August 23, 2012

The Modern Silk Road

We talked about Chinese e-commerce back in May, on our blog “The Lure of the East,” and how we will be watching to see what happens next. Since then, it’s just gotten more and more predominant as the potential of this fast growing market and the consumers it encompasses continues to rapidly evolve. In general, global online retail has not reached it's full potential and by 2015, the majority of online sales are expected to primarily come from China, the U.S., India, Japan, and Brazil.

As of December, there were around 500 million Chinese "netizens" and with this growth also comes the need for awareness of internet scams in the form of counterfeit goods, fraud, and spam. For some consumers, it can be extremely difficult to differentiate real websites from fake ones and unfortunately there is still a major lack of online regulations. Even Taobao, the largest consumer to consumer marketplace in China (similar to that of eBay and Amazon), has received more than 8.7 million complaints. Despite, China's e-commerce continues to remain a major interest for western companies.

photo via WWD

From Groupon’s discount deals to major department stores like Macy’s, retailers are aggressively trying to tap into China’s online shopping boom. Just last year, in collaboration with the e-commerce company, FiftyOne, began selling to more than 100 countries worldwide, including China. However, today, as Macy's continues to further push their international presence in Asia, the department chain has invested $15 million in the Chinese based e-commerce firm, VIPStore Co. Ltd., to begin selling their private label, INC via the website For these western companies, it’s not only about expanding their market opportunity, but learning more about who this unfamiliar customer base is through trial and error.

photo via Macaron Magazine

J.Crew in general is skipping straight over Europe and setting up shops right in Hong Kong and Beijing this autumn. While the company does ship internationally via their website, the mid-market retailer solely has a brick and mortar presence in the U.S. and Canada. Through an upcoming partnership with the Asian department chain, Lane Crawford, J.Crew will now face a new route of expansion to introduce their trendy styles, Italian fabrics, and mid-level prices to the Chinese contemporary market.

photo via e-architect

Not everyone is enthused by China's fast growing economy and it just so happens architect, Wang Shu, the recent Pritzker Prize winner is one of them. Wang, who has been trying to preserve Chinese culture for the past 10 years, feels the changing economy is ruining its traditional roots. He continues to wear traditional Chinese clothes and avoid any commercial developments in relation to his work. This rapid surge in the e-commerce market challenges these ideals and maybe as a counter reaction, a shift towards Chinese heritage will arise to balance this online expansion.

photo via Xander Zhou

On the other hand, a new globalized generation is emerging which includes menswear designer Xander Zhou. From his point of view, he doesn't want "the burden to glorify my Chineseness" and his aesthetic   lacks any resemblance to his traditional heritage with edgy silhouettes and experimental materials. For this generation, there is a major importance to stand out for what they are good at and distinguish themselves from solely being recognized by representing their culture.

photo via WWD

Either way, one contemporary market in demand without a doubt is trendy, brand name looking denim, to the point that some Chinese consumers don't even care whether it is authentic or not. For instance, just outside Shanghai at a small shop called 2046 Boy, young men's denim labels like Levi's, Tommy Hilfiger, Dsquared2, Ralph Lauren, and others are sold at super low price points. Whether this shop's product consists of knockoffs or extra stock from factories is unknown and the university students, migrant workers, and blue collar professionals that shop there don't question it. Overall, Chinese consumers are hesitant to spend the cash on foreign designer jeans and prefer style over brand value.

While the Chinese economy remains on the rise and is expected to be the largest online retail market by 2013, there are plenty of challenges facing western companies looking to move into Asia. With price being one of the most important factors when shopping online, Chinese sites have already begun e-commerce wars that compete against quality, retail prices, and express deliveries. Not to mention counterfeit merchandise, internet barriers, and simply learning to understand the more conservative and self-controlled mindsets of Chinese consumers are major obstacles, despite online platforms offering the best approach for western retailers to access Asia. However, looking at the vast market potential, we suspect these obstacles won't be stopping anyone. 

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