How Farfetch is Leveraging WeChat to Crack China's Online Market
Farfetch, the London-headquartered online luxury fashion retail platform, is on a mission to become the leading luxury ecommerce company in China. With the Chinese market growing at an unprecedented rate in recent decades, global brands have quickly realized the importance of developing a comprehensive China strategy. Farfetch, whose business in the Asia-Pacific region accounts for roughly one-third of its total sales, feels this urgency more than most.
Farfetch entered the Chinese market three years ago, setting up offices in Hong Kong and Shanghai. In 2017, the fashion unicorn formed a strategic partnership with Chinese ecommerce company JD.com. Since then it has since leveraged JD.com's logistics, technology, and marketing capabilities in China, as well as its insights into the behaviors of China's luxury consumers.
Now, Farfetch and JD.com have agreed to expand their partnership to provide what they describe as the "Premier Luxury Gateway to China" for luxury brands.
The Premier Luxury Gateway to China
JD.com became one of Farfetch's largest stakeholders when the partnership was first formed, investing $397 million into the company. However, JD.com continued to run its own luxury ecommerce platform Toplife. Now, the two companies see greater value in folding the Toplife venture into Farfetch's business in China, effectively merging these previously separate operations under the Farfetch brand, with JD.com handling the logistics.
"We are delighted to build on our relationship with JD.com, and bring to market an unrivaled solution for luxury brands to succeed in the Chinese market," said Jose Neves, Farfetch Founder, CEO and Co-Chairman, in a February 2019 press release. "Both parties came to the conclusion that it was better to merge into one single consumer-facing brand."
As part of the deal, Farfetch will gain a "Level 1" entry point on the JD.com app, providing JD.com's 300 million customers with instant access to more than 3,000 luxury brands, thanks to Farfetch's network of more than 1,000 luxury brand and boutique partners.
Chinese consumers account for about one-third of global luxury purchases, according to figures from Bain quoted in the Financial Times. While the majority of these purchases are made overseas, domestic sales are growing rapidly due to reductions in import taxes - and more and more are taking place online. Ecommerce sales now account for about 10% of luxury sales in China, estimates Bain.
Foreign brands have historically struggled to crack China's online market. But, by partnering with local giant JD.com, Farfetch puts itself in a position to succeed where others fail.
"We believe our Level 1 access with JD.com 'closes the circle' and will be transformational for the luxury industry's digital landscape in China," said Neves. "With this agreement, and our previous strategic investments in China including our acquisition of CuriosityChina, we now offer luxury brands a one-stop solution to develop their digital strategies in accessing the engaged and sophisticated audience in this important market. Today we mark the launch of what I believe is the Premier Luxury Gateway to China."
Not only does Farfetch's partnership with JD.com give it access to the domestic know-how of China's second-largest ecommerce platform, but it also gives it a connection to Tencent - the owner of China's top social media platform WeChat.
WeChat now has over one billion active users. As such, it's become one of the most popular platforms for brands to reach Chinese customers in convenient and innovative ways. WeChat is replete with powerful commercial features that make it easy for brands to target customers - brands even sell goods and services directly via the app. Brands can leverage WeChat Pay, Moment Advertising, and many more "mini programs" to boost their reach and sales.
For Neves, the importance of WeChat for luxury brands doing business in China cannot be understated. "WeChat is the platform for the luxury industry," he said. "What Instagram is in the West is what WeChat is in China, and [WeChat] is more powerful."
WeChat is leveraged by almost all luxury brands and retailers in China, and so the challenge for Farfetch is how to stand out on the platform amidst fierce competition. Farfetch's strategy is to employ gamification to attract and hold the attention of WeChat users - particularly millennials and Gen-Zers who are, of course, already drawn to mobile games.
For example, during the past Single's Day Shopping Festival - China's most significant online shopping day - in November, Farfetch launched a WeChat mobile game in which users could test their knowledge of global luxury brands. Players could earn "Farfetch Fashion Points" by answering the questions correctly, or by sharing the game with their WeChat friends. Those who totted up three points were entered into a draw to win a special Singles' Day Farfetch gift package. Following this, in the run-up to Christmas, Farfetch ran another WeChat game - a virtual gift launcher which users could click to discover different luxury gift ideas. If they liked the look of any of the suggestions, users could simply click on the item and be taken directly to Farfetch's ecommerce page to place the order.
Breaking into foreign markets is never easy - not even for billion-dollar companies like Farfetch. Often, the best strategy is to partner with an influential local player - and, Alibaba aside, they don't come much more influential than JD.com. The duo's recent expansion undoubtedly strengthens Farfetch's position in China, and, combined with its innovations on WeChat, the luxury retailer is giving itself a tremendous head start in the Chinese market.
"This win-win collaboration is a key development in our ongoing relationship with Farfetch," said Dr. Jon Jianwen Liao, Chief Strategy Officer of JD.com. "We are combining the best of global and local market expertise in the luxury segment. This is an important step for JD.com in developing its global fashion and luxury ecosystem. In just over a year of operation, Toplife has worked with many of the world's top brands and has grown to become the platform of choice among China's discerning luxury consumers and brands. Luxury is an integral part of our fashion offering, and we are excited to work together with Farfetch to create the ultimate destination for luxury shopping in China."
You can hear Jeffery Fowler, President, Farfetch, North America, speak at eTail East 2019, taking place in August at The Sheraton, Boston.
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