The modern twist on QVC has made millions for savvy US startups
What you need to know
China had more than 500m webcast viewers in 2018, a number that is expected to double by 2020.
How you can capitalize
Follow the playbook of Welden, a high-end US handbag startup, which first tapped into Chinese live streaming two years ago. It now sells 20% of its products through China’s live-streaming market. We break down the different marketplaces and show you how other niche brands are prospering.
When Sandy Friesen, founder and CEO of Welden, a Connecticut handbag company, was first approached about selling her handmade leather purses through China’s live-streaming market, she thought it was a little shady.
But Mark Yuan, who has been hooking up international businesses with the Chinese market since 2009, made Friesen a believer when he sold 10 of her Welden brand bags over a single weekend in 2017 on Taobao Live, an Alibaba-owned live-stream shopping channel.
Before long, Friesen’s business took off. During the following Thanksgiving break, Yuan, CEO of a New York-based fashion marketing agency, And Luxe Inc, brought Welden’s vice president of sales, Cori Adams, to a Black Friday live-stream sale. Adams smiled as she held the brand’s purses, while the show’s main host, Zoe, a fashion influencer, interacted with Chinese customers in Mandarin.
Tens of thousands of viewers watched the session on their phones. They sent the hosts questions, along with a slew of virtual kisses and hearts, and clicked to buy Welden’s woven leather bags, priced around $350. Friesen’s two-day haul: $350,000 in sales.
A Welden bag.
Three years ago, this young, independent American handbag producer was struggling to build a brand in the United States. Now Welden sells 20% of its bags through the Chinese live-streaming market.
A modern twist on QVC
Welden is one of a bevy of international businesses — major fashion retailers and boutique stores alike — that have capitalized on China’s fast-growing live-streaming shopping market, powered by a young Chinese middle class enamored with Western lifestyles.
The live-streaming shows illustrate product features to consumers in a far more convincing way than plain text and images. And those shows have captured the attention of hundreds of US businesses.
This see-now-buy-now marketing approach, which started to take off in 2016, is a modern twist on QVC, the multibillion-dollar cable channel. And it’s already evolved into a sophisticated ecosystem that fuses e-commerce with social media and entertainment.
Live-streaming market in China (in billion yuan)
Live streaming started picking up steam just 3 years ago (via Statista).
This ecosystem revolves around big-name celebrities or key opinion leaders (KOLs) with impressive selling powers and is supported by hundreds of millions of live-stream viewers.
Here’s how it works: These influencers display items for purchase for 3-5 hours during each show. Customers click the link on their phone screen to buy as they watch the much-beloved models or shopping guides testing out products or trying on garments.
“A trusted key opinion leader can help consumers build trust in a brand they’ve never heard of or bought from,” Yuwan Hu, research director at Daxue Consulting, a Chinese market research and management consulting firm, told me. “It’s not just about watching the demonstration of a product, but it’s a relaxing, fun social activity for many consumers during their leisure time.”
A billion-dollar market
China had more than 500m webcast viewers in 2018, up 15% from 2017, according to Hu’s research. By 2020, she anticipates the live-stream viewership to double.
In 2018, the most profitable live-stream host on Taobao Live, Wei Ya, a fashion KOL, raked in $390m in sales through live streaming. Another beauty influencer, dubbed Top Lipstick Seller, is said to sell one lipstick every 30 seconds during his live streams.
Agricultural influencers livestream produce from a farm.
An overwhelming majority of live-stream shoppers are female ages 18 to 35. Highly popular foreign products marketed and sold through live streaming, regardless of their price points, are primarily in the lifestyle, fashion, and beauty space.
Alibaba’s Taobao Marketplace, the biggest live stream platform and e-commerce site in China, generated more than $15B in sales volume through live streaming sessions in 2018, soaring nearly fourfold from 2017.
Apart from Alibaba’s Tmall Live and Taobao Live, another bourgeoning live-stream shopping platform is Xiaohongshu, which is one of China’s fastest-growing social media and e-commerce applications for luxury fashion and beauty products from overseas.
Taobao Live, for instance, was one of the first platforms to integrate live-streaming into e-commerce sales. It gives Taobao merchants a platform to engage KOLs to promote products to their followers.
According to China Tech Insights, every 1m views on Taobao Live leads to 320k products sold, which equates to a conversion rate of 32%. Jewelry, women’s clothing, accessories, skincare, cosmetics, and children’s clothing were reportedly the top five categories by sales on the platform in 2018. And that year, ~80 KOLs generated more than $15m in sales each through Taobao Live.
The platform plans to expand to 10 product categories in 2019, with an expected annual sales volume of more than $15m each. That means there will be some 200 Taobao live-stream virtual shopping rooms with an annual transaction value of $15m each.
Seeing its Chinese competitor’s explosive growth, Amazon this year launched a dedicated portion of its website called Amazon Live, where ordinary users deliver live-streaming videos that showcase products from different brands. But experts say Amazon Live, featuring primarily no-name streamers, or occasional marquee names like Lady Gaga to drum up sales on Prime Day, has yet to replicate the success of Taobao Live.
“They either didn’t want to pay the budget or they just didn’t understand that the main thing attracting people to these [shows] is the personalities that are going on them,” says Liz Flora, the editor of APAC research at Gartner L2. “If they figured that out, it would probably be more successful here.”
Major international luxury brands, like Lancôme and Yves Saint Laurent, are more likely to launch live-stream campaigns on Tmall Live. This is because they already have their own official stores on the Tmall marketplace. Conglomerates with deep pockets can invite big-name celebrities to appear on elaborate promotional campaigns syndicated on e-commerce and social media platforms. The celebrities often trigger a surge in sales in a matter of a few hours, according to Flora.
According to Gartner, luxury beauty items are on the rise in China.
The striking sales numbers are largely driven by a rabid fan culture, with die-hard supporters of fashion influencers supporting their idols both morally and monetarily.
In fact, all of the Top 10 beauty brand Tmall livestreams by engagement for the last three months of 2018 featured a celebrity, Flora said.
“Big brand live streaming is about personality. I don’t know if it’s necessarily focused on the shopping itself,” Flora said. “People aren’t just going to see a beauty tutorial without some celebrities to incentivize them to watch it.”
Big opportunities for niche brands
For the less-known, emerging brands that have little exposure to the China market, sales through live streaming are driven by a combination of the KOL’s personality and style and growing demand from young Chinese who fall for a lifestyle or fashion style that falls for a lifestyle or fashion style that’s subtle but doesn’t call attention to itself. Those live-stream shows tend to appear on Taobao Live, which targets a mass audience.
Digital marketing agencies knowledgeable about both the Chinese and international markets have hit a sweet spot: they collaborate with hordes of international retailers who lack the resources to set up offshore stores but whose products — between luxury fashion and “fast fashion,” or items that move quickly from catwalk to retail to capture current trends — appeal to a massive audience in China.
The agencies, staffed by KOLs living abroad, help boutique stores, contemporary retailers, and independent designers market their items to China through live streaming. They also help them create content on Chinese social media. And some even handle international shipping and product distribution for their partnering retailers.
“The first time I appeared on a live streaming show, viewers watched me shopping at a vintage store in Brooklyn,” said Kristen Zhang, who then was a fashion design student at the Parsons School of Design. “Many Chinese customers have since developed a great interest in vintage clothing, which is not a thing in China.”
Two years later, Zhang has become a KOL herself and the fashion editor at ShopShops, training a dozen or so streamers. ShopShops is a New York-based shopping marketplace that connects global retail stores with Chinese consumers. Digitally native beauty brands like Glossier to contemporary fashion labels such as Phillip Lim are among ShopShops’ 200 brand and retail partners.
Each week, ShopShops’ KOLs broadcast shows from New York, Seattle, Miami, Boston, and Los Angeles to customers in China via Taobao Live. This three-year-old live-stream channel has attracted 160k followers.
One of ShopShops’ clients is Anthom, a New York-based boutique shop selling independent designer products. Anthom has been working with ShopShops on live-stream shows since 2016. Each 3-hour live streaming session generates $6-$12k in sales, with 10-20k Chinese customers watching, according to the store’s co-founder, Ashley Turchin.
Website copy for KOL agency, Parklu (Via Parklu).
While these sales are just a fraction of the store’s total revenue, Anthom’s monthly live-stream shows, along with its Chinese social media posts, have largely expanded its brand awareness. Young Chinese women who embrace minimalist and effortless fashion style make up 30% of Anthom’s clientele, Turchin said.
But it’s not a risk-free business
American businesses and marketing agencies interviewed for this story declined to reveal the cost of their KOL package. But Friesen claimed it’s more cost-effective to hire an agency that offers a package of live streaming show broadcasting, social media content creation, and product distribution than paying American influencers for mentioning her brand in Instagram postings.
This is not to say live-stream marketing is entirely risk-free. Replete with multinational conglomerates in the live-stream shopping industry, the market has become ever more competitive after its initial three years of explosive growth.
Elisa Harca, CEO of RedAnt, a Hong Kong-based digital marketing firm whose clients include Charlotte Tilbury, Lane Crawford, and Mango, says an international brand can expect to invest at least 300k RMB ($43,600) in one livestream project, which includes:
Storyboard and script
A KOL host
The production/shooting of the live stream
Community management of the stream
A wrap-up report
“It’s really critical for brands to not underestimate the complexities of the China market, and a solid China strategy is key to success,” Harca told us. “Not often do we see overnight successes from brands just because they are from the West.”
For any business to continue to prevail, celebrities and KOL endorsements are key. But KOLs with devoted fans and impressive selling powers are demanding higher payments. Hu, the research director at Daxue Consulting, says KOLs on average take a 20% to 30% cut on each item sold in each live stream. Superstar KOLs can demand a bigger cut. Alternatively, they may take a flat fee from the marketing agencies that manage them.
According to Parklu, a KOL monitoring service that tracks the performance of over 40k Chinese influencers, if a business wants KOLs to promote their products in their articles, broadcast videos, or on their social media, the price reaches $7,220 for KOLs who amass 800k followers. For a KOL with 400k followers, the average cost is $4,330. Influencers who have 100k followers typically charge $1,140. For an influencer who has 50k followers, the cost is $435.
Because KOLs are charging ever-higher commissions, Hu says, the cost per click (CPC) can reach 10 RMB ($1.45). As a result, the return on investment is not as good as it used to be for businesses.
If you’re going to invest in China’s live-stream market, keep in mind that top KOLs with huge followings don’t always work. If not done right, businesses risk posing a negative brand impression or experiencing a disappointing return on investment.
“If the demographics of the product being presented doesn’t match with the demographic that are interested in that celebrity, It could just be kind of a flop,” Flora said. “It’s a big investment. The brands need to do it right If they’re going to do it.”
How to venture into the space
Marketing specialists and industry experts have a few tips for international brands interested in venturing into the Chinese live-stream shopping market:
Work with an agency or consulting firm that can help you navigate the intricate and ever-changing market in China.
Invest in a holistic, multi-channel marketing strategy.
Patience is equally important as is a big budget. It’s normal to take three to six months for businesses to start profiting from selling products via live streaming.
Choose the right type of KOLs and develop long term relationships with them.
If you do it right, a Chinese live-stream investment can pay off big. China’s luxury goods market grew 20% in 2018, and consumer spending is expected to increase in 2018 despite a slowing economy and a trade war with the US.
But while Chinese consumers still have a big appetite for foreign products, China won’t be an automatic outlet for sales growth forever.
“It’s important for that brand to note that competition for brands in China is high and there is now an increasing love of Brand China,” Harca says. “A brand looking to activate in China must be committed to the market and invest in a solid branding and marketing strategy.”