Cross Border E-Commerce: Clothing Track Will Still Be Dominant In The Future

In the past two years, in the wave of online migration of global retail terminals accelerated by the epidemic, the advantages of China's supply chain have brought about a big outbreak of brand going out to sea and the development of cross-border platforms, and super unicorns such as sheen and patpat have emerged.

In fact, with the saturation and involution of the domestic market, as well as the potential energy brought by the rise of a big country, it has become a long-term necessity for the brand to go abroad. However, going to sea is not achieved overnight. The differences in culture, aesthetics and consumption habits of different regions determine that supply chain, brand marketing and delivery need to be adapted to local conditions.

　　 Can the success of sheen and patpat be replicated? How can a brand find its own rhythm in the face of multiple modes and playing methods?

In the recent member activities of new wave brand club, Feng Chongguang, chief textile and clothing analyst of CITIC Securities Research Department, took the clothing track as an example to deeply dismantle the industry structure and several major competitive elements of cross-border e-commerce.

"I believe that well done brands are suitable for going out to sea, because in developed countries like the United States or Japan, well done brands in China are often global brands. In the future, the top brands in various categories in China will have a chance to go global."

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Sorting out the southern Soviet Union

There are several major categories in the competition of cross-border e-commerce, including clothing, home furnishings and electronic products, among which clothing accounts for the highest proportion.

Recently, many excellent and large-scale cross-border e-commerce companies have emerged in the primary market, such as sheen, patpat, full volume full speed. These companies are basically concentrated in the field of clothing, from fast fashion, women's wear, children's wear, sports outdoor and other different categories, to make the independent station bigger.

Today, we will comprehensively introduce the practices and competition patterns of several types of players in apparel cross-border e-commerce.

Industry structure: why is it a good business to sell clothes on Amazon?

　 1. Three types of participants leading the cross-border e-commerce apparel track

Clothing category can be divided into three types of players:

The first type of players are traditional clothing and fast fashion brands with global layout demands. In their global layout, in addition to offline stores, an important growth driver is the e-commerce platform.

The overseas market is a little different from that in China. Domestic UNIQLO and Zara companies do e-commerce through Taobao and tmall, but in the global market, they basically sell e-commerce in the form of independent stations or apps.

The epidemic has led to the decline of offline business of these traditional brands, so the growth of e-commerce has become more and more important.

　　 At present, the global layout of Chinese brands is still relatively slow and lagging behind. Many excellent domestic brands begin to pay attention to what should be done in the process of internationalization. However, to open offline stores or sell them through independent stations or on the platform of Amazon, many brands have not fully thought about it.

However, on the basis of good supply chain and product strength at home and abroad, it is an inevitable phenomenon in the process of the rise of a big country. In the future, we should see more big brands go out.

　　 The second player is the platform seller. At present, Amazon is the fastest growing and most important e-commerce platform for clothing category, but clothing is still its relatively weak category, so this category still has a very significant dividend period on Amazon platform.

Moreover, from the perspective of the penetration rate of e-commerce in the international market, there are also great opportunities for growth. The penetration rate of domestic clothing e-commerce is about 35%, but the penetration rate of clothing e-commerce in the global market is lower, so we are optimistic about selling clothes in Amazon.

But working with Amazon needs to be clear about its rules. The positioning of this platform is very clear. It is a platform to serve the middle class and provide high-quality goods. Therefore, its traffic distribution logic is different from that of domestic e-commerce platforms. It is distributed according to the logic of SKU. High quality and highly praised SKUs are easier to be recommended.

Companies that do a good job with standard products have a healthy business on Amazon, because the same standard can be sold for many years.

The clothing category is not so standard, so we feel intuitively that it is not easy to do on Amazon. We have studied some well done sellers and found that their products are evergreen or basic products in the clothing category, such as shirts, T-shirts and so on.

Once your products are loved by the stable, affordable middle class in Europe and the United States, you can continue to get more traffic on the platform. Good clothing products can also be sold for several years, which is different from Taobao and shuoyin.

But from the perspective of business, I think this is a relatively healthy state, because it can continue to enjoy the compound interest brought by the high-quality evaluation of this product in the past.

　　 The third type is independent station. The most typical ones are sheen and patpat in China, and boohoo in the UK is also doing a lot. In addition, there are some independent station platforms focusing on regional market. Why is the clothing category suitable for independent station? Because it has the characteristics of multiple SKUs and multiple choices, the selection of each product involves complex decisions.

If it's a standard product, you don't need an independent station. You can sell it directly on the platform. However, the process of product display and selection of clothing and home furnishings is more complicated, so independent stations can develop more in these categories.

Independent station has grown faster in the past five to seven years. Many excellent independent stations began to grow around 2013 and 2014.

　　 There are also many opportunities for independent stations in the future, but the premise of forming an excellent independent station is that you need to have the ability to obtain and grasp the flow dividend. In the past few years, major overseas traffic platforms, including Google, instagram and tiktok, all have certain traffic dividends.

With the intensification of competition, the flow dividend will certainly decline gradually. Now to buy traffic, the price will still be cheaper than domestic, but compared with previous years, the gap is also relatively large, so seize the flow must be as early as possible.

You may realize that the three types of players are not completely competitive. The people they serve and the categories they do are not exactly the same. Although they are all textile and clothing related industries, there is more or less competition, but there will be different emphasis.

On the basis of the original off-line channel and brand, the brand side will maintain a relatively stable situation in spite of the intensified competition.

Judging from the trend visible to our naked eyes, Amazon platform will have a good growth in the next few years, but its positioning is mainly for the middle class, so the rate of price increase for clothes sold on Amazon should not be too low, at least 5-7 times.

And do fast fashion independent station, the rate of increase can be very low, even about 2 times can support, it and Amazon's pricing difference is very obvious, user portrait also has a more obvious difference.

2. Category bonus of clothing track: profit first or barrier construction first?

Let's put all players together. This year, the stand-alone platform represented by Sheen has a very significant share growth.

I have a feeling when I study this industry. On the one hand, the success of many enterprises depends on the background of the team itself, but on the other hand, big trends and opportunities are also very important.

The epidemic situation has played a great catalytic role in the independent stations represented by sheen and patpat. It can be said that this year can achieve the growth of the past two years, three years or even longer. Under the catalysis of the epidemic situation, it can make its own scale bigger in a short time and set up higher barriers.

From the perspective of profitability, whether you do it on Amazon or on independent websites, including those traditional e-commerce brands that make their own apps, they are still in the DTC mode. The gross profit rate under this mode is directly related to the rate of price increase.

The two companies that have done better on Amazon, Zibuyu and Seville, have submitted their prospectuses. The gross profit margin is basically around 65%, which means that the rate of price increase is at least 4-5 times.

　　 However, we know that when Amazon cooperates with these platforms, its advantage to customers lies in its accurate, stable and sustainable delivery ability, which is also the key point for Amazon to cooperate with brands or sellers.

Therefore, there are several expenses involved. The most important one is the FBA fees provided by Amazon to these sellers, including warehousing and logistics delivery. In addition, when launching new products, it is necessary to do some marketing and launch appropriately, which will bring about corresponding marketing expenses. These two fees are actually not low.

We can see from the financial reports of other categories of companies that their expenses on Amazon are on the rise, but the expenses of clothing sellers have been relatively stable in the past few years.

Amazon is still in the stage of supporting clothing category, so there is no need to worry about the huge increase of expenses on this platform. Moreover, under the influence of the epidemic situation, the sales growth trend will become better, and the cost of customer acquisition will be reduced, and the profit margin will certainly be improved.

These independent companies have not disclosed their financial data, but from what we have learned, 2020 is also relatively profitable.

But here is a strategic decision. Do you continue to earn a better profit margin until 2021 and 2022, or take advantage of the industry dividend, including the dividend of overseas traffic platform, to make the barrier higher before the competitors are bigger?

Many companies may prefer not to profit margin, but to periodically put all the potential operating profits into advertising, to make the scale bigger. There is no doubt that user size is a very important barrier in this industry.

In the fast fashion industry, data is very important. Because only rich user data can guide production and avoid inventory problems.

However, it is also a question of whether there are chickens or eggs first. If you don't have so many users, you will not have enough data, and you will not be able to add enough SKUs. As a result, the attraction and experience brought to users will not be enough, and the stickiness and stay time of users will be significantly weakened.

Then, when the scale is not large enough, why users choose your platform is a problem. Only by making our own scale bigger and barriers higher can we truly block potential challengers in the future.

3. Why is multi brand operation inevitable?

Whether it is an independent platform or an Amazon platform, power sellers are doing multi brand strategy, but the background of the two is not quite the same.

　　 For independent station, in order to better growth, expand category or expand brand may be a long-term inevitable thing to do.

Because when the user scale reaches a certain size, we need to mine the two indicators, namely, the single rate and the customer unit price. When these two indicators are higher, the growth will naturally be there. At the same time, you will have the possibility to provide better service delivery to users.

On Amazon, many sellers make multiple brands, which are still in the early stage or exploration stage. A brand on Amazon is similar to a Taobao store, but Amazon itself does not distribute traffic according to the logic of stores and brands.

From the perspective of long-term strategic development of the company, the company may rely on Amazon platform at this stage, but if you want the company to continue to have some value, you need to make more efforts in the construction of brand connotation.

　　 So we see a trend on Amazon platform. Many big sellers may have small brands with only tens of millions of sales at this stage, but they will consciously enlarge some excellent brands.

At the same time, they will not simply rely on the Amazon platform as a single channel. They may also choose the main target market to lay offline stores, and they will try to be independent stations. In the future, more brand marketing is what these platform sellers should do.

　　 The increase of global e-commerce penetration rate and the growth of apparel categories on Amazon platform is a major trend.

In terms of clothing e-commerce penetration rate, Europe and the United States and China are relatively close, but there is still a lot to be done in the global market. The penetration rate of clothing e-commerce in Southeast Asia, Latin America and the Middle East is still not high, and the potential growth rate is expected to be relatively fast in the next five years.

Competitive elements: how to build competitiveness around the three core links?

Supply chain and marketing are the two main competitive dimensions for brand building, but cross-border e-commerce has one more delivery.

Because the domestic delivery is solved by the third-party logistics companies such as SF and JD logistics. It is very mature and there are no problems in delivery. However, it will become more complicated to do business in the global market.

Next, let's talk about these dimensions.

1. Different players' different emphasis on the supply chain

Supply chain capability is very important, but for different players, the focus of the supply chain will be different.

First of all, the supply chain structure of these companies may be different. The number of SKUs on the super fast fashion independent station platform can be very large, and the first batch of SKUs delivered by each SKU is very small, and the subsequent rapid replenishment will be carried out. First of all, we need to have the ability to provide rich SKUs, so we combine digital design, our own team of designers and a large group of buyers to solve this demand.

More importantly, to keep the supply chain well, the management of factory dimension is very important. In the future, a very important trend in this industry is to evolve from the original production structure of big brands and large factories to small flexible manufacturing factories with cloth style under the background of the rise of e-commerce.

You may find that it is very difficult to recruit workers in factories in Jiangsu, Zhejiang and Shanghai. There are some influences of other industrial development, because the factory can afford to pay 5000 or 6000 yuan at most. However, if I send a takeaway, I may earn more than 10000 yuan a month.

　　 This is also a valuable place for distributed factories, because it can better release and use the capacity in low-level cities and small towns. Of course, this also requires the factory to have good organization and management, and at the same time to carry out certain innovation and revolution on auxiliary automatic production equipment.

For example, Ali's rhinoceros factory may have some beneficial exploration in this respect. If we want to make this matter bigger in the future, we need more high-quality supply chains from the clothing industry to enter this market.

　　 About logistics delivery: the logistics mode of many independent station platforms is "one warehouse for the whole world". If you want to build a global warehouse in China, no matter which country the express will be sold to in the future, it will be delivered from here. This is a better strategy, which avoids the process of sending products to overseas warehouses and then secondary distribution.

In addition, the prediction of many goods is not so accurate, which reduces the potential risk of reverse logistics.

In fact, there are a few cases in which consumers return goods. If they can't sell out, the potential inventory pressure is the most terrible thing. Therefore, this may be the most mainstream delivery mode of independent station players at present.

　　 The above is our supply chain from the logic of fast fashion. However, if you sell clothes on Amazon platform, its requirements for flexible supply chain are not so high, which is quite different from independent stations.

The practice of Amazon merchants is that I deliver this batch of goods directly to the platform after they are produced, and Amazon's warehouse helps me deliver them to consumers. This is supported by its strong logistics and delivery capabilities, so the demand for the response speed of the supply chain is not so high.

But because the final product is to serve the middle class, the requirements for product quality will be higher. This kind of seller in their own design ability, on the one hand is the number of designers, on the other hand is the quality of designers, all need to make continuous efforts to build.

2. Social media marketing and localized operation are the key to customer acquisition

There is a big difference between domestic and overseas marketing, so there are many third-party service providers to provide marketing services. Recently, some companies engaged in overseas marketing have been listed. The existence of these companies makes it easier for many brands to go abroad.

　　 However, from the perspective of brand management, it also needs to have the attribute of localized operation, and can not completely rely on the third-party service providers.

Because consumers in different markets have different consumption preferences, aesthetic preferences and consumption habits, it is not appropriate to open up new brands to the sea at once, especially if you want to adopt the mode of independent station, which may lead to the failure of any market.

The better strategy is to select a market segment which is easy to cut in, relatively rich in human resources and rich in market awareness, and do deep ploughing in it.

For example, the most basic action is to have a product design and promotion plan for the localization market. When you sell clothes or other similar things for different markets in different countries, on the one hand, you should consider the aesthetics, culture and climate, and make some changes in product design. On the other hand, taking photos is also very important. You need to consider the local aesthetic habits.

Finally, how to grasp the flow dividend is also very important, the growth of many companies have a grasp of the flow dividend process.

3. Delivery time affects user experience

The third dimension is delivery. At present, independent station is mainly domestic direct delivery, and the seller on Amazon is usually Amazon's FBA all inclusive service mode.

If we look a little further, we will find that global consumers are more and more sensitive to delivery, and the requirements for delivery time and accuracy may be higher and higher. Therefore, cross-border players need to make a more forward-looking layout.

Clothing, including cosmetics, must be delivered in the form of express in the future, but if your customer price can not reach the delivery line of express delivery, it will be more troublesome.

　　 In the past two years, cross-border delivery has been seriously affected by the epidemic situation. The local e-commerce companies have the most advantages in distribution. Our sellers in China will eventually have to face competition with them, which is actually a test.

But I believe that in the case of larger scale, the logistics construction will be more and more perfect. Not only international express companies, but also domestic companies like SF also focus on international logistics. This is also because they regard the overseas market as a potential market for growth.

Where are the opportunities of cross-border e-commerce apparel track in the future?

We set up the research framework of regional clothing e-commerce market from different dimensions, and sorted out different market segments. We found that the Asia Pacific region, especially Southeast Asia, Latin America and the Middle East, have more growth opportunities.

However, this does not mean that everyone should do these markets, because the industry is growing fast, which also means that the infrastructure and consumer awareness are not so mature and stable.

On the other hand, if you are a very competitive product brand and can serve consumers in Europe and the United States, once you enter their market, it may be easier to get a more certain opportunity.

　　 Therefore, different markets have different positioning, mature markets have their advantages, but from the perspective of growth, emerging markets will have more opportunities.

From the perspective of investment, team and valuation are two important dimensions. Because the domestic e-commerce is very mature, and the opportunities are decreasing, but we see great opportunities in the global market, so there are many people who pay attention to this market, and the valuation may not be low.

When you really invest, you may need to consider the team's experience in e-commerce and brand, as well as the actual valuation of the project. Because from the perspective of several years, the secondary market will still have a reasonable and stable valuation system for this sector in the future, so the long-term investment in the primary market should also be considered in combination with changes in market valuation.

Selected questions and answers

　　 Q1: can Sheen's success in the clothing industry be copied to other industries? For example, food and drink, beauty care.

　　 A: The successful experience of sheen can certainly be used for reference, but there are still some differences in the logic of different categories.

If you are a pure standard product, the flexibility requirements of the supply chain are not so high, but the requirements for product design and marketing will be higher. Therefore, different categories have different requirements on the ability dimension.

In addition, clothing and home to do independent station is more logical, but not all categories are suitable for independent station.

　　 Q2: offshore logistics is not as convenient as SF and JD. What is the solution? Or is it a suitable starting point to enter Amazon when there is not enough overseas layout?

　　 A: Offshore logistics is a matter of great importance to asset investment. Before, many companies engaged in offshore logistics and warehousing have actually received more investment in industrial capital. Of course, the whole industry chain is becoming more perfect. From the perspective of investment, some companies will have better growth in logistics and warehousing in the future.

For many categories and brands that have just entered the overseas market, Amazon's current positioning and flow distribution logic are more suitable as a starting point.

　　 Q3: will more small and beautiful brands be subdivided into shoe and clothing fashion brands in the future, or will there be more fashion groups including various SKUs of footwear fashion? What is the pattern in the long run?

　　 A: There are many subdivision spaces in the clothing industry. For example, the sports apparel category can be further divided into professional sports, outdoor sports and sports leisure. Professional sports can also be divided into basketball, football, golf, tennis, etc. according to the field, I believe there will be a lot of brands that have done well in a certain vertical category.

In the future, after these brands have achieved a certain status and scale in a certain vertical category, they will also tend to expand their categories. There are many international groups that operate under multiple brands and categories. For example, the snowshoe brand ugg and the running shoe brand Hoka oneone are actually one group.

Therefore, there is no contradiction between the small and beautiful brand and the group that covers the SKUs of shoe and clothing fashion

　　 Q4: how do you see the future market of bosie? Is it suitable for going to sea?

　　 A: Bosie has always been my concern. He has a good brand positioning. I believe that good brands are suitable for going abroad, because in developed countries such as the United States or Japan, well done local brands are often global brands.

In the future, China's top brands in various categories have a full opportunity to go global. It's just that the domestic consumer market still has great potential and vitality, so many companies can grow well without going abroad.

But if the team has the ability to go to sea, then the domestic market and the sea market must be better on two legs.