Western retailers ‘priced out’ of Tmall

More and more Western retailers are facing difficulties on China's e-commerce platforms

by Retail Systems

International retailers have flocked to Chinese e-commerce platforms, enticed by impressive consumer traffic, but a growing number of them - including Macy's and New Look - have closed Tmall Global stores, despite growing demand for foreign goods. 

The problem for retailers is that they are often selling the same brands as their rivals, with customers simply selecting whichever retailer offers the lowest price and fastest delivery, according to Elena Gatti, managing director at e-commerce solutions provider DACH Azoya.

At the same time, competition in China has intensified in recent years, so it’s not possible for a foreign retailer to rely solely on their brand to drive sales anymore. 

While Tmall Global is a marketplace for third-party global sellers, it also runs its own direct retailing business, Tmall Direct Import. This store purchases inventory in bulk from leading global brands and sells the products directly to consumers, putting it in direct competition with multi-brand retailers such as Macy's.
Gatti also pointed out that Tmall Direct Import items are almost always displayed in top-ranking search results and sell for competitive prices, making it difficult for third-party retailers to compete.

Tmall Direct Import has an economies of scale advantage - it can buy a larger selection of products at lower bulk prices and pass those savings on to the consumer - and can also stock top-selling items in bonded warehouses for faster shipping. 

“On top of all this, there isn’t much room on a large marketplace’s website to differentiate oneself with banners and brand logos,” said Gatti. “To compete, retailers must decide whether or not they want to invest in a stronger customer experience or pull out of the market altogether.”

Last October, New Look announced that despite substantial recent investments in China, “performance has been below expectations and this business has not achieved the necessary sales and profitability to support the significant future investment required to continue these operations”.

As well as shuttering its Tmall store, the UK retailer closed its 120 stores and Shanghai head office. 

On marketplaces, retailers must spend money on platform ads to drive traffic and clicks. According to market intelligence firm Analysys International, in 2017, the average customer acquisition cost on Tmall grew to over 310 RMB, outstripping the average revenue per user of 225 RMB.

Retailers are also pressured to discount goods for platform-wide sales holidays such as Tmall’s Singles Day and JD.com’s 618 Festival.

For newcomers to the Chinese e-commerce market it is difficult to compete on pricing and logistics, so Gatti suggested retailers should curate products that adhere better to Chinese tastes.  

“This is especially hard for fashion retailers like New Look, because there are so many different colors and sizes for each product – they have to provide a wide selection to drive traffic, but localising that selection for a market as large and diverse as China can be a nightmare.”

Tmall parent company Alibaba declined to comment. 

Last month however, Tmall Global did launch a set of new services to help international brands manage their entry into China in a more-efficient and low-risk way.

Speaking at Tmall Global’s annual gathering, Tmall Import & Export general manager Alvin Liu said the site now offers an overseas fulfilment solution and an import program to support brands’ forays into China.

“We are constantly upgrading our services and tools we provide to merchants, regardless how big or small, so they can deepen their engagement with the Chinese consumers whose demand for imported products is expected to strengthen in the coming years,” Liu said.

As their spending power climbs, Chinese consumers are increasingly looking for products from international brands. In 2018, China’s total imports reached $2.14 trillion, up 15.8 per cent year-on-year, according to the Ministry of Commerce. 

Alibaba’s TOF plan allows brands to place their products at the nearest Tmall Global fulfilment centre for sale on the platform, along with marketing advice and tools to help boost awareness. Currently, TOF is available in the US, Japan, South Korea and will expand into Europe later this year.

Tmall also has a new Centralised Import Procurement program, which leverages six warehouses around the globe to source goods for all of the online and offline outlets within the Alibaba ecosystem.

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