The surge in e-commerce can give the impression that apparel shopping in China is moving completely online. However, physical stores have important roles to play now and in the future.
To investigate the state of China’s apparel market, Oliver Wyman asked 3,000 Chinese apparel shoppers detailed questions about their shopping habits. The results show that, while the apparel market is changing rapidly, the reality is far more complicated than many current perceptions.
PERCEPTIONS OF THE MARKET
ONLINE SALES IS THE CHANNEL OF THE FUTURE
Today, 99 percent of adults in Chinese cities have purchased apparel online. In addition, 50 percent have purchased a particular fast-fashion brand both online and in a physical store. As a result, the online share of apparel sales doubled from 20 percent in 2012 to 40 percent in 2017. So it is natural for fashion brands to shift their resources and efforts to online operations.
COMPETING ON PRICE AND PROMOTIONS IS NECESSARY TO WIN ONLINE
China’s e-commerce giants boosted online sales by creating shopping festivals named after dates, such as 11/11 and 6/18. However, these have evolved into promotion drives that take place almost every month, and at least half of online sales now involve some form of promotion mechanism. But are they always a recipe for success?
THE REALITY OF THE MARKET
CONSUMER BEHAVIOR IS HIGHLY FLUID
Our research shows that customers move between channels according to preference and convenience. By contrast, many apparel brands and retailers maintain separate organizational silos for their online business and physical stores. This choice to silo can result in propositions that often compete with, rather than complement, one another. Three-quarters of shopping journeys for branded apparel start online and 40 percent of visitors to physical stores have first researched products online. The online channel dominates consumer research and comparison, accounting for two-thirds of engagements (Exhibit 1). Online and offline activities are now highly connected at the decision-making stage, so most shopping journeys have more than one stop. As comparing and researching products online requires minimal effort, 75 percent of consumers go beyond the product they initially search for and look at other brands or in physical stores. The wider choice available online has resulted in something that may be counterintuitive – lower brand loyalty. Key opinion leaders (KOLs) play the role that fashion magazines used to in driving the top of the brand funnel – where consumers become aware of a product and start to consider it. However, for someone to then actually buy the product, they also need to feel that the brand is “for me” (Exhibit 2).
Exhibit 1: Customers follow a complex and meandering on-and offline journey towards a final purchase
Source: Oliver Wyman 2018 consumer survey, Oliver Wyman analysis
Exhibit 2: Key opinion leaders (KOL) behavior
Oliver Wyman 2018 consumer survey, Oliver Wyman analysis
MANY CUSTOMERS STILL PREFER TO SHOP OFFLINE
Offline channels play an important role at the purchase stage, accounting for 60 percent of all transactions. Offline conversion is almost 4.5 times as high as online. Moreover, while consumers buy 43 percent of their unbranded apparel online, when branded apparel has a physical retail presence they buy between 80 and 85 percent of it offline.
This “stickiness” within the offline channel reflects a continuing desire to touch and feel a fabric, look in stores for mix-and-match inspirations, and try on apparel to avoid the hassle of return and exchange. So, when they have a choice, consumers go to the offline channel as part of the shopping journey for branded products. The offline channel also contributes value through engagement that leads to online sales – and this is relatively more important than the online contribution to offline sales. While 15 percent of offline purchases begin online, 22 percent of online purchases have their origins offline. Similarly, with price comparison, 25 percent of offline purchases have involved online comparison but 30 percent of online purchases have involved offline comparison (Exhibit 3).
FIVE LESSONS FOR APPAREL COMPANIES
1. BE CONSISTENT ACROSS PLATFORMS
Though there is no one-size-fits-all model for organization, selling to omni-channel consumers calls for a joined-up approach that integrates e-commerce with the company’s other activities. Under Armour China, for example, has a standalone e-commerce team. But to ensure alignment with the company’s strategic principles, activities such as online merchandising and promotion are planned by a manager who reports to the heads of both the e-commerce and merchandising divisions. Consistency is also needed in the proposition brands offer online and offline. Uniqlo’s online ranges are the same as its offline, while Zara’s are twice as big to provide online customers with greater choice. Both companies maintain consistent listed prices online and offline. They also have a disciplined approach to promotions; Zara’s online and offline promotions are completely aligned.
Some brands position themselves differently online and offline, but there is a danger that consumers can lose track of what the brand stands for. Other brands offer inconsistent promotions in different channels. In both cases, the heavier, more-frequent online promotions have failed to boost sales and have instead led consumers to wait for the next promotion.
Our consumer research suggests that successful brands focus not merely on promotions or low prices but also on the overall value proposition – one that consumers recognize and acknowledge. The average selling price – including online sales – of strong brands such as Zara and Uniqlo was stable or rose slightly in 2017 and 2018 (Exhibit 4). Consumers are attracted by strong brand identity, reasonable prices, and good value.
Exhibit 3: Importance of online vs. offline engagement compared to sales in the other channel in %
Oliver Wyman 2018 consumer survey, Oliver Wyman analysis
Exhibit 4: Performance of leading Tao brands
Source: Shengyicanmou, Oliver Wyman analysis
2. RECOGNIZE AND TAKE ADVANTAGE OF THE EMERGING NEW ROLE OF PHYSICAL STORES
Flagship stores are more important than ever, as online shopping has taken away some of consumers’ time and brands need to stand out more to win sales. Flagships should include a strong element of experience to let consumers bond with the brand. For example, Adidas opened its RunBase on Shanghai Xuhui Riverside to offer exceptional service to runners – including high-quality hardware, cutting-edge technology, the latest fashion, and training sessions.
However, there is now less need to place stores in primary locations. Instead, a strategy combining a flagship store with service centers might be more practical. In Japan, for example, Muji and Uniqlo both host iconic flagship stores in prime locations, supplemented by smaller, more-practical formats in shopping streets – and even in railway stations and airports. So brands should actively think about the roles stores play in the consumer journey, and rebalance their investments in location, store environment, and services.
Service models, too, can be varied to boost conversion rates. North American menswear brand Bonobos started in 2007 using an e-commerce model. It later set up Guideshops: A customer can book an hour-long, personalized visit where a guide shows them different products to try on – with no queuing for fitting rooms or checkouts. The average order size in these stores is twice that of Bonobos’ online orders, and customers are more likely to make repeat transactions and less likely to return products.
3. FOCUS ON ASPIRATIONAL PRODUCTS
More space for aspirational items, such as bold colors and non-traditional prints, encourages customers to try clothes on. To create the appropriate impression, stores may need to reduce space dedicated to basics, instead directing consumers to order them online. For many brands, this will mean smaller stores that are easier to navigate. Any savings on rent can be reinvested in upgrading the store experience and increasing staff numbers, both of which would increase conversion rates.
However, online-only brands are now losing share, and increasingly competing on pricing and using promotions. Hstyle ranked number one among female apparel brands in 2015 but fell to number five in 2017; Inman was in sixth place but fell to 18th. Realizing an online proposition is not enough on its own, they both have started to experiment with physical stores to let consumers better experience their products (Exhibit 5 See PDF).
Many brands that started online have also expanded offline to increase exposure and improve conversion rates. NEIWAI, an online-centered underwear brand established in 2012, has started to roll out a handful of experience centers to secure its position in the hearts and minds of consumers. The centers showcase different occasions on which to use the underwear.
4. GET HEAVILY INVOLVED IN SOCIAL MEDIA
Key opinion leaders (KOLs) and media platforms can drive traffic through online platforms and social media – something that is now essential for success in apparel retail. There are plenty of successful examples of brands that have leveraged KOLs and platforms, both in apparel and in other industries. In cosmetics, for example, most trends are started by KOLs on social media. However, online marketing programs are becoming more expensive, especially with highly popular KOLs. So it is essential to measure their effectiveness and direct investment to the most valuable channels. Libeika is a fashion icon who posts mix-and-match recommendations on WeChat. Her conversion rate was once as high as 25 percent. After accumulating millions of fans, in December 2017 she launched a flash sale of products from her own apparel brand on her WeChat mini-program. Most products had an average selling price between 200 and 400 yuan, and the event achieved sales of 1 million yuan in just seven minutes.
5. USE ONLINE DATA TO UNDERSTAND CUSTOMERS BETTER
Innovative strategic approaches are needed to capture consumer data by channel, analyze it, and turn it into meaningful segment insights. Social listening is one way to hear what consumers think about your brand and find out about their experiences with it – good and bad. For example, scraping all the Weibo posts and comments related to Nike since January 2016 can help to identify key discussion points and how they have been evolving. Data from Dianping.com, for example, can be used to identify pain points in consumers’ recent shopping experiences and to pinpoint problem stores so that prompt action can be taken.
While online sales are growing rapidly, it’s tempting to believe that this is the future. But offline shopping is still very much part of the whole sales picture, and is here to stay. The buying behavior of consumers is complicated, straddling online and offline channels which may be used for different parts of the shopping journey. To understand these subtleties within the apparel market, the China experience provides clear lessons for the rest of the world.