Alibaba’s Tmall platform has been heralded as the gateway to sell to the Chinese consumer, but many notable British brands have left it in recent years. Retail Week looks into why.
Alibaba’s Tmall marketplace is one of the biggest retail brands globally, primarily due to its omnipresence in the lives of Chinese consumers.
It holds a mammoth 58% market share of the Chinese ecommerce market (compared with Amazon’s 1% market share) and claims that its 600 million users open its shopping app nearly seven times a day on average.
“Lack of awareness of the brand or products on Tmall is a critical problem”
Arthur Cheung, Practicology
It is viewed as a gateway to reach the world’s biggest markets, and hundreds of western brands have raced to sell their wares on the platform.
However, some of the UK’s biggest retailers have failed to make Alibaba work for them. Businesses such as Next, Sainsbury’s Topshop, New Look and Marks & Spencer have all come off of Tmall in recent years.
So, why have some of the UK’s most established retailers tried and failed to crack Tmall?
Investment needed
Practicology’s general manager for Greater China Arthur Cheung says some brands fail due to a lack of brand awareness.
“Lack of awareness of the brand or products on Tmall is a critical problem, and comes about because brands underinvest in marketing to establish themselves, or don’t invest in marketing in places other than Tmall to drive traffic to their Tmall store,” he says.
“You should take a holistic view with your market-entry strategy and ongoing operation – will you open any physical stores; a WeChat account and WeChat store; create a Chinese ecommerce site or sell on marketplaces other than Tmall? While Tmall might account for the majority of your sales, these other channels can all help to raise awareness of your brand and drive demand.”
A spokesman for one UK retailer which came off of Tmall says it was surprised at the level of investment needed to generate strong sales growth on Tmall, and that a dedicated team to source products and run the supply chain was required in the country to drive any significant level of sales momentum on the platform. In the face of this, the business shut up shop on Tmall in favour of pursuing growth in the UK.
Cross-border retail specialist Azoya’s managing director for Germany, Austria and Switzerland Elena Gatti says it is a common misconception that retailers can simply “switch on” their Tmall store and generate sales without significant upkeep.
“Retailers are not willing to lose money in the first few years to gain market share and build brand awareness. They want to make money from day one, but China is such a large market that they need to spend a lot on marketing and brand awareness before they can actually make money,” Gatti says.
“Chinese people won’t buy new brands just because they’re British or German or Italian. It takes a lot of time, effort and money to gain their loyalty because the environment is so much more competitive than it was five years ago. Retailers need to invest for the long term.”
Alibaba gets tough
Cheung explains that, after going on the hunt for international brands to add to its platform in recent years, Alibaba has become more “stringent about the performance of the brands that run stores on its platforms”.
“It does not want stores with poor sales, and wants to work with merchants who bring in new business, new customers and exposure for Tmall’s platform,” he says.
“It also only wants brands with a high customer feedback rating – called a DSR score – measured on content, service and delivery. Tmall will warn brands if it is not happy with its sales or DSR score, and if the poor DSR score is not quickly rectified then it will close down the Tmall store.”
To drive sales momentum and avoid this fate, many international retailers outsource the running of their online stores to a third-party trade partner – but Cheung says partnering with these businesses to sell on Tmall can come with its own set of issues.
Many trade partner contracts are based on taking a cut of total sales, which means these businesses will often “encourage businesses to discount heavily to hit sales targets”, says Cheung.
These trade partners are also trusted with offering great customer service, which Cheung says are important to drive sales. “The majority of the sales for the brands we manage on Tmall involve customers using Live Chat with customer service – to ask more information about products, delivery or for special offers – and so if your trade partner’s customer service staff are not up to scratch it will cost you sales,” he says.
Costly sales and consumer nuances
But even with reliable trade partners in place, profitable sales on Alibaba is not always a guarantee. A spokeswoman for one UK retailer says Tmall’s annual Sale event Singles’ Day was a key factor in the business’ decision to come off the platform.
Although it was the biggest day for the business in terms of revenue, she explains that those sales came at a discount that, when combined with cross-border fulfilment costs, meant the economics of participating did not stack up. This situation was exacerbated by the fact that full-price sales for the majority of the rest of the year were relatively sluggish.
Brands with strong British heritage tend to perform well on Tmall alongside categories such as beauty, accessories and supplements, according to Cheung – but fast-fashion players often lose out to more competitively priced local players which have faster fulfilment options.
Gatti says some UK operators have failed to succeed on Tmall and in China more generally due to a lack of understanding in the different nuances between their domestic customer and the Chinese shopper.
“Apparel is one of the most challenging categories to sell because the fit sizes are different and it’s challenging to return products through cross-border ecommerce,” she says.
“This was one of the key issues with Marks & Spencer. The retailer failed to tailor its apparel products to Chinese body shapes and style preferences and did not manage to capture the Chinese consumer and withdrew from the market.
“On marketplaces such as Tmall there are millions of products from sellers from all over the world competing against each other. If retailers don’t have any unique characteristic that differentiates them from the crowd, they will most likely fail.”
Marks & Spencer’s withdrawal from Tmall coincided with the department store retailer’s exit from mainland China in 2017, while New Look and Topshop both came off of the ecommerce platform while beating retreats from the market in 2018.
The reality is, China is a tough nut to crack – whether you are selling on the foremost online marketplace or not.
Cheung explains that brands need to achieve annual revenue of “at least $1m” on Tmall for it to “have a chance of breaking even”.
“In addition, because they will need to spend at least 20-30% of sales on acquisition marketing to establish the brand in the market, they are unlikely to break even in the first year,” he says.
Some brands have turned to Tmall itself to help make stores on the marketplace a success. Brands such as Unilever and L’Oréal have partnered with the Tmall Innovation Centre (TMIC) to drive sales on the platform.
Tmall collaborated with L’Oréal on the redesign of its flagship store on the platform, changing product sizing and pricing strategy, which helped average spend per transaction rise from $500-600 to $1,200.
China still represents a significant retail opportunity for international brands if done right and, as a key means of accessing that market, Alibaba is a powerful partner.
However, any UK retailer that thinks it is a sure-fire way to cracking China is in for a rude awakening, according to Cheung.
“Successful trading in China requires a lot of work and investment, and we often speak to brands who have been promised fast sales growth and profits almost immediately when it is nearly impossible to grow quickly and also be profitable in China.”
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