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VANCL: China's internet apparel giant

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VANCL is China's leading internet-based apparel retailer. This detailed case study examines VANCL's digital marketing, branding, operations and financing. …

VANCL is China's leading internet-based apparel retailer. This detailed case study examines VANCL's digital marketing, branding, operations and financing.

Though a market leader in China, VANCL remains largely unknown in the outside world. To date, much of what is written about VANCL is in Chinese, and much of this material omits important aspects of VANCL’s business model and operations.

There are several reasons for digital marketers and other eCommerce observers to take note of VANCL:
*VANCL will receive a multi-billion dollar IPO on the NASDAQ within the next 24 months
*VANCL currently ships to over 80 countries globally and is likely to emerge as a global apparel and internet competitor over the next two to five years
*VANCL’s product and marketing strategies are highly innovative and provide valuable case studies for other e-retailers

The following presentation draws together public research and comment to provide the English language reader with an “advanced primer” on VANCL and the Chinese market. It should be of use to digital marketers, electronic retailers and financial analysts beginning coverage of the firm.

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  • 1. IntroductionVANCL is a leading Chinese internet-based apparel retailer. Though a marketleader in China, VANCL remains largely unknown in the outside world.There are several reasons for digital marketers and other eCommerce observers totake note of VANCL:• VANCL will receive a multi-billion dollar IPO on the NASDAQ within the next 24 months• VANCL currently ships to over 80 countries globally and is likely to emerge as a global apparel and internet competitor over the next two to five years• VANCL‟s product and marketing strategies are highly innovative and provide valuable case studies for other e-retailersTo date, much of what is written about VANCL is in Chinese, and much of this materialomits important aspects of VANCL‟s business model and operations.The following presentation draws together public research and commentto provide the English language reader with an “advanced primer” onVANCL and the Chinese market. It should be of use to digitalmarketers, electronic retailers and financial analysts beginningcoverage of the firm. (June 12 2012) matthunter.com © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606
  • 2. Executive Summary• VANCL is the 5th largest online B2C retailer in China• VANCL took advantage of China‟s unusual combination of high internet penetration and low concentration in the retail industry to reach a large customer base and grow rapidly• Launching in 2007, VANCL grew sales to RMB 6 billion (~US$900) in 2011• Initially offering low cost T-shirts and men‟s shirts, VANCL rapidly expanded its product range to cover most aspects of men‟s and women‟s wear, competing in a niche similar to global brands such as H&M and GAP• VANCL‟s marketing is large scale, innovative and sometimes controversial - VANCL invested ~$158M in marketing in 2011; equivalent to >15% of net sales (versus 3.5% typical of most apparel retailers) - VANCL has achieved wide-spread awareness using innovative digital campaigns combining celebrity, viral seeding and social “curation” - In 2011, VANCL also became a leader in the emerging field of “social commerce” by enlisting fans to act as micro-store managers as part of the “VANCL Star” campaign - However, using the images of political leaders in their marketing and associating the brand with a foreign “adult video” actress has given the brand some degree of infamy• VANCL‟s profitability remains unclear - Rumours persist that the business has been loss-making since launch - Logistical errors in 2011 caused inventories to grow out of control - Several additional tranches of VC funding has been required and a planned 2011 IPO has been postponed VANCL could yet be either another “Boo.com” - or an apparel-based “Amazon” © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 3. Important NoticeAll third party information featured in the presentation slides remainsthe intellectual property of their respective originators. All use ofinformation is done under the fair use copyright principal, and I donot assert any claim of copyright for any quotation, statistic, fact,figure, data or any other content that has been sourced from thepublic domain. Whilst efforts are made to ensure accuracy, nowarranties can be given.I do assert a claim of copyright for my domains, matthunter.com, mysite design, slide design, database design, look and feel, and my logo(“the cube”).The core material in this work is shared under a creative commonslicence [attribution 3.0 unported (CC by 3.0)]. Readers are free toshare (copy, redistribute, transmit) and remix (adapt the work),including for commercial use; but must properly attribute the originalwork to me. Such attribution should not suggest that I make anyendorsement of the user or their derived use of my material.Further viewing of this presentation indicates your understanding ofand consent to these conditions.Acknowledgments:Cover: VANCL Striped Knee-High Socks SKU:6874Special thanks to Bai Xuan, Gao Menglin, Jung Jhong Hwan & ZhouQiang for their assistance in completing this case study matthunter.com DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 4. Agenda • VANCL 101 介绍 • Products 产品 • Marketing 市场营销 • Logistics 后勤 • Financing & IPO 金融 © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 5. Macro factors make the Chinese retail market highly attractive • Management consultancy AT Market Potential Versus Country Risk Kearney annually produce a study of global retail markets China • Based on factors such as market size, political stability, corruption and so they classify countries based on “Country risk” versus “Market potential” to identify the highest potential markets • Today, China stands out: Large Market High Potential Rising incomes Strong Growth Low rivalry StableSource: AT Kearney Global Retail Development Index © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 6. Many small players and high internet penetration make the Chinese retail market highly unusual China’s top 20 retailers hold only …Whilst 51% of households have 13% of sales internet access Retail Consolidation Internet penetration, 2010 (top 20 retailers’ share of total retail sales), (Households) 2010 India India China(Urban) 13% China(Urban) 51% Brazil Brazil Japan Japan United States United States South Korea South Korea Germany Germany France France UK UK 0% 20% 40% 60% 0% 20% 40% 60% 80% 100% With no dominant retailers there is a strong opportunity for new internet retailersSource: BCG © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 7. Exploiting this opportunity, serial entrepreneurChen Nian founded VANCL in 2007 • Chen Nian founded VANCL in 2007 with the aim of becoming a leading men‟s apparel company in China • Prior to VANCL, Chen Nian had co- founded Joyo in 2000 – a successful B2C retailer. Joyo was acquired by Amazon for $75 million, becoming Amazon Joyo (Amazon‟s brand in China) • Chen Nian persuaded much of the top leadership team at Joyo to leave to join Founder, Chen Nian the new VANCL business • Chen Nian is also a published author & widely celebrated as a leading innovator in China © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 8. Since launch in 2007 VANCL has grown rapidly, hitting ~RMB 6 Billion in 2011 VANCL Revenue RMB (元) 7 Billions 6 6 5 4 3 2 2 1 0.6 0.3 0.01 0 2007 2008 2009 2010 Est 2011Source: News & PR Releases © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 9. VANCL has grown by increasing its marketinginvestment and growing its product range Development Milestones VANCL launched Product expansion Social Commerce First round of VC Launch women, young & Launch VANCL StarSpecialty mens’ shirt lines children’s wear Social Phone ordering MarketingHISTORY 2007 2008 2009 2010 2011 2012 Recruit Start Offline Controversial Foreign Marketing Political T-Shirt Designers Korean team V+ brought in launched 3rd party Ru Feng Da brands In-house stocked logistics launched © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 10. VANCL is now the leading online apparel retailer Market Share of Apparel Online Retailers, 2010 40% 35% 30% 25% 20% 15% 10% 5% 0% VANCL M18 Menglu Masa Maso Fashion TOGU XIU HANY Others RevolutionSource: iResearch © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 11. Measured across all categories (not just apparel) VANCL is a top 5 B2C firm in China VANCL is China‟s 6th largest B2C VANCL is China‟s 5th largest B2C company by revenue company by monthly users Top Chinese B2C Websites Top Chinese B2C Websites by Revenue Share (Jan 2012) by Monthly Users (Dec 2011) Others 33.6% VIP Shop 8.1 m18 0.2% Moonbasa 12.5 RedBaby 0.4% Yihaodian 0.7% Yihaodian 12.5 NewEgg 0.7% Suning 13.0 Coo8.com 1.0% Shop.QQ.Com 15.8 51Buy.com 1.1% Vancl 27.2 Vancl 1.5% Dandang 1.6% Amazon.cn 29.8 Amazon.cn 2.2% Dandang 31.3 Suning.com 2.4% 360Buy.com 44.5 360Buy.com 14.7% Tmall 39.9% Tmall 110.5 0% 20% 40% 60% 0 50 100 150 B2C Revenue Share Millions of usersSource: Analysis International, iResearch © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 12. Agenda • VANCL 101 介绍 • Products 产品 • Marketing 市场营销 • Logistics 后勤 • Financing & IPO 金融 © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 13. VANCL‟s first product area was T-shirts – a relatively less concentrated clothing segment Market Share of top 10 brands of selected sectors (2009) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jackets T-Shirts Ladies wear Mens suit Childrens Mens shirts Denim Wear Ladies Maternity Sportswear Maternity wear Underwear Wear Wear VANCL appears to have prioritised entry into segments based on low levels concentration. VANCL‟s product extensions moved from T-shirts, to men‟s shirts and then on to ladies wear; and only recently moved into the more highly concentrated clothing segments.Source: China National CommercialInformation Centre © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 14. VANCL is best known for the three coreproducts they first stockedT-ShirtsVANCL‟s earliest and mostrecognised products. Carry awide range of themes (from filmsto the industrial revolution),retailing at ~元50Canvas shoesA diverse range of styles, fromplain to punk, retailing at ~元80ShirtsVANCL started with affordablemen‟s shirts before expanding towomen. Both formal and leisurewear retailing at around ~元70VANCL‟s earliest product line consisted of T-shirts, shirts and canvas shoes targetedat the male market; offering male shoppers sufficient choice, low prices andreasonable quality. Initial ranges were narrow but have since become vast. © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 15. However, VANCL now stocks acomprehensive apparel product line Sunglasses; 元99 Polo shirt; 元99 Polo shirt; 元80 Polo shirt; 元80 Shorts; 元60Watch; 元139 Belt; 元99 Dress; 元169 Dress; 元189 Jacket; 元389 Shirt; 元99 VANCL have expanded into almost all areas of formal and leisure wear, including accessories, jeans and jewellery. Expansion into other household areas from 2009- 2011 saw VANCL stock items such as mops. These items have now been dropped. © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 16. Though collectively referred to as “fast fashion” retailers,H&M, Zara and VANCL have significant differences H&M Zara VANCLProduct • Build quality: • Moderate • Strong • Moderatestrategy • Trend matching: • Moderate • Moderate • WeakPrice • Typical: • Low/Medium • Medium • LowCustomer • Flirty: • ***** ** • *** • **Segment & • Sexy: • ****** • **** • **Product • Hip: • ***** • **** • *****DesignAttributes • Timelessness: • *** • ********* • **** • Traditional: • *** • ****** • **** • Classic: • *** • ****** • ****Unique Items • 4,000 p.a. • 10,000 p.a. • UnknownDesigns • Own+Guest • Own+Clones • OwnDistribution • 2,300 stores • 1,285 stores • Web onlyMarketing, % of Sales • 3.5% • 0.5% • 15%Manufacturing • Outsourced • 40% in house • Outsourced • Outsourced on simple items © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 17. VANCL‟s product quality is widely considered good for its price level Illustrative: VANCL versus international peers Above Line = Unexpectedly High Quality , OR Under pricedPerceivedQuality Below Line = Considered Overpriced OR Premium Price © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 18. Agenda • VANCL 101 介绍 • Products 产品 • Marketing 市场营销 • Logistics 后勤 • Financing & IPO 金融 © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 19. VANCL‟s branding is founded on a distinctivemessage, executed through innovative campaigns VANCL Marketing ProfileTargeting • 18 – 30 years old • Moderate purchasing power • Fashion conscious • Internet savvy • Convenience seekers • Students, young professionalsCreative • High contrast imagery • Themes of struggle, energy, • Distinctive typography individuality, authenticity • Youthful stereotypes • Prominent celebrity endorsementCore message: Find understanding, acceptance and strength in a sense of selfMedia Buying • Heavy paid digital presence: ~$80M USD • Social marketing and viral: ~$5M • TV and Outdoor: ~$75MDigital Social Offline• SEM (PPC,SEO) • Viral • TV• Affiliate • Social eCommerce • Outdoor• Display • Weibo • Partnerships © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 20. VANCL‟s messaging appeals to a highlyindividualistic, introspective post-80s youth • Understand • Always be yourself yourself• Strive to Core message: • Be hopeful succeed with Find understanding, acceptance and strength out fear of in a sense of self failing • Do not fear to • Do not fear to express your express yourself emotions and your identity Balances angst, optimism, humility and celebrity © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 21. Youth-focus means although VANCL enjoys strong brand awareness, they convert “only” 9% of all e-Shoppers to regular buyers TaoBao reaches the whole market VANCL reaches a “large niche” TaoBao Awareness & Shopping Funnel VANCL Awareness & Shopping Funnel (2011) (2011) % of All 100% % of All 100% e-Shoppers 92% e-Shoppers 90% 90% 82% 80% 75% 80% 89% of aware 70% 70% 91% of consumers trial 61% trial 60% consumers 60% make 50% repeat 50% purchases 40% 40% 30% 30% 20% 20% 27% of 16% aware 53% of trial consumers consumers 9% 10% 10% make repeat trial purchases 0% 0% Awareness Trial Regular Buyer Awareness Trial Regular Buyer TaoBao, China‟s B2C market leader, has VANCL‟s heavy advertising spend creates neutral brand values and exhaustive product strong awareness (61%), but the youth- offerings; enabling widespread appeal and focused branding converts this to a lower use use rate of “only” 9% of e-ShoppersSource: BCG e-shopper online survey © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 22. Creative combines strong brand concepts withdirect response elements (prices, promotions) © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 23. VANCL‟s brand-oriented creative uses a boldsimplicity to achieve cut-through“I love you” “Nothing to fear” “There is spring” “Nothing to fear” “I am VANCL” “I am VANCL” VANCL‟s most recognised campaigns use high-contrast imagery, youthful celebrities and life-affirming messaging; & most recently use the “I am VANCL” tagline “To move forward, Nothing to fear” © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 24. Brand creative also uses a regular stable ofhigh profile celebrity spokespeople VANCL uses highly visible Chinese celebrities who are seen to share the brand‟s core values :authentic, youthful, accessible, persevering, energetic, and highly individual VANCL‟s celebrity endorsements Han Han Wang Luodan Huang Xiao Ming Li Yuchun 韩寒 王珞丹 黄晓明 李宇春 Writer, rally Actress, Actor, singer Pop-star driver, voted one of and model; and actress, prolific China‟s 50 UNICEF Chinese Red blogger and most ambassador, Cross widely beautiful also used by ambassador, considered people Gucci, also used by China‟s #1 Tissot & HP, Coca- “internet Mercedez Cola & personality” Benz others © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 25. VANCL‟s lead spokesperson since 2008 isChina‟s #1 Internet personality, Han Han“28-year-old Han Han is a man of many hats. A best-selling novelist,champion amateur race-car driver, wildly popular blogger and is alsoknown as Chinas most media-savvy celebrity rebel. Having appearedon Chinas literary scene at the age of 17 in 2000 with his first bestseller, Triple Gate, Han has shrewdly mined a seam of youthfulresentment and anomie through his stories of anguished charactersin their late teens and early 20s. One of Chinas top-earning authors,he is widely seen as a torchbearer for the generation born afterthe beginning of the countrys opening to the outside world, a groupthe Chinese call the "post-80s generation": apolitical, money- andstatus-obsessed children of the countrys explosive economic boom.His main weapon is his blog, where he criticizes the WritersAssociation, literary critics, bureaucrats, city mayors, and whoever hetakes it into his head to dislike. In a country where the oldconventions and traditions are respected, Han Han is somewhat anunderground force” Singapore Management University Digital Marketing Report Han Han lends VANCL an “anti-establishment” vibe designed to appeal to Chinese youth © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 26. Management is also prepared to associate the brand with some unconventional celebrities • In December 2011, VANCL invited famous (infamous?) Japanese adult film star, Sora Aoi, to attend their year end gala (Pictured left-top with VANCL‟s founder Chen Nian, left- bottom with VANCL spokesperson Han Han) • Sora Aoi surged to stardom in China (despite pornography being banned in the country) when she opened a Sina Weibo (“Chinese Twitter”) account. She currently has over 9 million followers. • The celebrity‟s appearance on the televised event caused much controversy with some questioning why the event was not censored on “moral grounds”. • However, others praised the move for demonstrating boldness, courage and VANCL’s sync with youth values – as well as leveraging her 9 million Weibo followersSource: Global Times, Want China Times © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 27. VANCL‟s “political quotes” T-shirts recentlygenerated further controversy • Two T-shirt lines were launched featuring quotes from famed politicians Wen Jiabao (E.g. “Look up at the starry sky”) and Deng Xiaoping (E.g. “Deny Xiaoping‟s Southern Tour”), along-side other brief words making references to famous comments or speeches • Many of the highlighted comments had ambiguous interpretations. For example, “Independent Character” comes from Wen Jiabao‟s comment “My independent character has not won people‟s understanding.” It‟s is unclear whether highlighting this comment slights Wen or celebrates his humility • The products were seen as violating advertising law for their use of political themes and the use of the likenesses of politicians to sell them; making VANCL liable to a fine VANCL earning further “rebellious” credentials? © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 28. Western audiences may recognise elements ofseveral foreign brands in VANCL‟s positioning H&M‟s French GAP‟s ADIDAS‟ fashion Connection‟s core productyouthful energy democratisation provocativeness simplicity VANCL‟s products contain a promise of French Connection “affordable fashion”, in a UK‟s re-branding style similar to was born on an Founded by Don Swedish/Global retailer edgy acronym & a Fisher who couldn‟t H&M. Fashionable simple product find good jeans to fit. designs at “good idea: Though expressive, ADIDAS‟s determination- enough” quality. The the product focus is based messaging in tune brand is carefully "cool clothes […] still: with youth that values positioned to appear presented in a success and winning, “egalitarian” and contemporary “Clean. Classic. not participation or “accessible” and to avoid environment and American design.” effort any vulgar connotations supported by fresh, of being “cheap” fun advertising” …And all underpinned by something like Amazon‟s reputation for service and efficiency © 2012 Matt Hunter matthunter.com BOS 20120606 MJH Vancl Redux V9-3
  • 29. VANCL invests ~$158M per annum in advertising to deliver its message • VANCL is a significant advertiser VANCL 2012 Known Media Spend by Channel (As of June 2012) • Reports place VANCL‟s 2011 media US$ 90 spent at $158M; equivalent to Millions 80 79.3 ~RMB 1 billion or approximately 15% of total sales 70 - This compares to marketing 60 expense of 3.5% of sales for 50 leading global retailer, H&M 40 30 • VANCL‟s media budget is thought to be majority online with an 20 12.7 11.9 emphasis on pay per click search 10 engine marketing and affiliate advertising 0 Outdoor Baidu Other Online • VANCL‟s 2012 media spend is forecast to be higher than 2011 – considerably so if commission for VANCL Star (see later) are includedSource: Want China Times © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 30. VANCL‟s paid digital marketing optimises todifferent metrics on different platforms Cost-Effective Direct Awareness Customer Attribution Building Acquisition • Partitions a portion of digital • VANCL accepts that some • Boost sales withoutObjective marketing budget to act as digital territories will not absorbing further risk from “direct response” generate high click through marketing rates • Spend heavily on major • Purchases high cost, highly • VANCL has long operated aStrategy portal sites and leading prominent ad space on the substantial affiliate Chinese search engine, highest-traffic websites advertising program offering Baidu, optimising around real (Sina, Tencent, Sohu …) to commissions of ~16% to time metrics boost brand perception web-owners and search engine marketers • ALSO purchases high- volume, low-cost space in • Enables skilled third parties social media platforms to assist in promoting VANCL (forums, QQ) to build with commission paid only on awareness & consideration realised, tracked sales • Cost per Click • Cost per impression • Cost per sale Metrics • Cost per Sale • Consideration to purchase • Estimated as driving 40% • Cost per Customer • Unprompted Awareness of sales in 2009 Acquisition • Cookie-based visitor tracking Versatility enables VANCL to tackle a range of online opportunities © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 31. VANCL‟s paid digital presence is complemented bya rich, well earned social following VANCL‟s Social Media Marketing Viral campaigns VANCL Star Weibo (“Chinese Twitter”) An active and The leading One of the strongest creative online innovator in social followings in micro- fanbase, generating commerce, directly blogging anywhere additional promotion enlisting customers in the world and media coverage and fans to generate revenue whilst bolstering the brand © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 32. VIRAL VANCL‟s Social Media Marketing Viral campaigns VANCL Star Weibo (“Chinese Twitter”) An active and The leading One of the strongest creative online innovator in social followings in micro- fanbase, generating commerce, directly blogging anywhere additional promotion enlisting customers in the world and media coverage and fans to generate revenue whilst bolstering the brand © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 33. VANCL successfully experimented with viral social media in 2010 VANCL “Mockery” Campaign Overview • In April 2010, VANCL combined on- and off-line media to create a highly Overview successful viral, social media campaign Objective • Leverage the growing Chinese internet trend of “online mockery” to gain cost efficient media exposure to a wide audience Strategy • VANCL launched a new campaign featuring celebrities (Han Han, Wang Luo Da) alongside their introspective thoughts • Campaign launched using nationwide TV and outdoor advertising in Beijing and Shanghai • With assistance of a media agency, VANCL created mocking copy-cat adverts based on this campaign and secretly seeded them online, with the aim of inspiring others to produce their own copy cat adverts Results • “Fake” seeded ads got the idea to “critical mass” and sparked interest • Copy-cat adverts were established as a unique Chinese internet meme • 3,000 customer created versions of the ad posted in the first 2 weeks • Widespread posting of copy-cats across Chinese social media • Significant additional unpaid media exposureSource: Thomas Crampton, CNN GO © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 34. “Introspection”: Original Advert © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 35. The advert became an internet meme, withcustomer created, socially shared, copy-cat adverts © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 36. SOCIAL COMMERCE VANCL‟s Social Media Marketing Viral campaigns VANCL Star Weibo (“Chinese Twitter”) An active and The leading One of the strongest creative online innovator in social followings in micro- fanbase, generating commerce, directly blogging anywhere additional promotion enlisting customers in the world and media coverage and fans to generate revenue whilst bolstering the brand © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 37. VANCL‟s 2nd breakthrough social campaign in 2011leveraged „curation‟ to actively boost sales VANCL “Star” Campaign Overview • In March 2011, VANCL launched a sub-site, VANCL Star, combiningOverview elements of photo blogging, fan advocacy and social media to create a new retail platform: social eCommerce • Leverage VANCL fans to cost-effectively sell VANCL productsObjectiveStrategy • Invite VANCL customers to upload photos of themselves modelling VANCL products • VANCL customers highlight the specific VANCL products used in their photos, tying to the VANCL online shopping experience • Encourage “VANCL Stars” to share their creations with the world • If other people buy items from a VANCL Star‟s product window, pay the VANCL Star customer a 10% commissionResults • 元238K sales in the first two weeks • Thousands of customers signed up • Lower cost per sale versus comparable channels (E.g. Affiliate advertising) gives opportunity for元600 million saving • Extensive additional “free” media coverage on- and off-line © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 38. The VANCL Star user interface combines photouploads, social features and electronic retail VANCL Star: User Interface Breakdown The VANCL itemsUploaded the star used photo Link to buy Share this Star‟s creation on social Click to “Love” this networking sites Star‟s style © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 39. VANCL announced RMB1 billion budget for salescommissions made through VANCL Star © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 40. VANCL Star has the potential to deliver RMB 600 million in media savings • VANCL Star‟s “League table” indicated the top 100 “Stars” had generated sales of nearly ¥240K in the first two weeks of the campaign VANCL Star: Sales Generated in the First 2 Weeks Since Its Launch Total Average Total Average Ranking Ranking Sales Sales Sales Sales 001 – 010 ¥159,926 ¥15,992 051 – 060 ¥8,790 ¥879 011 – 020 ¥30,099 ¥3,010 061 – 070 ¥6,839 ¥684 021 – 030 ¥18,548 ¥1,855 071 – 080 ¥5,227 ¥523 031 – 040 ¥12,215 ¥1,222 081 – 090 ¥4,404 ¥440 041 – 050 ¥10,265 ¥1,027 091 – 100 ¥3,989 ¥399 Total: ¥237,568 • Assuming VANCL reaches it’s target of issuing ¥ 1billion in commission at a rate of 10% of sales, this will represent a saving versus affiliate advertising (which typically pays ~16%) of ¥ 600 millionSource: iCity, New Media Analytics © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 41. MICRO-BLOGGING VANCL‟s Social Media Marketing Viral campaigns VANCL Star Weibo (“Chinese Twitter”) An active and The leading One of the strongest creative online innovator in social followings in micro- fanbase, generating commerce, directly blogging anywhere additional promotion enlisting customers in the world and media coverage and fans to generate revenue whilst bolstering the brand © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 42. Micro-blogging is more influential in China than in the US – making a strong brand presence vital Micro-blogs (E.g. Weibo / Twitter) Millions of 350 Micro- 319 bloggers 300 250 200 150 108 100 50 0 USA China • 3x as many micro-blogging accounts in China as in USA • 10x amount of internet traffic referred by Sina Weibo (the leading micro-blog platform) in China as is referred by Twitter in the USASource: CNNIC, Twitter © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 43. VANCL‟s micro-blogging campaigns are amongst the most successful in the world VANCL uses multiple • VANCL use individual Weibo accounts for Weibos (micro-blogs) to different product areas; allowing fans to get serve different functions updates from the company overall, the V+ third party brand store or simply from the canvas shoe line, if they so desire • VANCL actively monitors and engages in conversations with other Weibo users, making the medium interactive rather than purely broadcast • VANCL leverage Sina Weibo’s extra functionality (not available on Twitter) to engage their audience, offering polls and design-based applications • The brand has high relevance and continues to build relationships VANCL is the 2nd most re-tweeted user on Sina Weibo (the leading micro-blog platform)Source: Labbrand © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 44. VANCL uses its own following on Weibo to launch its strongest video creative –engaging audience and boosting Internet Word of Mouth • In May 2011, VANCL released their 1- minute long “introspection” advert featuring famed actor Huang Xiao Ming • The creative stood out for its boldness in a number of respects: - A boxing ring setting elicited ideas of determination, strength and struggle - An orchestral score overlaid a sense of greatness - A raw introspective soliloquy grounded the creative in a personal sensation Huang Xiao Ming - The overall message of the featured celebrity: that he is not an exceptional person, just an “At age seven, determined to be a ordinary person, struck a chord in a country used to a high degree of hierarchy and power scientist. But after growing up, he distance in daily life became an actor. Bestowed with good • Seeing the potential to generate significant looks, diligence, and success. But also internet word of mouth, VANCL decided to given ridicule, doubt, and mockery. This premier the advert via a Weibo link is life. You can strive, but you are • Within 8 hours, the advert had been re- incapable of refusing. What victory is tweeted (or in Chinese Weibo terminology, there? To stand one’s ground means forwarded) 120,000 times everything. That’s right, I’m not an • This is the current single day actor. “Not at all” (Eng). I’m an ordinary record for forwarding of a person.” commercial link on the Weibo platform in China Huang Xiao Ming‟s soliloquySource: Live Journal © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 45. Agenda • VANCL 101 介绍 • Products 产品 • Marketing 市场营销 • Logistics 后勤 • Financing & IPO 金融 © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 46. Chinese apparel retailers have many different approaches to distribution – VANCL is one of several operating without physical stores Distribution Channels: Chinese Owned Using B2C Outsourced Physical Apparel online store Platform Online Store Stores Market Overview No Bricks & Mortar Retailers: VANCL 凡客誠品, Mecox Lane 麥考林, PPG Multi-channelDistribution Strategy: Retailers: Li Ning, Uniqlo, H&M, Zara, GAP Platform leveragers Retailers: “Tao- brands”:Ringnor(言若), Milachic (樂米拉), Qiustyle ( 斯黛歐); Platform & Store Retailers: Sportica, Green Box ( 绿盒子),Levis, Justyle … Outsource & Store Retailers: Metersbonwe © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 47. VANCL retail over the phone, web and via app Call Centre(2007) Websites(2008) App(2009) • >1,000 staff • VANCL sells own-label • >110,000 calls daily V+ retails third party brands • >50,000 orders per day • 20 million registered usersSource: Call Centre Study, News Coverage © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 48. VANCL creates value for customers through a combination of strong design, marketing and logistics capabilities Manu- Services & Product facturing Outbound Marketing Reverse Design & Supplier Logistics & Sales Value Chain Logisitcs MngmntDescription:Translation of information to Transform plan to physical Delivery of products to Provision of info & Maintenance / long run plan product customers messaging to enhancement of customers product value propositionPrimary • Portfolio Resource • Inventory • Web / Mobile • Creative • Branding Allocation Planning & Stores Layout Development & • Gaining CustomerActivities: • Designer Replenishment Management & Execution Feedback Recruitment • Supplier Optimisation • Media Buying • Returns Handling • Assortment Selection • Markdown pricing • Digital & / Reverse Planning • Buying / • Customer Physical Logisitics • Cloning of Leading Negotiation Conversion Coordination • Customer Items of Rivals • Quality Control • Warehousing • Cross Selling Relationship • Third Party Brand • Business Process • Route Management Recruitment Re-engineering Optimisation • Cannibalisation • Labour Analysis OptimisationSecondary Management Information Systems (Translation of Data to Information) Sales Analysis; Competitor Intelligence; MarketActivities: Intelligence; KPI Measurement & Reporting; IS Hardware & Software Human Resource Management: Recruitment; Training; Promotion; Culture Creation © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 49. Like many Chinese retailers, VANCL has a heavy in-house logistics operation • The logistics industry in China remains extremely fragmented - China has many thousands of logistics firms; however most have less than 5 delivery vehicles at their disposal - In response, many internet firms (TaoBao, Yihaodian, 360Buy, Amazon Joyo, …) have ventured further down the value chain to embrace delivery • VANCL operates its own delivery firm: Ru Fend Da - Delivers majority of VANCL products in major cities (Shanghai, Beijing, Guangzhou, Shenzhen) - ->30 warehouses nationwide - 70% of 2011 deliveries carried in-house • VANCL also relies on third parties for fulfilment but makes strides to standardise service - Third party couriers must wear a standard “VANCL Vest” when making deliveries China‟s road and rail networkSource: Marbridge Daily • © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 50. VANCL‟s returns policy offers customers exceptional service - but generates substantial costs • VANCL encourages returns to raise customer satisfaction - VANCL couriers typically wait whilst customers try on their orders. Stock which they decide does not fit can be immediately returned - All returns are accepted within 30 days; irrespective of normal exceptions, such as labels having been removed or clothing worn • Founder Nian Chen described the thinking over the costs and benefits of this policy: "Its quite troublesome. Not only does the courier have to spend time returning the items, but the clothes cant be resold. [But] we dont want to lose a customer over the small delivery cost of [$3 to $5]. What would you choose -- to hold on to a small amount of money or keep a customer youve worked hard to attract? Its a simple choice” • Returns are reported to run at between 3% and 10% of monthly sales VANCL adopt a lifetime customer value (LTV) in assessing the profitability of their transactions; which may assist in driving long term growth, OR might equally permanently erode business profitabilitySource: Advertising Age, Call Centre Study © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 51. 2011 saw VANCL make a number of embarrassing and costly logistics mistakes • Following a number of successful marketing campaigns featuring Han Han & Wang Luodan, Average Number of T-Shirts VANCL‟s January 2011 sales were 6x January Held in Stock 2010 levels. (Millions of Units) • Making linear extrapolations, VANCL management made announcements of projected 8 sales for the year of RMB 10 billion, up from RMB 7.0 2 billion in 2010 7 • VANCL made three critical errors: - VANCL misestimated demand growth rates 6 - VANCL re-ordered sold out items, only to receive stock which was out of fashion by 5 the time it arrived in store and therefore was 4 -64% - slow to sell - VANCL expanded the product range to non- apparel lines which they did not understand 3 2.5 and did not fit the brand positioning • By September 2011, VANCL held inventory 2 worth RMB 1.4 billion; equivalent to 100 days of sales 1 • VANCL were forced to embrace mark downs to move inventory and 0 today have pushed inventory days 2011 2012 back to 30 VANCL sell around 150,000 T-Shirts per day. • Although VANCL appear to have In 2011, poor sales analysis led VANCL to largely recovered, the episode appears increase inventory to an unnecessarily high 7 to demonstrate a basic weakness in million units. Stock has now been reduced to VANCL‟s data analysis and logistics just 2.5M. capabilities that could have long term implicationsSource: Economic Observer © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 52. Agenda • VANCL 101 介绍 • Products 产品 • Marketing 市场营销 • Logistics 后勤 • Financing & IPO 金融 © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 53. To date, VANCL has received $500M from investorsRound Year Month Investors & Amount1st • 2008, January SAIF invests US$10 million July SAIF, Qiming, Venture Partners, IDGVC2nd jointly invest US$30 million3rd • 2009, August Qiming, IDG, Ceyuan, SOFTBANK invest US$30 million4th • 2010, September IDGVC & others invest $100M5th • 2010, December Ceyuan, SAIF, Tiger Fund invest $100M6th • 2011, December $230M further investment Chen Nian asserts VANCL will value at US$5 Billion upon IPOSource: Press Reports, Chen assertion: China Daily 2011-03BOS HunterMJH Vancl Redux V9-3 © 2012 Matt 20120606 matthunter.com
  • 54. However, many analysts suspect VANCL‟spricing is too aggressive to be profitable Illustrative Cost BreakdownLow cost T Shirt• Price: RMB 29• Cost: - Material(cotton fabric): 0.15kg/piece*70/kg≈ RMB10 - Printing: RMB 3 - Manufacturing: RMB 5 - Tags etc.: RMB 1 - Delivery (free if order >RMB 200) RMB 15 Stock? - Overhead? - Returns / Reverse Logistics? - Marketing expenses? Result: VANCL is loss-making on many low end transactions © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 55. Chen Nian has little time for doubters of his“loss-leader, land grab” business modelChen dismissed talk of a possible repeat of the dotcom crash inChina, saying that the current wave of fundraising and new Internetcompanies were being driven by real consumer demand for Web services."The difference is that with websites such as Vancl.com, users actually haveto fork out some money to pay for products, and its not just measuringclicks," Chen said."If you say its a bubble, its either because youre not a well-runcompany, or its because youre a venture capitalist who cant affordto enter the market and so you complain about the high cost ofentry.“ China Daily (2011-03-09) © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 56. Can VANCL‟s business model provide resultsfor investors? The case for… The case against… VANCL‟s cash high burn rate is driven • Customers‟ satisfaction with VANCL is primarily by marketing investment based on an unsustainable value Marketing spend has been used to build proposition: most notably, exceptionally brand awareness and convert China‟s low prices, and overly generous returns rapidly growing internet user base into • Although celebrated for innovative regular customers marketing, VANCL‟s digital marketing As customers are converted to regular campaigns are in truth relatively re-purchasers, the % of net sales straightforward; relying simply on huge invested in marketing will fall budgets rather than sophisticated targeting or messaging to produce Generous returns policies have helped results new customers embrace internet shopping; and return rates are likely to • VANCL‟s logistics capabilities are also fall as customers learn what sizes to suspect: the 2011 over-stocking fiasco order and what product quality to expect suggests serious weaknesses. VANCL are unlikely to gain a competitive edge VANCL‟s strong brand name, established versus logistics specialists (e.g. Amazon) customer base, scale and sophisticated or emerging consolidated third party logistics will provide a “moat” to protect logistics companies (e.g. a Chinese DHL). future profits This makes VANCL‟s courier and warehousing investment a liability, not an asset © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 57. Matt Hunter is a digital marketing specialist with 8 yearsexperience. He previously worked at managementconsultancy Bain & Company in London, Johannesburg andSydney before heading digital marketing and productdevelopment at Confused.com, a successful UK internetbusiness.He specialises in digital marketing, product development andstrategy.He holds an MA in Economics & Management from theUniversity of Oxford, an MSc in Strategic InformationSystems from Cardiff University and is currently completingthe MIT-Tsinghua MBA in Beijing, China.<< Available for opportunities in digital marketing, tech start-ups or PE/VC funds; and roles with Asian exposure. >>Email: ProfessionalEnquiries@Gmail.comLinkedIn: http://cn.linkedin.com/in/digitaldirector matthunter.com DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY © 2012 BOS HunterMJH Vancl Redux V9-3 Matt 20120606 matthunter.com
  • 58. matthunter.comDIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY © 2012 Matt Hunter

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