, as he expects the total e-commerce growth in 2016 to slow to “only” 20 percent, while he estimates apparel categories to grow at
more than 30 percent over the next 12 months.
“Tmall has something like 70 percent of all apparel categories and JD.com has something like 6 to 10 percent, but it’s a very big, very dynamic category, so it makes total sense for JD.com to focus on fashion and apparel,” he said.
Part of the resulting strategic pivot toward the apparel sector has led JD.com to sponsor an offline event as part of New York Fashion Week, with a runway show featuring independent Chinese designers such as Alicia Lee, Chi Zhang, Gioia Pan and a line of sportswear from Shanghai-based Australian soccer star Tim Cahill. The event is set for Feb. 17 at Pier 59.
JD.com is looking to generate interest around the designers’ brands, which are sold on a section of the e-commerce player’s platform for Chinese independent labels. Beijing based designer Alicia Lee’s aesthetic is overtly feminine, featuring lots of lace. Taiwan’s Gioia Pan is known as a knitwear specialist and Chi Zhang’s industrial chic is a favorite of local celebrities.
“We want to be the place where Chinese consumers can find the most cutting-edge fashion and we want to take these Chinese designers overseas and help them on the global stage,” Shen said.
Unlike electronics and cell phones, which have traditionally been JD.com’s strong suit, consumers are buying clothes on a more regular basis, and consumers are seeking out apparel brands they might not be able to find offline in their local area.
Also unlike consumer electronics, Nordey points out, apparel categories make sense from a profitability standpoint.
“The best way for them to make a profit is to move into categories with higher margins, at the extreme is luxury and I’m not sure they would be very convincing at going into luxury right now. Fashion is a better match, they can also move into the premium end once they are more established in the category,” he said.
According to Shen, the average ticket price for apparel bought from the site is 200 to 250 yuan per piece, or $30 to $38 at current exchange, with a higher average price per winter and lower price points proving more popular in summertime.
Up until the last few years, the vast majority of Chinese consumers were shopping online for non-name-brand fashion, the kind of Chinese-made, low-price garments widely available on the popular consumer-to-consumer site Taobao.com, according to Shen. Alibaba, JD.com’s biggest rival, owns Taobao.
Recently, however, there has been a shift in attention toward brands, especially international high-street brands, prized for their reputed quality at reasonable, if not dirt cheap, prices.
“[Chinese consumers] are probably familiar with these brands offline and they will find a better selection, more convenience and a better price for these online, which will make them want to transact with these brands online,” Shen said.
And despite Nordey’s views, JD.com does have its sights set on growth in its luxury business, although Shen concedes that is a “tricky” sector for any e-commerce platform in China.
In September, JD.com inked an exclusive e-commerce partnership with Tag Heuer to establish the watch brand’s first China online flagship store. Shen is quick to point out that JD.com is already the country’s largest sports watch retailer, either on- or offline, and its luxury strategy going forward is to work with brands on a case-by-case basis.
“We are in conversations with a lot of brands, be it watch or fashion. It will take some time to make online a comfortable environment for luxury brands,” he said.
Also under consideration will be featuring future celebrity focused fashion and merchandising lines, given the early success of JD.com’s collaboration with Taylor Swift in providing a platform for the pop starlet, including a line of clothing especially designed for the Chinese market.
“A lot of her merchandise was just released last week but last time I checked with our people it was doing good volume,” Shen said. As well as a newfound focus on fashion, Shen predicts that 2016 will see a continuation of recent trends for JD.com and China’s e-commerce landscape at large. Specifically, he foresees e-commerce players’ increasing penetration into China’s lower-tier cities. Shen also noted an increase in cross-border commerce, with relaxing import and customs regulations. China’s recently opened free trade zones mean imported products are more accessible than ever for the country’s consumers.
“We launched that [cross-border] business in April of 2015, so it’s been over half a year now. It will continue to be a focus for us this year, and it’s an area we are seeing tremendous growth,” Shen said.