China online retail market study

2014.11

2014

Part 3

– apparel, footwear, hat and bag industry

Apparel, footwear, hat and bag Online Retail Market – Overview

Consumers have an inclination to shop during festive seasons thus making the seasonality effect particularly striking for e-commerce. Promotions, limited time offers, and sale are some good tactics that can increase consumer purchasing desire.

Online shoppers are very sensitive to price. Seasonal promotion is one of the key tactics to boost sales

Traditional brands in China seldom develop their own online stores but partner with third party e-commerce platforms even a piece of the profit would be cut. Instead, brands are suggested to establish their own online stores and focus in driving traffic and inducing purchase by offering more low to mid-priced products.

Low and mid-priced products are more attractive to consumers and help increase visits

China's apparel, footwear, hats, and bags online retail market has maintained its upward trend. Women's wear is the largest category that accounts for over 40% of the online apparel retail market. Shoppers aged between 31-40 spend the most on a single purchase. Over 80% of consumers believe that their total spending in online apparel shopping is increasing, and brands can recommend products in higher price to increase profits, when consumers’ online shopping habit is developed.

The overall market is growing and driven by mainly the female shoppers

1

Apparel, footwear, hat and bag online retail market studyPart 3

2

Market size and penetration rate continue to rise

Online retail channels are very different from Europe and America. Brands have limited online sales channels

Consumers’ shopping pattern: seasonal

The largest category in the market: women's wear

Most significant driver of sales: price

Group with strongest consumption power: 31-40 years old

The successful case of iClick and recommendations for brands and marketers

3.1

3.2

3.3

3.4

3.5

3.6

3.7

Market size and penetration rate continue to rise3.1

3

2012 - 2014 China’s apparel online retail transaction scale

China's apparel online retail sales (RMB100 million)

Source: China Electronic Commerce Research Center, "2013 Chinese clothing E-commerce Operation Annual Report," 2014.7

China's apparel, footwear, hats and bags online retail was over RMB400 billion in size in 2013 – a growth rate of 42.6%. Online retail accounted for over 23.1% of the total retail. However, since the amount per transaction is low (due to low unit price of products), the growth is expected to remain steady in the next few years.

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20132012 2014e

435

350

615

450

300

150

600

750

0

RMB100 million

2013 market share of US Top 10 B2C websites (%) 2012 market share of apparelindustry in B2C market

Source: CITIC Securities, "Textile and Apparel Online Research: Industry changes with the rise of the Internet," 2014.2

Online retail channels are very different from Europe and America. Brands havelimited online sales channels

3.2

4

Apart from having presence in online retailers (such as Amazon) and traditional chains (such as Walmart), brands also established their own online store to provide goods and services. However, brands in China are not doing the same that they often only partner with large e-commerce platforms, such as Tmall and Vancl without creating their own stores. If international apparel brands aspire to enter the China market, they should consider building their own online stores and not going through a third-party e-commerce vendor to directly approach their target consumers and avoid sharing of profit.

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-

Categories

E-commerce sites

Traditional retail chain stores

Total

B2C platforms

Gap IncThe Limited brands Inc

Urban Outfitters IncJ Crew Group Inc

Amazon.com InceBay Inc

Macys IncSears Holdings Corp

Kohl's CorpWal-Mart Stores Inc

Market share

4.83.51.71.7

17.74.1

5.54.23.82.3

49.3

Total

49.3

Fashion brands 11.7

21.8

15.8

66%

7.1%

6.6%

7.2%TmallVanclOthersJD

Tencent B2C

Suning

Vipshop

Moonbasa Amazon

V+ M18

Okbuy

Dangdang

Mbaobao

Source: Enfodesk, "The Fourth Quarter of 2013, China's B2C Market Quarterly Monitoring Report," 2014.2

Sales in the 4th quarter have shown huge surge in almost every year which indicates the explicit seasonal spending pattern in e-commerce. Brands should capture the seasonal opportunity to launch promotions and limited time offers during holidays to boost sales.

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Consumers’ shopping pattern: seasonal3.3

5

2012Q1 - 2013Q4 Apparel Category B2C Market Transaction Scale in China

2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4

40%

20%

0%

60%

-20%

MoM growth rate (%)

Women's wear is the largest sub-category among apparel, footwear, hats and bags online retail and the total volume accounts for 40% of the industry. In contrast, men’s wear accounted for less than 20%, showing the importance and influencing power of female consumers.When brands are establishing online retails and enacting their marketing prowess, responding to the demand patterns of female consumers should be their first priority. As a first step, they can place products that can attract female consumers in eye-catching positions to stimulate consumption.

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The largest category in the market: women's wear3.4

6Source: iResearch, "2011-2012 Chinese Apparel Online Shopping Market Research Report," 2013.3

2012 Apparel online retail market sub-categoriesWomen's wear 41.1%

Underwear and homewear 3.7%

Kids and maternity wear 5.1%Sports and outdoors 6.3%Footwear, hats, and bags 12.5%

Others 13.8%

Menswear 17.6%

7

For brands that newly enter the China market, they must first pay attention to the pricing strategy as this is the most concerned factor for consumers to shop online. Beside price, after-sales and other value added services are also crucial to consumers. On-time delivery, large variety of product options, exclusive offers, etc, can help to differentiate your brand from competitors.

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Most significant driver of sales: price3.5

The primary reason to shop online: competitive prices

Source: CITIC Securities, "Textile and Apparel Internet Research: Industry changes with the rise of the Internet," 2014.2

20% 40%10% 30%0%

48.2%48.4%

2012

2011

26.4%25.7%

13.5%13.1%

8.1%6.5%

3.7%5.3%

0.2%1.1%

50%

Cheaper prices than inphysical stores

Door to door delivery

More styles and selections

More product information

Online exclusive items

Others

product options, exclusive offers, etc., can help to differentiate your brand from competitors.

According to Cheil OpenTide, consumers aged between 31 to 40 years old spend the highest for each apparel online order, average price at RMB283. Around 34.7% of consumers in this group say they would shop 5 -10 times a month on average, and 13.2% of them will shop over 10 times. The survey also found that consumers in this group admitted that the total amount they spend on apparel online shopping is generally increasing.Brands need to devise different strategies to attract the different target groups, e.g. launching low to mid-priced items to attract young consumers, recommend high-priced products to more mature consumers who are more affluent.

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Group with strongest consumption power: 31-40 years old3.6

31-40 Above 40 Age

21-30Below 20

283

31-40

250

Above 40238

21-30

173

Below 20

200

150

50

100

250

300

0

8

Consumers who believe the total amountof apparel online purchases will be higher

The average apparel online purchase amount per order

Average price (RMB)The proportion of respondents

Source: Cheil OpenTide, "2013 China's Consumer Apparel Online Shopping Survey," 2014.3

40% 80%20% 60%0% 100%

The successful case of iClick and recommendations for brands and marketers3.7

9

iClick suggested strategies:Phase 1: Expand potential customers, increase

online trafficVisit website

Select product

Payment

Subsequently, brand’s ad appears in search results

Footwear

Trigger interest to visit again

No. of orders increased 104%

Conversion rate increased 1.5 times

Sales increased 88%$

HIGHLOW

MATCH!

Website database

XMO

database

International footwear brandLaunched its online store in 2013 with the aim to increase brand awareness and massively acquire new customersIncrease sales and number of online orders

Client:Background:

Campaign Objectives:

Acquire large number of potential customers through SEM with high ROICustomers lost in the conversion processSearch retargeting to trigger customers’ interestsAttract customers to visit the page again

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Phase 2: By in-depth data analysis, two types of target audiences are classified:

High purchase intention: based on XMO advanced data mining technology to locate more of the similar consumers Low purchase intention: reduce promotion effort

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Customers lost in the

conversion process

Display unique ad messages to the targeted users based on their demographic, interests and browsing behavior

Recommendations for brands and marketers

10

Apparel, footwear, hats and bags retail market is continuing to grow in China and the share of online retail transactions is also increasing gradually. How do brands and marketers take advantage of this opportunity? Here are some recommendations from iClick:

Brands should provide complete O2O experience to consumers, from mobile to PCPrice is a crucial factor to influence consumer’s decision making process. Nevertheless, Chinese consumers today have more considerations such as brand image and reputation, ease of access to product information, etc. To enhance the entire shopping experience in the mobile front, retailers are suggested to adopt in-store QR codes and mobile apps to drive more traffic to its mobile channel. While for PC shopping, retailer should always be able to deliver a seamless shopping experience through innovative web design and respond promptly to customers’ feedback in order to maintain a positive brand image.

Promotions should target women and younger groups and offer seasonal offers to stimulate impulse purchasesAside from launching low and mid-priced products to attract consumers, putting up an innovative online storefront design with the most relevant product items displayed in front page is also effective in catching consumers’ eyeballs. In addition, advertisers can also consider pushing seasonal promotions during festive seasons to stimulate impulse consumption and increase sales.

Consumers relying on third-party e-commerce platforms for apparel, footwear, hat and bag products, brands should quickly establish their own online retailsBrands should try to establish their own official online stores to increase exposure and re-invest the savings from paying commission to third-party e-commerce platform to online advertising. If brands cannot establish online stores domestically at this point in time, they can consider providing free overseas shipping services to attract consumers who are currently shopping via C2C channels due to the lack of brand presence in China.

Thank youWebsite: i-click.comOf�cial Weibo: Weibo.com/iclickasiaE-mail: sales_cn@i-click.comWeChat: iClick_China

The content and the conclusions in this report represent the Company's viewpoint only. The content is intended to be accurate and reliable. However, the Company does not guarantee the accuracy and completeness of both the content and the citations.