According to a study released earlier this month by McKinsey & Company, discount retail will grow five times faster than the entire fashion retail market between 2025 and 2030. In fact, long before the epidemic, discount retail grew faster than the entire industry, and even at the beginning of the outbreak, the global retail industry was almost shut down, and the impact of discount retail was relatively small.
This growth momentum is due to the simultaneous online and offline omni-channel.
Online discount platform Yoox
In the past two years, more and more discount retailers have gradually tried to create an experience service that is compatible with the in-line brand, rather than a rough display operation method that randomly stacks goods for customers to choose, and is accompanied by a full range of catering and entertainment layouts.
At the same time, online discount retailers have also experienced a period of explosive bloom, with the help of flash promotion, blind box, perennial discount and other models, Dress-for-less, Yoox, Heat and other diversified online discount platforms have risen rapidly. According to the report, online channels account for about 40% of the overall discount retail market in 2020, and european online discount retail is expected to grow by 13% to 16% per year between 2021 and 2025.
In the Chinese market, the growth momentum of discount retail is also strong. The growing fashion consumer base and strong purchasing power, as well as the world's leading online shopping platform, mobile payment service and logistics network, these unique configurations make China an excellent soil for the development of discount retail omni-channel development.
According to iResearch data, the size of China's special sale market is expected to exceed 1.6 trillion yuan in 2021, consumers' shopping concepts are more rational, and "good brand, good quality, and high cost performance" will become a major trend in Chinese consumption. Not long ago, the "2021 China Outlet Data Ranking List" released by Ole Lingxiu showed that there were 46 Oleida companies with sales of more than 1 billion yuan in 2021, and this number was 39 and 34 in 2020 and 2019, respectively.
Florence town
Affiliated to the Italian commercial real estate group RDM, Florence Town ushered in the first ten years of entering the Chinese market in 2021, featuring Italian style, with a variety of brand settlement scale and discount advantages, as well as Italian shopping and leisure lifestyle experience, according to official statistics, in 2021, the sales of seven towns across the country exceeded 11 billion yuan, and the national town traffic reached 23 million people. In terms of category performance, in addition to luxury brands that have always been favored by consumers in first-tier cities, especially high-end leather goods, the trend/sports category has won the sales crown with more affordable prices, higher recognition, larger consumer groups, and denser discounts.
In an interview with WWD China, Jacopo De Vena, Managing Director of Florence Town and RDM Asia, expressed his confidence in China's discount retail market, "In the past few years, despite the impact of the epidemic on the development of discount retail in China, we are pleased to see that the performance of the fashion luxury sector in Florence Town has steadily increased. China's discount retail industry has undoubtedly great potential, the rapid economic growth of second- and third-tier cities, more intuitive live shopping than traditional online shopping and the trend of deep integration of online and offline, etc., let us see and seize this opportunity. ”
Wangfujing Group said in its 2020 financial report that after the epidemic was controlled, the Oleai format benefited from its open shopping space and high-quality and inexpensive goods favored by consumers, and its performance recovered rapidly. During the reporting period, the revenue of this format increased by 56.4% year-on-year, while the gross profit margin of outlets reached 64%, which is much higher than other formats. In 2021, the outlet industry reached a new high, and the domestic outlet commercial complex investment operator Capital Juda Co., Ltd. published its 2021 annual operating results last month - operating income of 1.341 billion yuan, an increase of 31% over the same period of the previous year of 1.024 billion yuan, gross profit increased by 85%, and the comprehensive gross profit margin reached 47.6%, compared with 33.8% in the same period last year.
Xinxiang Wangfujing Ole Plain Town
At the same time, online channels also have a place in China's discount retail market. Vipshop previously announced its 2021 full-year financial report, which showed that Vipshop's full-year net revenue increased by 15% year-on-year to 117.1 billion yuan; GMV increased by 16% year-on-year to 191.5 billion yuan. Notably, Vipshop's core SVIP active users increased by 50% year-on-year. In 2021, the online sales of Florence Town achieved a 200% increase, compared with 2020, a 93% increase in registered users and an 83% increase in the total number of customers.
In May 2021, Tmall's luxury discount business announced a comprehensive upgrade, integrating tmall luxury official direct sales, discount channel Luxury Soho and Charm Hui to launch a new luxury discount aggregation channel "Charm Hui MEI". After the upgrade, Tmall Luxury officially launched the "dual channel" strategy, operated by Tmall Luxury Pavilion and Charm Hui MEI dual channel dual track, which together constitute the two main operating positions of Tmall Luxury Center. Leveraging Alibaba's ecosystem, Charm Hui has been able to push luxury customers on the homepage of mobile Taobao, and has set up "Charm Institute" and "Your Brand" columns in the channel, providing personalized clothing guide services and customized exclusive recommendation lists.
The market space visible to the naked eye, the significant consumption trend, and the vigorous investment of more and more domestic and foreign enterprises in the construction has become a general trend, which not only makes China's discount retail market show a vigorous development prospect in the future, but also the discount retail industry, which was originally known for its "low price", is also showing a more diversified business model.
Hangzhou Chaoshan Bailian Outlets
Or by integrating European elements such as bell towers, fountains, sculptures, street lamps and other European elements, nanning's first outlet to create an Italian-style architectural community, adding Guangxi's national intangible cultural heritage "Zhuangjin" elements to the floor tile design, and making a moderate connection with the local ethnic culture; as the first "national style Oleai" in China, Hangzhou Chaoshan Bailian Outlet, Chaoshan Scenic Area echoes with Liangzhu Ruins, Xixi Wetland, Tangqi Ancient Town, and combines the ochre walls of the ancient city and the eaves of Silk Water Town, brown, The gray overlapping façade and the undulating sloped roof group form the overall architectural texture of the project.
Jacopo De Vena also told WWD China: "Any innovative development in discount retail should be aimed at benefiting consumers and providing them with the best experience over the long term." The goal of Florence Town has always been to bring a pleasant and authentic Italian shopping experience to Chinese consumers, such as the "Fantasy Jungle" family paradise tailored for family consumers, and the grand opening of Nike Unite, a new retail concept store dedicated to the local community, in the small town of Shanghai, which is a new step in the implementation of this goal. ”
The florentine town of "Jungle Fantasy" family park
The wind of omni-channel development has also blown to discount retailers who are known for their online skills. In the past three years, Vipshop, a profitable special e-commerce company for 36 consecutive quarters, has also begun to comprehensively promote offline business after tasting the sweetness of discount retail. In July 2019, Vipshop acquired 100% of the shares of Shanshan Commercial Group Co., Ltd. for RMB 2.9 billion in cash, officially announcing that it will lay out offline Oleai and explore an omni-channel retail model that integrates online and offline. Up to now, Vipshop city Ole has settled in Hefei, Nanjing and other places.
It is clear that China's discount retail industry is entering the next golden growth period.
Moreover, with the continuous instability of the epidemic and the overall external environment, the continuous transformation of consumer psychology and consumer behavior, discount retail, as a special distribution channel, can not only help brands clear excess inventory, practice the concept of sustainable development, but also reduce the price threshold, but also expand the scope of customers. Jacopo De Vena agrees that the rapid economic strength of China's second-tier cities has greatly strengthened our commitment to the Chinese market. As the number of middle-class consumers continues to grow, the fashion luxury retail industry is showing great potential in China.
But when we look at the other side of the coin, the drawbacks behind the discount retail dividend are also worth pondering, especially for luxury brands that have always emphasized scarcity and high-end positioning.
This can be seen in the move of Gucci's parent company, Kering Group, to terminate all online wholesale businesses of its brands at the end of February this year. The Group said that in order to pursue the goal of same-store revenue growth and improve profitability, it will reduce its dependence on wholesale channels in the future to focus on independent stores, brand websites and other strategic partnerships to better manage the distribution process, seize exclusive operation rights and pricing power.
In December last year, the TK Maxx website appeared with discounts of more than 79%, as many as 125 Bottega Veneta products designed by Daniel Lee, which also attracted the attention of the brand's official, and then issued a statement denying the company's discount on Daniel Lee-designed products to clear product inventory, and emphasized its luxury attributes, indicating that the brand has established a high-end value proposition and established a selective distribution strategy.
The TK Maxx website features 125 Bottega Veneta past season products
Discounts over 79%
How to balance the double-edged sword of discount retail channels, the absolute "differentiation" of brand official stores and discount retailers from product series, category range, to service experience, is the key to solving the problem, and it is worth the discount retailer and brand official to explore together. Moreover, for consumer groups that pay attention to both luxury experience and cost performance, discount permissions have not only existed in the hands of discount retailers such as Oleai, but also become an effective customer acquisition idea for more and more buyers and collection stores at key nodes.
Therefore, between the brand's official stores and discount retailers, the "exclusive" competitive relationship may not be conducive to the common growth of both sides, and win-win cooperation is the long-term relationship that the two should maintain.
In this regard, Jacopo De Vena pointed out to WWD China: "Nowadays, some luxury brands will cancel the discount promotions of boutiques and introduce non-seasonal goods directly into Ole stores; some luxury brands will shorten the seasonal cycle of Oleai products and accelerate the new pace of Oleai stores." The change in business model has made the product supply of outlets more advantageous than in the past. ”
Brands should also be more cautious about their choice of discount distribution, as Achim Berg, global head of McKinsey's Clothing, Fashion and Luxury Group, points out: "Most consumers [at discount retailers] are also willing to pay the full price for luxury brands." Therefore, fashion brands should carefully weigh which products are suitable for sale at a discount. In addition, the report also pointed out that the strategy of fashion brands should regard discounted products as a market segment that is relatively independent but complementary to regular-priced products, and its goal should be to fully protect the brand's reputation while comprehensively expanding its business.
Vipshop Outlets
In the past two decades, China's discount retail industry has gone through the initial barbaric growth, continuing to expand, transform and adjust multiple stages of development.
As for the future, will it be possible to achieve continuous expansion as expected by the market? In addition to the strengthening of the brand's entry volume, business layout, and diversified retail experience, how to ensure the independence and uniqueness of the discount retail industry's business right through targeted model innovation or differentiated services, and upgrade the product price consensus between it and its partners to the brand value consensus, is an effective expansion move that needs to be put on the agenda.
At the same time, how to view the discount retail business and how to use it prudently and rationally is also an important issue that all brands cannot ignore more and more. WWD
Written by Eva Liang
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Image source group official and online