9 Sept 2016
E-Commerce: The Digital Route to Mainland Watch Sales
Interview with Xiao Xiao, CEO of Guangzhou Wanbiao Technology Co Ltd
“Following the rapid expansion of the internet in China, the e-commerce platform will see great potential as a new channel for the marketing of watches,” said Wanbiao CEO Xiao Xiao. Speaking to HKTDC Research, Xiao gave an overview of the mainland watch market and shared his experience of launching and running wbiao.cn, which should provide a valuable reference to companies looking to enter this market.
Website Mainly Targets Middle to High-End Customers
Xiao established wbiao.cn in 2011 to market middle to high-end imported watches in China. Since buying or selling watches online was not popular at that time, a lot of hard work was involved to try to find suppliers and customers. The company began by sourcing from existing dealers in the China region and gradually started to import directly from manufacturers of European brands that had not yet entered the China market. For customers, the company mainly co-operated with banks’ credit card e-shops in order to reach their middle to high-end clients.
Today, wbiao.cn has become a leading e-commerce vertical portal specialising in watch sales. Apart from its own independent e-shopping mall, it also operates its flagship stores on Tmall and JD.com. Wbiao.cn now boasts 400,000 daily pageviews (including mobile app usage) and an average of more than 10,000 orders a month. Among these, watches within the RMB3,000-5,000 range are the most popular, and are selling well.
Actively Co-operating with International Brands
Michel Herbelin from France was the first international brand handled by wbiao.cn. It was the best-selling wristwatch brand in France in 2010 and had a 30% share of the market for that grade of watch at that time, said Xiao. Today, wbiao.cn is the authorised distributor and online sole agent in China for more than 20 leading European watch brands, most of which come from Switzerland, Germany and France.
As mainland consumers crave watches of finer quality, the huge potential of the China market has attracted many foreign brands. Through its successful co-operation with foreign brands, wbiao.cn has won the attention and trust of an increasing number of overseas manufacturers. “Chambre Française de l’Horlogerie [French Clock and Watchmakers’ Association] suggested that we open a special section for French watches on wbiao.cn to introduce more of them to Chinese consumers and improve their image and sales,” said Xiao.
Promising Future of E-Commerce Platforms for Watches
Traditional physical stores remain the principal marketing channel on the mainland for imported watches. Online sales had a market share of only 6-7% in China, as opposed to 8-10% in foreign countries, said Xiao. It is believed that the development of mobile internet technology and the rise of the crowd economy will further boost sales via mobile internet platforms. Xiao said he was optimistic about the future of online sales. “It is estimated that online sales of imported watches will account for about 30% of the total sales of imported watches by 2020,” he said.
Sales of watches at traditional department stores have borne the full brunt of the online trend, dropping by 10-20% in recent years as the mainland retail market slowed down. However, mainland consumers’ high demand for watches, especially imported timepieces, has not diminished and the percentage of mainland consumers buying foreign watches online or directly in foreign countries is believed to be rising steadily. Indeed, wbiao.cn’s sales are growing at an annual rate of more than 50%.
Men make up about 70% of the customer base of wbiao.cn – the majority being young men aged 20-50. Its main customers fall within the 25-35 age group. About 70% of orders received by wbiao.cn are now placed via the mobile internet, and this percentage is expected to grow with the development of the crowd economy.
Considerations for Buying Watches
In terms of style preference, mainland consumers are still in the primary stage of watch consumption. The majority of consumers own one or two watches and most prefer conventional styles – mostly business models, which make up the highest percentage of wbiao.cn’s sales figures.
China’s first- and second-tier cities, including Beijing, Shanghai, Guangzhou, Hangzhou, Chongqing and Chengdu, are the market leaders in terms of major consumption. Interestingly, consumer preference for watch brands is easily influenced by peers, and brands perform differently depending on the area. For example, some brands sell very well in southern China while others perform better in the north.
Style, design and brand are consumers’ main considerations in terms of purchasing, and famous brands remain the most popular. It is worth noting that some consumers are beginning to show self-confidence in their consumption mentality as their income increases. They will often choose niche brands with unique designs or style to show that they have better taste than others – and this has nothing to do brand reputation or price.
Mainland consumers prefer styles that are easily recognisable and can reflect the brand identity, such as Daniel Wellington’s NATO strap. Another example is CYS (Cuervo y Sobrinos), a Swiss brand originating from South America that is famous for its retro Latin designs. Brands like these are easily recognisable.
Online and Offline Marketing Collaboration
To publicise its name, wbiao.cn makes use of various marketing channels and co-operates with different companies in online and offline advertising. In addition to online marketing (such as advertising in friend groups or on websites), it also makes use of offline marketing including promotion on TV and in magazines and even via in-flight advertising. Apart from working with banks’ credit card e-shopping malls, it also organises various offline activities, such as appreciations of fine watches, sharing sessions on watch maintenance, and watch-collector forums. These activities help to build its reputation and boost word-of-mouth through user and peer referrals.
Xiao is cautious about co-operating with physical stores in order to expand his company’s marketing channels. “We are slowly starting to expand our offline channels, but our biggest concern is risk control,” he said. “For example, how can we ensure that an offline retailer would not pass off inferior goods, even fakes, as genuine ones? It is not easy to distinguish between new watches and recycled ones for watches of the same style, but there is a big difference in profit margin. How to prevent this from happening is a crucial issue. The watch business is easily affected by word-of-mouth and a bad incident may deal a telling blow to our image. We do not rule out the possibility of developing offline channels, but the integrity of our partners is our most crucial consideration and we will handle the selection of partners with caution.”
Wbiao.cn also has plans to open experience stores. Conceptually, these stores will take a form similar to a coffee shop or private club with a leisurely and cheerful environment. They will help to reinforce the company’s image and generate offline publicity. Rather than displaying a wide range of products, they will only showcase a small selection of fine watches – a break from the old style of display, which might lack aesthetic qualities and create distance between the products and customers. Patrons can browse the website using computers in the store if they wish to view more products.
Building a Global O2O Ecosphere for Watches
All watches sold on wbiao.cn are imported. While price differences of timepieces of the same brand are narrowing around the world, sales figures suggest that the share of purchases made by mainland consumers outside the mainland remains relatively high, compared to purchases they make on the mainland. Xiao said mainland consumers spent RMB70-80 billion on buying watches abroad each year, more than double the RMB30-40 billion they spent on imported watches within the country.
There is a growing trend of mainland consumers going abroad to travel and shop. People in this industry are generally confident about the prospects of mainland consumers buying watches overseas. Realising the importance of developing a global ecosphere for watches, wbiao.cn has opened a WeChat public account and launched an app called Wanbiao Expert. The app is primarily intended to share tips with people interested in buying watches abroad, and gives information about brands and products as well as recommendations on retail stores around the world. Premium brands and dealers are brought together to form an O2O (online-to-offline) alliance in order to clinch a share of the physical retail stores’ watch business. Wanbiao Expert provides members with cross-border purchase tactics, directions and transportation guides to watch shops around the world, consumer evaluations and exclusive offers. It also offers mainland consumers who bought watches abroad a warranty service.
The launch of the Wanbiao Expert cross-border O2O project helps to build up wbiao.cn’s name among consumers, brands and agents. It also helps wbiao.cn to promote its image as a worldwide watch-service provider and to consolidate consumer loyalty, facilitating the company’s future development.
Introducing New Brands and Forms of Co-operation
Xiao said he had the following considerations when introducing new brands to wbaio.cn: First, increase the brand coverage and combination of watches of different grades and types on the basis of wbaio.cn’s existing brand portfolio. Second, consider the brand owner’s quality control of their timepieces and the research and development for their brands. Third, communicate with the brand owner to find out about the brand’s history, observe the production process, and establish mutual co-operation and understanding. In addition, there is a slight difference in consideration for different grades of different brands. For example, for high-end watches, the main consideration is their technology and history; for mid-range watches, it is their design and stylishness.
Foreign brands generally try to find out about the business strength of different dealers through business peers before venturing into the China market. Dealers with successful experience in brand marketing are more likely to win new dealership contracts. In general, dealership contracts for watches are for a term of 10 years, but longer-term contracts will give the dealer greater confidence in expanding the market. “Some dealers that are not doing too well in their marketing on the mainland are trying to co-operate with wbiao.cn,” said Xiao. “We are cautious about co-operating with them because we are worried that they may suddenly lower the prices of watches when they are not doing well in business, thus affecting the regular prices of these brands.”
Wbiao.cn has a strong marketing team with 30 to 40 staff handling the promotion of new brands, including translation of brand introductions, registration of the Chinese brand name, setting of the brand image, designing advertisements, creating brand stories and selecting and promoting the main styles. Imported watches are purchased by means of cash and carry, with brand owners providing the global prices for reference, but the retail prices are usually decided by the mainland dealers. Dealers are responsible for providing after-sales service, with the brand owners contributing a certain percentage of the warranty fees based on the value of the order. Brand owners will also provide parts for replacement.
For brands looking to enter the mainland watch market, channel resources and track records are the main considerations when choosing suitable dealers. In Xiao’s opinion, watch dealership is a small circle on the mainland, and there are few big dealers. Apart from having 50-60 dealerships in hand, wbiao.cn also controls some physical retailing channels. As far as new brands are concerned, working with big dealers does not necessarily mean getting the best resources. On the one hand, this is to do with resource allocation considerations, because big dealers have to cater to the needs of many different brands. On the other hand, this is to do with retailing considerations, because retailers in prime shopping districts prefer to deal with mature and famous brands. Smaller dealers may lack channel resources and have difficulty helping a brand in countrywide development. For this reason, an increasing number of brands looking to enter the mainland market have opted for the online route in recent years.
Recommendations for Hong Kong Firms
Hong Kong watchmakers have many years of experience in OEM (original equipment manufacturer) for well-known brands and their designs and craftsmanship are unquestionable. There are even local brands making the more complicated tourbillon watches. However, Xiao said Hong Kong still lacked famous local brands with a historical and cultural legacy and that mainland consumers generally had a lower budget for Hong Kong brands than for overseas ones. Some Hong Kong brands even used mainland indigenous brands as their pricing benchmark, he said. Since the high-end mainland market is already dominated by famous global brands, Hong Kong watches may find more room for development in the mid-range market. On the other hand, as more overseas brands enter the mainland market, demand for parts manufacturing, assembly and repair will also grow. Therefore, Hong Kong watchmakers may consider venturing into the processing and after-sales-service business.
 Crowd economy: A crowd is a social-media community formed by people who like or use the same brand/product and discuss and share information about it on social platforms. Businesses reach out to these connected communities through social media to find out about their preferences and feedback for brands/products, or target these people in their publicity and marketing. For example, the community effect of exchanges via WeChat is dubbed the “WeChat economy”.