China’s online purchasing power has risen sharply in recent years. According to the China Internet Network Information Center, the country had an online population of 210 million at the end of 2007, making it the world’s second largest market, just behind America’s 215 million. The number is 53.3% larger than the year before, and it includes 46.4 million people who are purchasing items online.
Even more impressive is the growth of Taobao.com, the biggest C-C E-commerce company in China. According to its official release — which classified the company as a “retailer” — total sales revenue reached RMB 43 billion (US$6 billion) in 2007, which makes the company number two on the list of China’s top retailers. Total sales in 2007 rose 156.3% compared with 2006, and the company even managed to outpace Carrefour in China. The number of registered users reached 53 million at the end of 2007, 76.7% higher than the previous year. Apparel is the top item in Taobao’s catalogue.
“Younger consumers in China are feeling increasingly comfortable with buying online — that is where they spend their time entertaining themselves. For many products, they no longer feel the necessity to physically touch an item before buying,” comments Shaun Rein, founder and managing director of the Shanghai based China Market Research Group.
Those numbers and changes have convinced companies involved in distance selling – mail order, telephone and Internet shopping – to emphasize Internet sales. Traditional mail order companies are no longer content to sit offline. MecoxLane, China’s largest mail order company, received US$80 million (approximately RMB 570 million) from Sequoia Capital this February. MecoxLane’s millions of mail order members and its multi-channel distribution model “telephone plus mail plus Internet plus outlets” reportedly helped it win this investment. It plans to use its portal M18.com to expand its B2C website and increase the number of its Euromoda outlets to 100, with more than five million members.
Another distance selling giant, the French 3 Suisses International Group (3SI Group), is moving the focus of its apparel business in China online too, although it is not the first time international companies have tried to use the Internet in China. The first time was in 2000, when they started to build their websites to promote sales. But shortly after that, several of the companies quietly retreated from the China market.
“Around 1997, many international mailing companies arrived in China: Quelle, 3S, Otto, MecoxLane and our company started at about the same time,” says Anne Langourieux, General Manager of 3S China, an apparel subsidiary of 3SI Group, the France-based private company that includes the Otto and Mulliez families as its biggest shareholders. The group has 24 subsidiaries operating in 14 countries in Europe and Asia, with a total of 12,500 employees. It focuses on multi-channel distance selling via the Internet, telephone and mail-order catalogues.
Why is 3Suisses choosing this moment to focus once again on Internet sales? What has changed since 1997? What are the challenges and prospects for online sales? To answer these and other questions, China Knowledge at Wharton interviewed Anne Langourieux, General Manager of 3S China, and Pascal Nouvellon, deputy chief representative for Cofidis, the financial services subsidiary of 3SI Group in China.
Cofidis, the largest consumer finance service provider in France, develops credit products for distance selling. The company entered China late last year, and is now poised to provide credit to China’s online population.
Below is an interview with Anne Langourieux, followed by an interview with Pascal Nouvellon.
China Knowledge at Wharton: How long have you been in China?
Langourieux: I first came to China in 1997 to [head up] activities in China for 3 Suisses. I went back to France around 2000, came back to China to set up a cosmetic subsidiary of 3SI Group in 2005, and was named GM of 3S China in late 2007. So I have been in and out of China, mainly Shanghai, for more than 10 years.
It’s a perfect time to be here to witness the tremendous growth and change in China in the last decade. I prefer to work here rather than in Paris right now. It’s much more energetic and dynamic.
France now has 2% growth every year, and it’s much more difficult to make decisions and get them implemented because you have to secure all your costs. In France, it would be a very long and difficult process. Here in China, with this growth, you can experiment much more. Some ideas work and some don’t, but at least with the growth of the market, and the energy and the confidence of the people, you can do many things.
For the last six months, I have been working as GM for 3S and I have done a lot of analysis for the 3S group. It’s huge – we have Cofidis and a lot of other subsidiaries – but it’s all specialized in distance selling by telephone, without outlets.
China Knowledge at Wharton: Distance selling is a very new concept in China. We didn’t even know about it until several years ago.
Langourieux: Around 1997, many international mailing companies arrived in China – Quelle, 3S, Otto, MecoxLane – and we started along the same [path]. A lot of companies failed. Otto and Quelle stopped their business in China around 2001 or 2002. Otto is our shareholder. We came at the same time, but we are sister companies. Now they are in Japan and Korea. We have a strong relationship with them and we are inspired by their expertise in Asia. E-commerce in Korea is really developed.
China Knowledge at Wharton: How big is your customer base?
Langourieux: We now have more than one million members. In China, it’s not huge. But by European [standards], it’s already a good size. With these members, our strategy is to have consumers order even more from our company, to increase their loyalty and to increase their repeat sales rate. The other objective for us is to have more members.
China Knowledge at Wharton: What are the main difficulties for distance selling in China?
Langourieux: Basically, the first challenge is that, as you said, it’s a new concept. People don’t know it, they don’t trust it and they don’t know how it works. So you have to … educate the market.
3S in France has 75 years of experience. When you say 3S to French people, it’s like saying Coke to an American. In France, we have 3S in books, movies … you even make jokes unconsciously or in phrases like, “You are a 3S girl.” It’s part of our culture. But here in China, you have to educate people again and again.
China Knowledge at Wharton: What are the other challenges?
Langourieux: The other challenge is that because it’s new, it’s difficult to build a customer database.
China Knowledge at Wharton: Why?
Langourieux: For example, there are no third parties that provide database service. In France, there is a very powerful third party database. A lot of companies put their data in it. It’s huge, with maybe 12 million numbers, so you can run your database and send your catalogue from that system.
Here, you have to build it yourself, step by step, stone by stone, catalogue by catalogue. We have 80 people in Shanghai. But it’s not really how many people are working on this issue; it’s the capacity to make and distribute catalogues, and to build partnerships.
We are not stores, so we don’t have traffic as stores. For distance selling companies, you have to build traffic yourself. If I don’t send catalogues, emails, sms and so on, [consumers] naturally won’t know there is something new going on. That’s why e-commerce and the Internet helped this industry to grow. I think the rise of this industry is the beginning of the Internet.
That’s why I think all those international companies left China too early. They left before the arrival of the Internet. It will be a little bit expensive for them to come back.
China Knowledge at Wharton: Yes, the Internet boom has also gotten Chinese consumers to get used to online purchasing.
Langourieux: It’s a very good way to get entertainment, to get information on products. The Chinese consumers are very smart. In France, the Internet is a little passive. You go there to see what the brands are saying, what the magazines are saying. They are now talking about web 2.0. But for me, web 2.0 was the beginning of the Internet, which, in China, was web 2.0 from the beginning. People exchanged ideas online all the time. I am amazed at the number of people who are willing to give their comments online. For example, I go to the Internet to find restaurants, and I look at all the remarks online.
China Knowledge at Wharton: Yes I go to Ctrip to book hotels and view all those comments. But is this not happening in France?
Langourieux: Very late on. China has been [doing that] from the beginning, and now people trust online comments even more than what the brand says.
China Knowledge at Wharton: Back to your Internet strategy: You started quite early?
Langourieux: Yes, we are moving to an e-commerce company. We have been [focused on the Internet] since 2000. But the market share of our Internet sales started to boom three years ago. Catalogues are our main channel for the time being, but it is now switching to the Internet. Three years ago, we had 10%-12% of our sales from the Internet. Last year, it was 30%. It will be more than 50% this year.
China Knowledge at Wharton: You said it’s the right time to switch your strategy. Why?
Langourieux: We are already online, but we are starting to put [even] more effort there. Why? Because then we will have some natural traffic. For me, the Internet is like a big city: People come to the city and go to different streets. So we have natural traffic, and we also have people coming back. It’s different than when you distribute your catalogues and have partnerships with some companies, which is very costly.
The number of visits to our website is already much bigger than some countries. That’s natural, given the size of the Internet community in China.
China Knowledge at Wharton: What’s new about your Internet strategy this time?
Langourieux: We are in the process, with an agency company, of reinventing our website. It will be image- and community-driven. In addition, our clothes reflect lifestyle. [For example], we explain to you how to match clothes. We have a lot of advantages in fashion design in France. It’s also going to be really community driven; all our customers who bought our clothes can comment online.
China Knowledge at Wharton: When are we going to see a new website?
Langourieux: July, or September at the latest.
China Knowledge at Wharton: But you won’t open stores?
Langourieux: Not for the time being. I may do some tests. For me, the question is not whether you are going to open stores, because multi-channel is part of the world today. It’s more a question of what percentage [of your effort] you are going to [devote] to your retail and to your distance selling base. Everybody — including all the normal retailers — is going online today.
So for me, it goes without saying. The distance selling companies have to go to the retail market, too. If I am a customer and I like a brand, I would like to buy it by Internet, mobile or in stores. For me, the real question is, what [part] of the core business do you want to keep.
Clearly our core business is distance selling. We have more than 70 years of history in distance selling. Maybe one day we will have some stores. We already have a showroom. Certainly we try to make the brand available to everybody, and maybe it will represent 10% to 20% of my sales one day. But I won’t put all my effort into it, because the DNA of my brand is not in retail. Some companies in France are much big