Crossing borders for luxury and beauty in China

From beauty to cosmetics to clothing, luxury has been a booming sector in China. However, every industry has been affected by the COVID-19 pandemic and many organisations have already experienced a dip in sales. This article explores the state of the market for luxury goods in China and the ePayments best practices needed to serve this market as Chinese consumers emerge from lockdown. 

Chinese shoppers have been responsible for one-third of the world’s luxury spending. This figure alone should convince international retailers to make serious efforts to target this market, especially as the country slowly emerges from lockdown. 

However, due to the COVID-19 pandemic, a recent survey found that retail sales in China fell 20.5% in the first two months of 2020. The good news is that the market is showing slow signs of recovery and the Chinese consumer appetite for overseas brands will return. Furthermore, Chinese consumers are increasingly making their purchases domestically. In a recent article, Vogue noted that, “after years of spending their Renminbi in Hong Kong and Paris, luxury shopping is increasingly taking place at home.” The data reflects this shift – purchases of high-end goods in Mainland China grew twice as much as spending abroad between 2015 and 2018. 

Millennials are a key part of this market, and Balenciaga’s Triple S sneaker, to pick one example, enjoyed soaring popularity with this demographic throughout 2018. For many young people in China, according to consultancy McKinsey, luxury goods are a form of social capital to help them stand out. 

Streaming beauty 

In addition to luxury clothing, the beauty and cosmetics industry in China has grown in a distinctively local way. The industry makes extensive use of streaming to promote its products – between March 2017 and January 2018, 67% of beauty brands hosted live streams. This year, 14% of brands used at least four different social platforms, letting them reach the widest possible audience. 

When consumers reach the company’s website, it is critical that it is optimised to include local language capabilities and it allows users to make payments in Renminbi (RMB). Partnering with an ePayments provider that supports this will help to maximise conversion and payment completion rates. 

The market: what you need to know 

With these local consumer preferences in mind, here are some of key considerations retailers should think about: 

Brands are forming omnichannel partnerships to maximise their impact. In 2017, JD, a leading Chinese ecommerce company, teamed up with fashion designer Farfetch, while Alibaba began working with UK-based Net-a-Porter. Hermès even organised a ‘Silk Mix’ event in Beijing built around the goal of omnichannel – it combined a pop-up store with a WeChat Mini-Program to boost traffic to its official account while attracting thousands of guests to its event. The takeaway for international retailers? Partnerships matter. Investing time to build relationships with leading local marketplaces and payment providers is key to success. 

FX market is in fluctuation. Outbreaks in countries such as China, Italy and the US have caused dramatic falls in global stock prices and bond yields, as well as the foreign exchange market. Currencies are fluctuating in value significantly from day to day and therefore severely impacting the value of overseas receipts in foreign currency. 

98% of businesses have little or no localisation for China. Strikingly, the same percentage of internet users in China primarily use mobile devices to access the web. Developing a mobile-optimised page with Chinese-language localisation is therefore one of the most effective steps an online retailer can take to grow their business in China as we return to some sense of normality. 

The payments market is dominated by local players. As Figure 1 and the Hermès story show, the overwhelming majority of preferred payment methods for online orders in China are via local providers. Maximising conversion and engagement rates with your service will require integrations between your website and/or application and WeChat and Alipay. 

Figure 1: Preferred payment methods in China

Selecting your payments partner in China 

When selecting an ePayments partner, retailers should: 

1. Ensure they can access a mobile-first payments platform, which provides access to WeChat’s Official Account and Mini-Programs (sub-applications developed specifically to live within WeChat).

2. Cover all the major payments platforms. Offering payments through WeChat Pay, Alipay and China Union Pay will help merchants achieve at least 90% coverage of local payments channels. Based on the brands that Ingenico currently works with in China, we see this as a key benchmark for success.

3. Offer payments in Chinese Yuan. 

4. Gain ‘on the ground’ insights on local consumer preferences. Keeping track of the ever shifting wants and expectations of customers requires both a comprehensive business intelligence solution to analyse payment flows, as well as strong local expertise. 

For more information on providing localised payments support, you can read our product overview. 

Delivering for your (future) customers 

Setting aside any expectations you might have about how Chinese consumers behave is the very first step to fully serving this market. The brands that succeed will be those that understand the dynamic, rapid rate at which consumers’ online retail preferences have changed over time and continue to change in these uncertain times. 

Read our new infographic, ‘The essential buyer’s guide to China’s online retail market’, to discover more. 

Do business like a local. Contact us. 

This editorial was first published in December 2019, in our Cross-Border Payments and Commerce Report 2019 – 2020, which provides a comprehensive overview the major trends driving growth in cross-border payments, cross-border commerce, and marketplaces.