DLG (Digital Luxury Group)

Let’s be clear, Tmall's discount strategy hurts beauty brands' profitability. The world's top beauty brands are facing significant challenges in China due to Tmall 's current focus on fighting the rise of Douyin and PinDuoDuo. While Tmall may tout impressive Gross Merchandise Value (GMV) figures, this metric no longer reflects the true performance of brands on the platform. The issue lies in the surge of returns and order cancellations on Tmall over the past 12 months. This is primarily driven by the platform's aggressive use of discount coupons, which shoppers exploit by making purchases solely to meet the coupon thresholds and then canceling a large portion of their orders. For example, during this year's 618 festival, Ralph Lauren saw 70% of its Tmall GMV canceled and 15% returned. This trend is affecting many beauty brands, leading to a significant disconnect between their GMV growth and actual net revenue - see examples below. Furthermore, Tmall has shifted its focus away from the full-price 5/20 gifting festival, instead allocating more resources to its heavy discount focused 6/18 event. This has forced many brands, especially in the beauty category, to refocus their entire Q2 strategy towards 6/18's deep discounts and promotions. While Tmall's year-over-year GMV from May 1 to June 10 may be stronger, the actual online net revenue and profitability of brands during this period, and therefore in Q2, is likely to be disappointing. The bottom line: 👉 GMV figures are no longer a reliable indicator of performance, regardless of all the PR you can expect from Tmall in the coming days. 👉 The rise in returns and cancellations, coupled with Tmall's emphasis on deep discounts, has severely impacted the online profitability of leading beauty brands in China. 👉 Tmall's strategy to protect its market share is unlikely to succeed, but it will likely harm the profitability of both Tmall and its brand partners. 👉 Douyin unfortunately offers no salvation: beyond its hyper transactional nature, its contribution margin, usually below 20%, renders it the least profitable channel in China, far below Tmall, which usually offers beauty brands a contribution margin of 45%. What brands should do: 👉 Resist Tmall’s encouragements to discount - it’s unsustainable! 👉 Evaluate the cost and benefits of participating in coupons scheme. 👉 Closely optimize performance marketing investments to maximize ROI and net revenue. 👉 Evaluate the actual profitability of Douyin, which is unlikely to fully compensate for any decline on Tmall. DLG (Digital Luxury Group)’s China Digital Acceleration program was designed to help global brands navigate the Chinese digital ecosystem and accelerate their performance in China by elevating their brand, maximizing ROI, and accelerating net revenue. Please reach out to Iris Chan (陳淙韵), Pablo Mauron or me to find out more. #China #Beauty #Growth #Markets #Marketing #eCommerce #Sales #MarketPlaces #DigitalMarketing #Economics

DLG (Digital Luxury Group) and Re-Hub are pleased to announce the release of the all-new white paper – Decoding Luxury Marketing Milestones in China 2024: 520. This report unpacks the content, influencer, and merchandising strategies of 103 luxury and premium brands during this year's 520 festival. Additionally, it addresses the following topics: 📆 How important is 520 in the Chinese marketing calendar? 🛍 Is discounting a relevant tactical lever for 520? 🤳 How to build brand-relevant innovative digital activations? Download our latest report on the 520 festival on Luxury Society > https://lnkd.in/gas2q4Kv Special thanks to the contributions from Mario Juárez, Pablo Mauron, Max Peiro, Thomas Piachaud - 唐骏鹏, Jacques Roizen, Kira Zhang

How can luxury brands' headquarters balance the importance of maintaining global brand consistency while giving autonomy to their local markets for important milestone activations? Here's a great example of successful content and impactful orchestration between local and global: - This Porsche AG post, initially developed for the Chinese market and published on WeChat, leveraged the cultural significance of cherry blossoms in Asia. 🔗 View on Wechat > https://lnkd.in/e4zihmZD - This visually striking and emotionally resonant content generated exceptional engagement on WeChat, to the point that it was later adapted for global distribution on Instagram, achieving over 2.3 million likes, more than ten times the usual engagement on a global platform. 🔗 View on Instagram > https://lnkd.in/e6QN-cgz For over a decade, DLG (Digital Luxury Group) has been committed to building a bridge for digital communication excellence between global headquarters and local markets, including China. By combining data-driven insights with creative excellence, we help our clients consistently outperform their peers and achieve their most ambitious goals.

DLG (Digital Luxury Group) and Re-Hub studied the e-commerce and social media performance of over 100 brands during this year's 520 (also known as Chinese Internet Valentine's Day). We observed that compared to last year's 520, the total Tmall revenue for our sampled brands increased by 0.2%, while user-generated content (UGC) grew by 36.5% on RED during this period. Despite facing weak consumer confidence, a trend of trading down, and an outflow of luxury spending, the performance of luxury brands has proven that this festival remains significant for the luxury sector.   📢 Which brands garnered the most attention during 520? 💍 Were the best-selling products exclusive holiday releases? 📈 Which brands achieved exceptional revenue growth against the odds this year?   Want to know more about how luxury brands are faring in this shopping event? Stay tuned for the full release of the all-new "Decoding Luxury Marketing Milestones in China: 520."

Is the decline of Tmall solely due to shifting consumer preferences towards Douyin? Ahead of a stimulating conversation with Casey Hall of Reuters (link in comments), I was stunned to discover that many of the top 20 global beauty brands, in Q1 2024, aggressively cut their performance marketing investments on Tmall, resulting in significant traffic and revenue declines. Why it matters: 👉 While DTC is still in its infancy in China, Tmall is the most profitable eCommerce (EC) channel available to global beauty brands, usually providing a contribution margin of 40 to 50%. In contrast, Douyin’s contribution margin is usually bellow 20%. 👉 The fastest growing EC platform is Douyin, which grew its share of the online beauty market, from essentially nothing in 2020, to 12% in 2023 - while Tmall’s market share declined from 75% in 2020 to 51% in 2023. 👉 In other words, the EC contribution margin of beauty brands in China is rapidly declining, as a significant portion of their revenue is shifting from a fairly profitable channel to a new one that is often barely profitable. What’s new: We had assumed that consumers’ adoption of Douyin was the only significant driver behind this revenue redistribution in favor of Douyin, and behind the resulting profitability decline of EC in China. In fact, consumers behavior shift is only part of the story, and we find this alarming! What our data says: ‼️Douyin grew its 761 million Monthly Average Users (MAU) base by 6.5% in Q1, but Tmall still has 930 million MAU and grew that number by 3.3% in Q1. ‼️ While Tmall’s traffic, GMV and net revenue for most global beauty brands was down during Q1 2024, many of them are actually driving this trend, by drastically reducing their performance marketing investments, far more than their revenue decline, which may be the leading reason why the platform is losing steam in beauty - see Estée Lauder, Lancôme or LA MER examples in the table below. The bottom line: ⚠️The data we have reviewed shows that there are still brands, including Parfums Christian Dior, CHANEL and Shiseido that are adjusting up or down their investment on Tmall to support their revenue on the platform. ⚠️ However, many of the largest brands seem to have taken a fairly alarming turn, towards reducing their Tmall performance marketing investment, and creating an accelerating downward spiral that will not only affect their overall profitability, but will also likely result in an overall decline in EC revenue, as their growth on Douyin is unlikely to fully compensate for their decline on Tmall. DLG’s China Digital Acceleration program was designed to help global brands navigate the Chinese digital ecosystem and accelerate their performance in China by elevating their brand, maximizing ROI, and accelerating net revenue. Please reach out to Iris Chan (陳淙韵), Pablo Mauron or me to find out more. #China #Beauty #Growth #Markets #Marketing #eCommerce #Sales #MarketPlaces #DigitalMarketing #Economics

How will Alibaba Group deal with the increased competition of Douyin/TikTok and other competitors? Listen to our own Managing Director, China Consulting at DLG Jacques Roizen #china #alibaba #eCommerce

Join me at the Luxury Women Leaders Summit on Thursday June 13th event in New York, as Ellen Kapiloff from Lacoste and I discuss our experience in navigating cross-factor challenges in the global luxury industry. Whether it's generational, cultural, functional, ... there are many intersections at play in any given workday. What challenges are you navigating? Also hear from other great luxury professionals, Rachel Goldflam at Veronica Beard Leila Jalai at David Yurman Veronique Gabai Pinsky at her own Veronique Gabai Charisma Glassman at Capgemini and many more Hosted by Mickey ALAM KHAN, founder of Luxury Roundtable Register today - link in the comments. #luxury #womenleaders

Is the Chinese luxury market really experiencing a decline? Or is it suffering from a lack of price harmonization? In their latest quarterly results, LVMH, Kering, Prada Group, L'Oréal, Estée Lauder and many others framed their current performance in the context of a challenging Chinese market and a booming Japanese market. However, one cannot ignore that the resumption of international travel from China towards pre-pandemic levels has made Chinese luxury consumers aware of the significant price difference between China and Japan. This realization is leading many Chinese luxury consumers to turn away from a Chinese market that is 20 to 40% more expensive than Japan, for example. Chinese luxury consumers' willingness to travel to Japan is likely to sustain the performance of the Japanese market, to avoid this current substantial price premium in China - see a few examples below. How did we get here: 👉 Before the pandemic, luxury brands focused on price harmonization to avoid presenting consumers with price arbitrage opportunities and to limit fueling a gray market that could take over their direct-to-consumer (DTC) ambitions. 👉 During the pandemic, brands significantly invested in China in terms of both new store openings and marketing events and were able to increase prices due to the lack of international travel by Chinese consumers. Today's dilemma: 👉 These significant price differences create arbitrage opportunities for Chinese consumers and challenges for brands that are investing in China but are seeing Chinese consumers increasingly focus their purchases outside China, especially in Japan. 👉 This situation is further complicated for luxury brands that have wholesale distribution outside China, as Australian or Japanese wholesalers, for example, can purchase goods at 50 to 60% lower prices than those in China, which is fueling a gray market in China, as Re-Hub regularly demonstrates with insightful data and analysis. What’s next: 👉 Now that international travel from China is continuing to resume towards pre-pandemic levels, global luxury brands face the urgent need to either reduce prices in China or raise prices outside of China. 👉 However, implementing these changes will not be easy or quick. Until then, we can expect Chinese consumers to increase their share of luxury expenditures outside China, where some luxury brands may be challenged to invest if consumers' spending takes place in other markets. The way brands should adjust their digital strategy to better capture Chinese travelers is one of the 7 dimensions of DLG (Digital Luxury Group)'s Digital Acceleration Program - a proprietary methodology designed to help brands elevate their presence across the Chinese digital ecosystem, while rapidly accelerating their performance. #China #Luxury #Japan #Growth #Markets #Marketing #Economy #Fashion #Sales

Despite their current negative press, I am quite optimistic about Gucci and Valentino’s future prospects. I understand that criticizing Gucci, disparaging the work of Alessandro Michele, expressing doubt about Sabato De Sarno, and now extending those doubts to Valentino have all become popular pastimes within the luxury industry, especially in light of the Q1 results Kering shared this week. Q1 may have fallen short of expectations and is generating a lot of headlines, but it’s important to filter out the noise: - Despite the opinions of the "Monday morning quarterbacks”, it's important to acknowledge that under Michele's leadership, Gucci was one of the most desirable and popular luxury brands in China for six consecutive years, from 2014 to 2019. I had the great opportunity to discuss this in detail with Julienna Law of Jing Daily (see link below). - Following such a successful reign, we are witnessing for the past 3 years a necessary reset. It is only natural that a repositioning project of this magnitude would not happen overnight - Sabato De Sarno's Ancora is an ambitious project that was never meant to be an overnight success. And there are signs it may already be working: - According to several landlords, Gucci's same-store sales performance in China since January indicates a progressive improvement surpassing the luxury industry's average. Other names, like Celine, do not seem to be heading in the same direction, but little has been said written about that yet. - In February, Gucci's performance on Tmall was on par with Cartier's like-for-like Gross Merchandise Value (GMV). - Since March, we have witnessed clear signs that Ancora is resonating with consumers in China and being well received in stores. - Finally, in March, the Ancora exhibitions, in Shanghai, Beijing, Chengdu and Shenzhen, were massively popular and demand far exceeded the capacity of these events, despite their scale. There is no doubt that Valentino is closely studying the blueprint of Gucci's transition. As always, they will identify opportunities for improvement, in this ambitious and complex endeavor - Valentino has a track record of strategic and operational excellence, especially in China. Reframing Alessandro Michele's extraordinary impact at Gucci is neither fair nor accurate, and it’s unlikely to stand what he will likely accomplish with Valentino. Beyond the challenges and patience their transition requires, Gucci and Valentino are facing the same imperative most luxury brands face in China today. We are in a new market that requires most luxury brands to adopt a new set of tools and new levers. After years of almost exclusive focus on new middle class customers acquisition, many luxury brands are going to have to significantly elevate their ability to cultivate VIC and attract new HNWI - something many have ignored for too long and which is costing them dearly. #Kering #LuxuryGoods #China #Luxury #LongTermGrowth #Gucci #Valentino

Last week at Watches and Wonders in Geneva, our Founder & CEO was interviewed by CNN about the resilience of the luxury watch market in China. "The higher-end price point brands are not concerned [by the downturn]. In the long run, I'm confident that China will be the biggest market for luxury watches." 🔗 Read the full article - https://lnkd.in/eTQnGGaR