Exclusive China Report


“Logistics is the ‘killer app’ of the Chinese e-commerce giants”

INTERVIEW WITH DIGITAL LUXURY GROUP

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November 2019


“Logistics is the ‘killer app' of the Chinese e-commerce giants”

WeChat or Weibo, Tmall or JD: which platform is most likely to align with the strategies of Swiss watch brands? Geneva-based Digital Luxury Group (DLG) was a pioneer in offering luxury brand services in China. We met with Managing Director China, Pablo Mauron, to discuss this digital world that stokes so many fantasies.

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t is in a vast coworking area in the heart of Shanghai, where several startups and international companies coexist, that we find the offices of the Digital Luxury Group, or DLG as it is more familiarly known. Bright light, contemporary wall art, designer sofas, neatly arranged green plants, white tables, no neckties but plenty of sneakers – there’s no doubt that we’re in “international Shanghai”. This is where the Chinese millennials operate, the new target of all global luxury brands. They are the ones who keep marketing directors awake at night, in Paris, Milan or New York!

Pablo Mauron is Managing Director China at Digital Luxury Group.
Pablo Mauron is Managing Director China at Digital Luxury Group.

This ecosystem is well suited to DLG, a Genevabased company that pioneered digital services for luxury brands (Europa Star has been a partner from the beginning). The Shanghai extension has now overtaken the Geneva headquarters in terms of employee numbers: there, around sixty digital natives manage the WeChat and Weibo accounts, as well as the JD or Tmall boutiques of many Swiss watch brands. The man in charge is Pablo Mauron, an associate of DLG’s founder David Sadigh. He left Geneva in 2012 to explore the possibility of expanding business in China. He never returned.

A report on the Chinese market by Digital Luxury Group, published in Europa Star in 2012.
A report on the Chinese market by Digital Luxury Group, published in Europa Star in 2012.

What projects do you carry out in China on behalf of Swiss watch brands?

We started with marketing activities via social networks, influencers and other available platforms. Over time, we developed customer relationship management through WeChat and are increasingly advising brands on e-commerce strategies and operations. We also established a presence in New York recently, to cater to new American clients.

WeChat and Weibo are the two most popular social networks in the country. Which one is the most appropriate for watch communication?

WeChat is the natural daily tool for all exchanges in China. It goes far beyond simple messaging and offers a multitude of services, with possible e-commerce applications. In China, email is considered a purely professional tool, while WeChat is used in any situation. On the other hand, it is a closed platform: you only have access to the accounts of your contacts. Weibo operates “openly”, but it is increasingly becoming a platform celebrity gossip (including watch ambassadors).

Is it a race for “likes”, as it is on Facebook or Instagram?

Brands frequently ask us why they don’t have more followers on WeChat. I would say that, compared to Facebook or Instagram, it’s less about “vanity metrics”. In China, when you follow a luxury brand, you are fully committed, with a significant investment of time and attention. The value of a follower on WeChat is therefore higher, compared to what we find on Instagram for example.

What is WeChat’s business model?

Tencent, WeChat’s parent company, is profitable and derives the majority of its revenue from online gaming, ahead of advertising and the WeChat Pay online payment service. It is interesting to note that the group has put in place very restrictive rules to prevent WeChat being flooded with advertising like Facebook and Instagram. For example, a WeChat user will never see more than three ads per day.

“Today, Chinese have more trust in Tmall or JD than in any official watch brand website!”

Two e-commerce platforms – Tmall and JD – have entered into a fierce competition to attract the Swiss watch brands. Which one has the best chance of winning?

Both have become part of daily life for the Chinese, from buying a vacuum cleaner to buying a luxury watch. Today, Chinese have more trust in Tmall or JD than in any official watch brand website! The direct communication of luxury brands can be prone to making mistakes, as we have seen with Dolce & Gabbana recently. And luxury brands simply cannot compete with the logistical power of Tmall or JD. Compared to them, orders from brand sites are often a source of disappointment. In addition, the Chinese are very aware of price differences with other countries, which further erodes confidence in the Western brands’ equity.

Speaking of logistics, Amazon withdrew from the Chinese market this year. Uber China has been integrated into the Chinese company Didi. Are local actors the only ones who can succeed, including in watch distribution?

Over and above all other considerations, the issue of logistics alone is virtually impenetrable for a foreign player. Indeed, Chinese legislation specifies that a watch must be accepted for return up to seven days after it was ordered. An actor like JD is a world champion in logistics: if it’s over a certain amount, you generally receive your watch within 24 to 48 hours, delivered with white gloves! Its service is a reference that today determines consumer expectations. It is impossible to manage this level of logistics from abroad.

“Many luxury brands are partnering with Tmall and JD to ’clean up’ the secondary market. Because, of course, these platforms will be much more responsive when their partners are involved.”

If Chinese e-commerce players exercise such control, why don’t they do more to stop counterfeiting?

I don’t think that counterfeiting is the main problem: the issue of the parallel market and unauthorised actors is much more problematic for luxury brands. And basically, many of them are partnering with Tmall and JD to “clean up” the secondary market. Because, of course, these platforms will be much more responsive when their partners are involved.

What do you make of the recent “mega-alliances” in e-commerce, between JD and Farfetch, and between Alibaba and Yoox Net-A-Porter (Richemont)?

This is quite logical: there is an alliance between local players who attract the majority of traffic in China and international e-commerce companies that have an inventory of luxury products. It remains to be seen how carefully these alliances will be implemented. Tmall and JD have both created specific entities dedicated to luxury, but traffic is below expectations. Their challenge now is to convince the major luxury brands that are not yet partners, such as Chanel, Burberry or Gucci.

Alibaba Group's Corporate Campus in Hangzhou.
Alibaba Group’s Corporate Campus in Hangzhou.

Why have “key opinion leaders” (KOLs) become so important in China?

They are essential for the activation of brand campaigns. Despite the huge traffic, it is not enough to put a product on Tmall or JD to sell it. There is a form of scepticism about messages emanating directly from brands: potential customers often place far more trust in KOLs who speak about brands, than in the brands themselves. Their remuneration levels can be staggering. The most popular KOLs usually end up launching their own e-commerce initiatives and working on a commission basis.