A change in China’s e-commerce policy opens a door for foreign organic brands
October 8, 2015 04:26 PM
Many Chinese online shoppers are eager to purchase products from foreign brands, which they typically view as superior in quality to Chinese products. That offers a growth opportunity for many international brands and retailers. For example, Gap Inc. says it grew its web sales in China 60% between 2013 and 2014.
However, for some U.S. organic cosmetics brands that don’t test their products on animals, road to success in China is bumpier than it is for an apparel retailer like Gap.
“Our products can’t be sold in stores in China because Chinese policy requires all beauty products to be tested on animals,” Cindy Shi, Juice Beauty’s International marketing manager, tells Internet Retailer. ”We are an organic brand opposed to animal cruelty, and we can’t compromise on that.”
Juice Beauty is a California-based organic cosmetics manufacturer and retailer. Its average product is priced at about $50, and the company sells its products online and in bricks-and-mortar stores in the United States, Europe and some Asia countries.
Last year, the Chinese government introduced a new policy on what it calls “cross-border e-commerce,” which makes it easier for overseas brands to sell online in China, including those like Juice Beauty that don’t test their products on animals. The policy legalizes the sales of products for personal consumption if the products are certified in the manufacturer’s home country. As a result, animal testing is no longer a requirement for overseas companies selling to Chinese online shoppers, so long as they’re only buying small quantities for their own use. To sell this way, an overseas e-retailer ships the products a Chinese shopper has ordered through one of the free-trade zones established in the past couple of years in nine Chinese cities.
“We have decided to enter China by cross-border e-commerce,” Shi says. “Chinese consumers, especially young people, have a strong demand for organic products.” She says a number of scandals about tainted products in China have led Chinese consumers to trust products made outside of the country more than domestic goods.
She says Juice Beauty plans to sell first through Tmall Global, a service created by China e-commerce giant Alibaba Group to facilitate cross-border sales into China. “We plan to open a store on Tmall Global as the first step because the Alibaba platform reaches the largest number of online shoppers in China,” Shi says. After that, she says, the company will sell through similar services offered by JD.com, Alibaba’s biggest competitor, and Yhd.com, the online retail site owned by Wal-Mart Stores Inc.
Although the cross-border model offers new opportunities for international brands, Shi says her company still needs help. She says Juice Beauty is investigating the various service providers that have emerged to help overseas companies sell online into China. These companies typically handle such tasks as website design, fulfillment, customer service, customs clearance, payment and sometimes marketing.
“We only have one Chinese employee, me, and we know little of Chinese the market, so first we have to find an appropriate partner to help us to sell into Chinese market. “ Shi says, “We have talked to some of the large Chinese, third-party e-commerce service companies, but it is still not easy for us to find the right partner.” She says most of these service providers are used to working with well-known international brands that have entered China, such as Nike and Adidas. “Those brands already have strong reputations and they can very easily generate a lot of sales after they open an online store. However, we are a smaller brand and our partner needs to do more on branding.”
Juice Beauty has three identified three primary requirements for its e-commerce service provider.
The first requirement is that the company buys the goods from Juice Beauty in bulk, at wholesale prices, and then take responsibility for selling the merchandise. That’s as opposed to Juice Beauty owning the inventory, and the service provider taking a commission on sales. “If the partner only operates our store on commission and is not willing to keep the products as their inventory, I don’t think that company will be fully motived to sell our products,” Shi says. “Second, the partner must understand the Chinese market deeply. It can’t be a U.S. or Hong Kong company. It must be a China-based company. Lastly, the company should know how to communicate effectively with international companies and would be able to help us to make quick progress.”
Among the companies that help overseas companies sell into China are Baozun Inc., Zhejiang Zhongpan eCommerce Co., Beijing Bay Line E-Commerce Co., Uco, Lily & Beauty, Export Now and Arvato Services, a unit of Bertelsmann AG of Germany.
JD.com is No. 1 in the Internet Retailer China 500 and Yhd.com is No. 7. While Alibaba’s big China marketplaces Taobao and Tmall account for about 80% of online consumer purchases in China they are not ranked in the China 500 because they are shopping portals and don’t own the inventory sold on their sites.
For a fuller account of overseas brands entering China via cross-border e-commerce see the November issue of Internet Retailer magazine.