IR: So many brands want to go to China, but I still think that there is some education needed around what Alibaba can do for the retailer.
CF: What you’ve just said is very true and it’s true in Europe, too. In the beginning, most of the people we talk to haven’t been to Asia, they have never opened the Tmall app. They don’t know what kind of interaction we’re talking about.
That’s really the beauty of what we get to do. When I look at how our luxury brands have embraced Tmall over the last three years, and how they’ve learned together with us to use digital innovation to communicate with their consumers, I think it’s really helped them, even in their home markets. And when they go out to China, they’ve learned how to livestream, they’ve learned how to create one-to-one connections with their consumer and they can replicate this in new markets. Our focus as the overseas office at Alibaba is 100 per cent education, right? We work with a lot of brands. We have over 100,000 international brands that are already working with Tmall, and our goal is always to make our brands successful. The mission is always to make it easy to do business everywhere. We want 10 million successful brands on the platform. We don’t just want companies to come to Tmall because we want more brands. We want brands to be successful in this digital future, so that’s really where we help them. And it’s exciting to see how well they’ve adapted to that. If you look at who’s coming into China through Tmall Global, they’re smaller brands, and they’re learning how to play in that market in a way that they didn’t think was accessible to them. But in fact, with digital channels, it is.
IR: What would you say are some of the common misconceptions that brands have when they think of Alibaba but also around entering Asia?
CF: I think the biggest misconception when brands think about Alibaba and in particular Tmall is that they’re used to e-commerce in their countries and marketplaces in their countries. Tmall is very different. Each brand is responsible for running their own stores. It’s zimmermann.tmall.com. It’s prada.tmall.com. So they really need to step up and actually engage and run their stores. I think the first thing that’s important to understand is, Alibaba doesn’t sell anything. Brands sell to Chinese consumers through our platform.
Chinese consumers are incredibly savvy. They’re very demanding. They’re very advanced. I think brands sometimes underestimate the importance of localising. They need to understand what’s important for Chinese consumers. Our heritage brands from Europe need to understand that their Chinese consumers are much younger than the consumers in their local market. They are digital savvy and the first way that they’re going to engage with this brand is going to be through digital channels. So it’s very important that brands, when they want to come to China – which is going to be the number one luxury market in the world, if it isn’t already – evaluate the market. Look at the local competitors. There are people already in the market that are in your segment. And it is no longer enough to say that just because people in Italy, France or Germany love your product, they’ll love you in China, too. No. You need to make it relevant for local consumers. And that’s true for all markets. Even if an Italian wants to go to Australia, they need to localise. They have different seasons, they have different lifestyles. It’s really about learning how to communicate with your local market.
IR: What are some examples of excellent brands at Tmall?
CF: Wow, there are so many. I think what’s exciting for me is people have always said that luxury brands are very slow to adapt to digital. I don’t think I’ve seen any other players or any other segment where they really took the time to understand what they wanted to do and how they wanted to do it, and how they could use technologies to support them because their brand is everything. Once they embraced the technology innovations that we offer – livestreaming, 3D try-on functionality and a digital/virtual store experience – they have engaged in super interesting activations.
As a technology company, we create tools that the brands can use. We build technologies, and it’s up to each brand to understand how they want to use them. We all know livestreaming yet we think of it kind of like mass-market TV selling. But live streaming is only a technology. If I look, for example, at Cartier, how did they use livestreaming, but in a completely different way? They had their CEO come on, they had top KOLs [key opinion leaders] explain the beauty and craftsmanship of their products. They did not expect to sell 1000 necklaces an hour. That was not their goal. But we were talking a moment ago about the consumers; they’re so interested in learning about the history of the brand, the craftsmanship, the design process, and the brands were able to share that in a livestreaming session. And they’ve gone beyond that. They’ve now started to do one-to-one livestreaming sessions. [Luxury Swiss watchmaker] Vacheron Constantin does it.
If you’re buying a watch that’s $100 000, we will take the time to sit down with you over video and explain to you exactly how it works. And you can do AR [augmented reality] try-on while we’re in that video session and see which is the right size for you, which is the right colour. We allow brands to play with these technologies. For any single brand, developing that kind of technology would have been prohibitively expensive, but we create technologies and then the brands get to play with them. So it’s an exciting ecosystem.
IR: How has the Chinese consumer evolved in the past couple of years?
CF: I will tell you a little anecdote because I obviously have not been to China in two-and-a-half years. My Chinese colleagues are telling me yes, they’ve always been digital, but starting with the first lockdown, they’ve become even more digital. They expect that if they want something, it will be delivered to their home. And that doesn’t matter if it’s the food they need for dinner tonight or a luxury piece they want to buy. They expect a level of service now through digital that they didn’t expect before. And when stores were originally closed in China, there was this huge uptake of livestreaming, and creating digital connections. People weren’t coming in-store so brands found ways to keep that connection alive through the digital channel. And even when stores reopened, brands found that when consumers went back to the stores, they would spend less time there, but they would spend more money.
Why does that happen? It’s because people have spent a lot of time online and they can find [information] before they go to the store. Let’s say I want to buy a handbag. Before I go to the store, I can find out if it’s actually available in-store, so then I have a much higher conversion rate when I go to the store. And it’s very important for brands.
I want to add one more thing about the Chinese consumer that I’ve seen change over the last three or four years and I think that this is going to be very important in North America also. Chinese luxury consumers were traditionally in tier-one, tier-two cities; it was very focused on the top-tier cities in China. Well, what we’ve seen through the last few years is that wealth growth is coming also from smaller cities. The smaller cities are growing a lot in terms of consumption and wealth creation and people there have more disposable income, because those cities are less expensive to live in. We see a lot more consumption of luxury coming from satellite cities. There has been explosive growth in those areas. And I think that we’ll see the same thing happen in the United States. Because of the situation with Covid-19, people have moved out of bigger cities. So maybe they don’t have a flagship store for their favourite brands as close as they did before. So again, digital can create that connection, even when you don’t have a physical presence.
IR: What would you say are some of the interesting things you guys are working on at the moment at Alibaba?
CF: Of course, technology development for us is always very, very important. All our brands are doing livestreaming. We have AR and VR technology for virtual try-ons. We’ve been using digital avatars. A few years ago, Prada did a project where they dressed our digital avatars. Of course, we’re also creating digital collectables. The market for NFTs in China’s a little bit different because it’s a collector’s market. There’s no secondary market for NFTs in China. You don’t buy it to resell it. People buy those things because it’s a new way to interact with the brand. But they keep them and use them in our ecosystem. Digital technology and the development of new ways of connecting with consumers are always top of mind.
The second thing that we’ve really been focusing on lately, and one of the reasons we’re here at the World Retail Congress, is talking about sustainability. Alibaba has made a very big commitment to sustainability going forward. We have declared that we will be carbon neutral by 2030. For us, it’s really part of our DNA. Jack Ma is on the UN Council for Sustainable Development, so it’s always been something that we have been attentive to but we now have really stepped up our operations. It’s so important for us because as an e-commerce company, our footprint is pretty big. So it’s important that we take steps through every process we do to reduce our footprint and also help our brand partners reduce their footprints. The same way that we are creating technologies for them to reach their consumers, we’re also developing technologies around packaging and shipping methods and returns, to help them be more sustainable.
IR: What are your thoughts on physical retail?
CF: As one of the world’s leading e-commerce companies, we are also a huge investor in physical retail in China. We have our own department stores and we’re very involved in grocery retail. The department stores are called Intime and Freshippo is our grocery and convenience store. They are both very good examples of how we’ve been able to use digital to change the way we [shop].
Intime has stores across China including Hangzhou,which is also a tourist destination. When they first had pandemic closures, they had to address a different demographic of local consumers. We allowed the retailers to create direct livestreaming connections with their local consumers. We also have an app for our retail department stores that is all around loyalty programmes. It really helped them to create that connection with their local consumer and that was extremely important to support sales.
Freshippo is very important as a new retail model. They’re super fantastic. They deliver only in a three-kilometre radius and each store is a distribution hub. People can go into the store, they can pick up their food and have it delivered. They can have food delivered that they’re going to make at home, or they can have pre-prepared meals delivered to the home. They can also order it all online. It’s great from a user-experience perspective but it’s also super interesting how making those points distribution hubs for the products has changed distribution.
We are a strong believer in physical retail. People love to shop. We allow them to discover new products through the technologies we have created for Tmall – the livestreaming, the AR, the VR are all discovery tools – but we still like to meet our girlfriends, have a coffee and look at things in shops. That’s never going to go away. We are a strong believer that physical retail is always going to be here.