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A New Paradigm of Chinese Direct-to-Consumer (DTC) Brands

Miro Jin

Senior Director of Experience Consulting, EPAM Continuum
Blog
  • Retail & Consumer

In the past two years, a new generation of Chinese brands have achieved impressive success overseas via a direct-to-consumer eCommerce model. When the global supply chain was disrupted by the pandemic, these brands benefited from the resilient supply chain in China. What’s more, the pandemic accelerated the development of eCommerce all over the world, which also helped these Chinese brands to overcome their lack of physical presence overseas.

A typical example is the fast fashion retailer SHEIN, which is known for monitoring the fashion needs of young consumers through social platforms, such as TikTok and Instagram, and meets these needs quickly and flexibly by integrating thousands of clothing factories in China. By achieving an annual income of $10B USD in the European and American markets, it has become a serious threat to fast fashion giants Zara and H&M.

Another example is Anker, the consumer electronics retailer. Starting from the sector of battery chargers, its “shallow sea” strategy — capturing fast-growing niche categories — enabled it to launch leading brands in the categories of sweeping robots, wireless headphones and smart projectors.

An Evolution of the DTC Model

The competitive edge of DTC brands is that they control the entire consumer journey from customer acquisition to delivery to service. Based on direct interaction with consumers, brands can obtain data, gain insights into user needs, drive product innovation and continue to strengthen consumer engagement.

We have observed that these Chinese brands are bringing a different competitive edge to the DTC model:

The conventional DTC model only compresses the distance between brands and consumers, while the new DTC model — seen with brands like SHEIN and Anker — also compresses the distance between factories and consumers.

DTC has been a mature model in Europe and the U.S. since a decade ago. DTC brands that challenge traditional big brands have emerged in many fields, such as eyewear brand Warby Parker and sneaker brand Allbirds. However, DTC brands in Europe and the U.S. don’t often have the long-established supply chains and economy of scale that bigger established brands possess.

The fast development of eCommerce in China’s domestic market in the past decade has cultivated many small and medium-sized factories that are used to serving eCommerce brands, being particularly good at dealing with small-scale and fast-changing orders.

This allows Chinese DTC brands to respond faster to consumer needs and provide consumers with more product choices than many established global brands.

Early Chinese eCommerce companies that went overseas were highly reliant on Amazon. They made their first fortune thanks to the low-price advantage and some tricks to maximize traffic on Amazon, which is not sustainable in the long run.

The ambitious ones then gradually moved beyond Amazon by establishing eCommerce websites, building a presence on multiple online platforms and expanding brand touchpoints from SEO to social media.

Although global social media and eCommerce platforms are very different from those in China, the fierce competition in China’s domestic internet industry has prepared the new generation of Chinese entrepreneurs well.

They are experienced in leveraging the tactics of influencer marketing, gamification, content marketing, peer recommendation and group purchases, which are highly effective on Facebook, TikTok or Instagram just as on China’s Taobao, Douyin and WeChat.

The Emergence of Product On-Demand

What sets this generation of Chinese DTC brands apart is how they enable almost an instant feedback loop between consumers and manufacturers, or "product on-demand."

SHEIN was quick to observe that more and more young people in Europe and the U.S. are getting fashion inspiration on social media rather than at fashion shows and that the trends they follow are changing faster than ever.

Once SHEIN identifies an emerging trend on social media, it will immediately request its internal design team and external suppliers to respond with products. SHEIN basically turns all the social media feeds into live feeds of consumer insights that drive real actions.

The online shopping behavior of young consumers in Europe and the U.S. is actually very similar to that of young Chinese consumers. They see online shopping as a form of entertainment, not just a transaction.

The pain point of Chinese brands going overseas has always been that they are too distant from target consumers. However, the digitization of the consumer journey has significantly narrowed the gap.

For fashion brands, one of the biggest challenges is that people’s taste in the global market are incredibly fluid and diverse. But a massive network of clothing factories in China enabled SHEIN to turn this challenge into an opportunity.

There are many factories in China that have been working with sellers on domestic eCommerce platforms, such as Taobao, in the past decade. They accumulated rich experience in accepting small orders of several hundred pieces. With these factories, SHEIN can conduct frequent trial-and-error analysis and compress the cycle from design to the production of a new style to as short as a week.

Anker is a different case; the electronics sector doesn’t require such a high frequency of new product launches. But Anker’s winning strategy is to discover and capture upcoming niche categories faster than its competitors.

Anker started with niche products, such as power banks and charging cables, but it has developed a "shallow sea" strategy that has been fruitful so far. The key to the "shallow sea" strategy is to identify those categories where the size of market demand is rising quickly but is not big enough yet to attract the attention of giant players.

Through this strategy, Anker launched new products and grabbed market share in the fast-growing categories of smart speakers, smart projectors and sweeping robots before competitors can react at scale.

But it only worked thanks to the advanced supply chain of consumer electronics in Southern China. Even if Anker entered a new category with little domain expertise, it could easily find the right design, technology and manufacturing partners who can help it turn ideas into scalable products in a matter of months.

Conclusion

Chinese brands are often regarded as low-end substitutes in the global market. This impression is very difficult to change.

But this generation of Chinese DTC brands bring a new value proposition to the market: being truly consumer-centric and providing products on-demand. They built an almost instant feedback loop between the consumer trends emerging online and the physical products that are manufactured.

We believe this new paradigm of “product on-demand” will continue to evolve and impact more industries. More and more companies will try to do the same: turning live feeds of consumer insights into tangible products, building a highly flexible supply chain and reshaping themselves into consumer-centric and fast-responding organizations.

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