March 01, 2017

China Social Media Review - Week of Feb. 20-27

002352 CH, EL, LB, LORLY, OR FP
By Meredith Sun
Social media in China last week was dominated by Victoria’s Secret’s flagship store opening in Shanghai, SF Express’ IPO and the continued popularity of cosmetics, with movement away from South Korean brands.

Victoria’s Secret: L Brands Inc.’s Victoria’s Secret opened its first flagship store in Shanghai on Feb. 23 and a second flagship store in Chengdu, in the Sichuan province, on Feb. 24. The company did limited marketing for both openings, but word spread on social media that the company would hold grand opening ceremonies with their models on March 8 in Shanghai and March 10 in Chengdu. Despite little marketing and opening on a working day, OTR Global found the Shanghai store full of customers and constant lines for cashiers on all four floors, although the lines were not too long and many consumers were seen taking selfies inside the store. The fancy decorations on the four-story building itself were attractive enough to win a lot of praise from the local media and fashion bloggers, and a few bloggers live streamed their visit on Weibo Corp.’s Weibo.com. The building formerly housed LVMH Moët Hennessy Louis Vuitton SE’s Louis Vuitton’s flagship store, and Coach Inc.’s Coach and Compagnie Financiere Richemont SA’s Cartier flagship stores are across the street.

The new Victoria's Secret store offered all series and collections of the brand's in-season products, including many runway styles. One salesperson said all the products were shipped from the United States, and products were not adjusted to fit the Chinese market, though she said in the future it could manufacture in China and make adjustments for Chinese consumers. Consumers’ feedback on the products was mostly positive, and most described the products as “very sexy," appreciating the lace and femininity of the product, as well as the different choices and styles. But more importantly, many found the prices very affordable. Most bras were priced between 138 yuan ($20) and 568 yuan ($83), and only a very small portion of the designer styles were priced from 848 ($123) yuan to 1,468 yuan ($214). These price points make Victoria’s Secret very competitive with the other underwear brands in China. A local, mid to upper level brand, Aimer Group’s Aimer, prices bras ranging from 128 yuan ($19) to 580 yuan ($84), with their high-end products priced at 880 yuan ($128) to 1680 yuan ($245). Another big brand, Triumph International Holding GmbH’s Triumph, is priced between 168 yuan ($24) and 820 yuan ($119). OTR Global believes Victoria’s Secret will be considered the “affordable luxury brand” in the underwear segment by Chinese consumers, similar to the strategy Coach employed when it first entered China, which helped brand awareness increase quickly within a short time. 

SF Express: SF Holding Co. Ltd. (002352 CH) went public on the Shenzhen Stock Exchange on Feb. 23, and the market didn’t hesitate to show its fondness for the company; the stock rose 50% in the first five trading days, aided by a strong FY2016 earnings report (which was not offered in English). SF Express' net income was 4.18 billion yuan ($607.56 million) and total revenue was 57.48 billion yuan ($8.355 billion) in 2016. Almost all major financial and economic media headlines were about SF Express the week of Feb. 20 to 27 on Weibo.com. SF’s IPO was ranked in the top 10 topics with nearly six million reviews. SF Express is the unquestionable leader in China’s express industry with the best reputation and a widely respected founder, Mr. Wei Wang. SF Express’s non-franchised business model became particularly valuable because of rising concerns over the franchise business model of competitors, including YTO Express Group Co. Ltd. (600233 CH), ZTO Express Cayman Inc., STO Express Co. Ltd. (002468 CH) and Yunda Holding Co. Ltd. (002120 CH). (Also see OTR Global's Feb. 22 note.) SF Express’s strong reputation comes from its top-notch service and its delivery, which is widely considered the fastest and most reliable because of its strong transregional transportation. Consumers are willing to pay higher prices for SF Express -- it usually costs 50% or even 100% more than other express companies, per order. Industry analysts in China generally believe SF Express’s business model and margins are more sustainable and that the company could likely to gain share from its franchise model competitors, which operate at higher margins than SF but are expected to see margin deterioration given necessary costs to invest in their business, mostly in areas where SF Express has already made those investments (additional transportation lines, e.g. air freight, and buying back delivery stations from franchise partners or shifting margin to franchise partners).

Cosmetics: Lipstick color is becoming a hot topic in China and has ranked high on Weibo.com’s popular topic lists for several months, with fashion bloggers and brands advertising products whenever a new color comes out. In the last two months, L’Oréal SA's YSL lipsticks have dominated the topic, and most fashion bloggers recommend YSL, followed by The Estée Lauder Cos. Inc.’s Estée Lauder. LVMH’s Dior recently received attention for one color because of its ties with a celebrity. However, OTR Global found almost no recommendations for South Korean brands in the last month, which is unusual since South Korean brands' sales growth has been better than Western brands' growth in China during the last two years. OTR Global believes tensions between China and South Korea caused by THAAD (Terminal High Altitude Area Defense) could be hurting South Korean cosmetics sales in China. OTR Global also attended a small, local conference on supply chain management  in Shanghai where a spokesperson from LVMH's Sephora said the company could not import South Korean products into its stores in China, for reasons that were unclear; and as a result, sales of South Korean brands were hurt because of lack of inventory, while Western brands, especially L’Oréal and Estée Lauder took share.
Contributors: Carin Davenport

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