Sponsored By Samarkand Global
Convinced Western brands were not capturing the full market opportunity in China because of a cultural, business, and technological gap between Western brands and Chinese consumers, Samarkand Global set out to build a business that would close the gap and capture the full growth potential in China. Their secret sauce to success - technology.
Samarkand Global is a China e-commerce accelerator working with beauty brands such as 111SKIN, Omorovicza, ICONIC LONDON, and Philip Kingsley. Headquartered in the UK, Samarkand one foot firmly placed in the western markets with the other foot deeply entrenched in China through their office in Shanghai, closing the gap making selling in China simple, accessible, and profitable for Western beauty brands.
BeautyMatter caught up Samarkand to get a download on the current dynamics of the Chinese beauty market, their unique DTC strategy, and a look into the future of what will soon become the largest beauty market in the world.
China has become a crucial international market where success is often contingent upon finding the right partner. Can you share a bit about the Samarkand business and what differentiates your approach to launching and building beauty brands in China?
Samarkand was founded in 2016 because we were convinced that Western brands were missing out on enormous opportunities in China due to a cultural, business, and technological gap between Western brands and Chinese consumers. We have used our tech expertise to build connections with platforms, e-commerce stores, Key Opinion Leaders, China customs, logistics partners—all to close that gap and make selling in China simple, accessible, and profitable. Being both close to brands through our UK HQ and to the Chinese consumer through our teams in Shanghai means we can build a deep relationship with and understanding of brands and marry that with a clear focus on China’s beauty consumers. For both incubation of new brands, and acceleration of more established beauty brands, we believe in building a strong distribution base of market-leading, online beauty retailers, getting products into the hands of Key Opinion Consumers and using our data and market expertise to understand our brands’ Chinese consumers.
In a market that moves as fast as China, your technology DNA is a powerful differentiator. What was it about the beauty and wellness opportunity in China that compelled you to found Samarkand?
The Chinese consumer is always evolving. In the past, being an international brand was seen as a key differentiator; now, the market is incredibly competitive, and consumers are well researched. They are hungry for innovation and efficacy. In beauty and wellness, exciting developments around innovation and efficacy are often happening with niche brands. Traditional market entry business models have often kept niche brands out of the Chinese market, leaving consumers with a narrow brand selection, dominated by hero products. At Samarkand, we are motivated to create business models that give Chinese consumers access to the best international brands and provide brands a simple and profitable way to access the market, whatever their size.
In addition to the traditional TP/Distributor services, you also own multiple e-commerce storefronts. How do you use these points of distribution for your brand partners?
There’s a perception that the only way to launch in China is to go straight to Tmall—and while Tmall Global is a powerful platform, it also has intense competition and high customer acquisition costs, and isn’t always the right route to market for every brand, especially as a first move. We have built partnerships with niche platforms and operate storefronts on Douyin, WeChat, JD Worldwide, and Little Red Book, as well as having fully integrated our technology with KOL-led platforms on the WeChat ecosystem, and recently launched a beauty “blind box” channel, “DSCOVER.” Having a variety of routes to market—including ones that already have an established audience of beauty super consumers—allows us to test and seed new niche brands, and to both provide lower-risk opportunities to new-to-market brands, and to build a wide base of managed distribution for more established players.
You work as both an incubator and an accelerator for brands already established in the market. What do you look for in the brands you partner with?
There’s three really important things which unite all of our brand partners—unique, effective products; a compelling brand story; and a China mindset. The first two are self-explanatory, but identifying whether an organization has the right mindset for China is a bit more complex. Assuming what works in your home market will automatically work somewhere else—especially China—is a common mistake among many brands. We value brands who can work closely with our UK and China teams to learn, be flexible and reactive, and embrace China throughout product ideation and development, and then positioning and marketing process, so that we can provide something to Chinese consumers that will improve their lives, get them excited, and create lasting brand loyalty.
Tapping the potential China represents is vital to the growth of international beauty brands. While the market moves fast, success doesn't happen overnight. It's become increasingly competitive and expensive to support. What's required for a brand to successfully launch and build a business in China?
It’s true that China has gotten more expensive—and that means having realistic and long-term goals is more important than ever. Finding a partner who aligns with those long-term goals is key. At Samarkand, we aim to build a sustainable, profitable business for both our brand partner and us. To grow a new brand in the incubation phase, the key is entering the consideration pool of key beauty consumer groups. That means being present on the right social channels, having the right distribution network, and choosing the right activations to incrementally build awareness. For established brands in the acceleration phase, combining well-run branded storefronts with selective distribution across influential channels is central to our strategy. In this phase, pricing and brand control are key, and our in-market, specialist teams allow us to closely monitor this throughout.
Cross-border has traditionally been the first and, for some, the only point of entry to the market. As international brands have gained a deeper understanding of the market and animal testing requirements are changing, brands are looking to capture the full online and offline opportunity. What is your strategy around channel cadence?
The changes to animal testing regulations are really exciting—it is the first step of opening up of the domestic market to more international brands. Challenges remain—not least requiring a local entity to act as your responsible party, which can be a lot of control for brands to hand over. In addition, “special-use” cosmetics and anything with novel ingredients still require animal testing to enter the market, which remains a significant barrier to many beauty brands. Although the changes to General Import are exciting, cross-border will remain the predominant channel for Chinese consumers to discover new international brands. This natural entry point provides brands with an opportunity to identify key messages and hero products before committing to investing heavily and taking large amounts of stock into the market. Of course, there’s nothing like experiencing a product, and the increasingly sophisticated O2O ecosystem in China will play an important role in building brand awareness for international beauty in China.
The DTC channel has become crucial for brands not only in their home market but also internationally. While the e-commerce opportunity is massive, beauty brands rarely contemplate a DTC strategy in China. Could you unpack the DTC opportunity in the market?
There is a perception that the dominance of marketplaces and the prevalence of resellers and Daigou in China is led by consumer demand, meaning brands abandon their DTC strategy for the market. In reality, consumer trust of marketplaces is low and the DTC opportunity in China is significant, in 2020, 19.1% of Chinese consumers shopped on international (overseas) websites. This number is high considering that international websites often don’t provide a good experience for Chinese consumers, with basics like site speed, logistics, and payment options often ignored. Many beauty brands already see good traffic coming from Mainland China—even if they haven’t done anything to optimize their site. The opportunity is to convert that traffic, and implement some of the tools that will turn those research visits into conversions. If international brands can convince consumers they are reliable, reassure them they are authentic, and ensure they are priced fairly, then there is an enormous opportunity to take a piece of the market. Consumers want access to the latest products at fair prices, and getting products direct from the brand’s site can provide the best branded customer experience.
Would you explain the technology solution you've developed to enable brands to sell directly to Chinese consumers?
Nomad Checkout reduces the barriers Chinese consumers face when shopping on international websites. It combines China-specific solutions for payments, site speed optimization, trackable logistics, and automated cross-border customs clearance to improve the customer experience. Alongside a better on-site experience, post-purchase customer experience is improved through faster delivery times, clear returns processes, and reducing customs stoppage rates. Nomad Checkout is being used by both small brands and large multi-brand beauty retailers, and thousands of transactions have been processed since its launch. Nomad Checkout can be implemented as a Shopify app or directly integrated with any e-commerce platform, meaning that international brands can now sell direct to Chinese consumers using their existing e-commerce ecosystem, and no investment needs to be made into an additional stock holding or new e-commerce storefronts.
This year's Singles Day shopping event happened under the cloud of a sweeping government crackdown on private business in China, and a shift from focusing on pure sales figures to sustainability and inclusiveness, reflecting the "common prosperity" agenda. Are there any learnings brands should be taking away from this year's Singles Day?
Singles Day always throws up something new—and the focus on sustainability is a fascinating development. Changing social attitudes, coupled with top-down legislation such as strict recycling laws, are beginning to have an impact on the way people shop and some of the selling points consumers look for in beauty brands, but these are still secondary considerations; product efficacy and brand story remain primary.
Another key learning has come from the fallout between major international brands like L’Oréal and Austin Li. Brands were found to have broken their commitment to provide the livestreamer with their best price, offering a bigger discount later in the Double-Eleven promotion period. The power of livestreaming talent—especially Austin and Viya—is incredible, and the argument generated over 500MM views on Weibo. I think this issue illuminates two bigger strategic questions, too: first, when livestreamers can offer deep discounts and amazing deals all year round, is Double-Eleven as relevant? And second, if you consistently work with a major livestreamer offering hefty discounts, how does this impact your pricing strategy on other channels?
What are some of the emerging trends or market shifts businesses should be aware of as we head into 2022?
A market shift we’re excited about is the increased diversification of cross-border shopping channels, and the ability to reach different customers by accessing their engaged consumer base. We’re especially excited about Douyin, where we already operate a cross-border store focused on premium beauty brands like 111 Skin, Iconic London, Omorovicza, and Philip Kingsley. In 2020, Douyin’s 600+million daily active users spent, on average, 88 minutes on the app. That’s four times as long as the average Taobao user, who clocks in at 22 minutes. With Douyin’s big strategic push into e-commerce, and launch of cross-border stores earlier this year, we have had a really strong start and see great potential to engage with consumers through livestream and content, and to sell to consumers where they are spending time.
All beauty brands should also be aware of the Guochao trend—a deepening preference for buying Chinese brands and products, which for beauty started strongly in color cosmetics but is now developing quickly in skincare, haircare, and across other beauty categories. Competition is getting more intense—but we’re also seeing the signs that some of the stratospheric marketing budgets of brands like Perfect Diary are coming back down to more normal levels.