Forget "Consumption Upgrading" — The Biggest Change in Commerce Today, Online and Offline, Is "Fast-Fashionization" | QDaily's 2017 Trend Insights, Part 2

The fast-fashion industrial model has handed the market countless new choices, but where it leads isn't the vague word "upgrading" — it's something far more complicated: differentiation.

Fast-fashionization, rising purchase frequency, middle-class insecurity, demand reshaped by demographics... In 2017, the phrase "consumption upgrading" is no longer enough to tell you where business is going.

QDaily's 2017 Trend Insights series takes up these questions from four different angles. In this second piece, we look at the "fast-fashionization" now showing up across many industries.

In 2016 the brick-and-mortar economy clearly did not recover, and the efficient internet kept squeezing out every unnecessary middleman. But anyone who did business over the past year, online or offline, should have noticed one thing: raw foot traffic is worth little on its own. Whether a business is doing well now depends on who can get consumers to stop and buy something, buy it more than once, and — with a wide enough variety of goods and services — get them browsing and staying longer.

This question of "purchase frequency" has replaced the question of "traffic" as the one that matters to every kind of company in 2016 and into 2017 — and here, online and offline companies start from almost the same line, everyone feeling around for the most sensible approach.

A telling example of the change is HKRI Taikoo Hui, the mixed-use commercial complex on Shanghai's Nanjing West Road.

On this street, the most expensive commercial strip on the mainland by rent, HKRI Taikoo Hui is seen as capable not just of reshaping the whole district, but of becoming a template that big commercial-property developers will study.

According to what HKR International and Swire Properties have told the media, the shopping-mall portion of the complex covers close to 100,000 square meters. But in the final leasing plan shown to brands, most of the units on offer are mid-sized stores of 150 to 200 square meters, split roughly in thirds among clothing, dining, and lifestyle retail anchored by cosmetics specialty shops. Besides an outdoor space that hosts a themed event every month, every floor sets aside room specifically for pop-up stores.

Li Zhenhui, the project's general manager for leasing and management, told QDaily that there is a gap in positioning among the commercial complexes on Nanjing West Road: what the roughly 200,000 white-collar workers in the surrounding area want keeps changing. They are young, have lived in different places, and have a global outlook of their own. "Consumers are picky, and they're very good at mixing and matching, so we won't lean too hard on any one type of tenant — we spread the whole tenant mix out evenly."

So HKRI Taikoo Hui dropped the traditional leasing strategy for commercial property — hand a thousand-plus square meters to a single high-end brand and carve up the whole project fast — in favor of a mix of mid-sized stores, hoping to keep pace with trends and demand that never stop shifting.

Flexibility and "fast change" are now what a commercial property developer wants most.

QDaily wrote earlier about Alibaba's across-the-board "contentification" strategy in 2016, the first time in more than a decade that the company rethought how to do e-commerce. The reasons behind the shift have been named many times: the traffic dividend is shrinking, and mobile, once it became the mainstream, redefined how things get sold.

Taobao's new positioning is to "find the joy of discovery" — to turn Taobao into a genuine way to kill time.

Another piece in this series will look closely at how Alibaba and other companies got to "doing content." In short, it too is a way of stretching out how long consumers stay and how often they buy. Entry points once sorted by category — menswear, womenswear, bags, sports and outdoors — have given way to sections like "Good Stuff," "Love Shopping," and "Must-Buy List." Taobao keeps getting more all-purpose, folding in every entry point from food delivery and secondhand goods to crowdfunding and travel products. Alibaba's other product, Alipay, is doing the same.

If all this is e-commerce reorganizing and subdividing itself after ten years, then O2O — once loaded with expectations — is the cautionary tale about purchase frequency.

You may not remember anymore, but when O2O was at its hottest, the line we heard most often was "it can increase how often users buy." That line got attached to every kind of O2O service — buying medicine, buying flowers, manicures, home cooking, pet grooming (QDaily even ran an experiment called "18 Days Without Leaving the House", the high-water mark of the whole thing). But the demand these services hoped to serve turned out not to exist. The O2O industry expanded by using subsidies to keep pulling in new users, not by getting old ones to buy more often.

Ride-hailing, food delivery, and movie tickets did survive, of course. We'll come back to that.

We've said "purchase frequency" a lot, and it isn't a phrase most people use. Swap in something like "fast fashion" and the point lands: from production to consumption, everything now has to run faster and offer more variety. Makers, sellers, and consumers have become links that act on one another — offer more, buy more; move faster, offer more.

Pulling this off is hard. But whoever manages it, online or offline, wins.

What Makes People Buy?

2016 may have been the year that more and more physical stores were willing to spend on design. QDaily has written at least 30 articles about it, and most of the subjects weren't big chains but snack shops, cafés, bookstores, bars, and boutiques. Companies like McDonald's and KFC have been pushing store renovations hard too, as part of making their brands younger and more distinct.

All of which can leave the false impression that a bit of design differentiation is the whole job. In fact, consumers may walk in because a place looks good, but if it doesn't feel rich in what it offers, they won't come back often.

One kind of richness is the range of choice in the products themselves. Take the Korean eyewear label Gentle Monster. What people notice most about the brand is how completely its store decor changes from city to city. Few notice that its products, besides being designed for Asian face shapes, are also finely divided by occasion and by how they're meant to be worn with an outfit. Purchase frequency here doesn't mean buying the same thing again; it means buying for different occasions. Once you accept Gentle Monster's premise, the days of picking up one cool pair of Ray-Bans at a mall counter and wearing them for three years straight are over.

Another kind of richness is a steady supply of new things to talk about. After the Fangsuo Commune bookstore opened in Guangzhou's Taikoo Hui, the culture and lifestyle talks held there could easily be tied to book signings. Linghu Lei, who now runs Hengshan Heji, is happy to name the brands that hold events in his space — Hermès, for one.

You can see the same thing in the character-themed exhibitions young people love, from LINE and One Piece to Kumamon, which have become a standard way for malls like Joy City and Hongqiao Tiandi to draw a crowd on a schedule. And restaurants keep launching seasonal specials, luxury boutiques keep launching city-exclusive items, and clothing brands keep teaming up with all sorts of people on co-branded designs.

None of this is easy on the operator. They have to keep hunting for new subjects and stay alert to shifts in spending and taste. Even interior design now moves in waves — the post-industrial look, all brass and concrete, surely has to change in 2017.

In Some Industries, Fast-Fashionization Has Already Forced Real Change

We covered the secret behind South Korea's cosmetics industry in our year-end data coverage. Take all the companies in it together, as one thing, and you have a case very close to fast-fashion apparel: win on volume, test the market fast, adjust the product lineup fast. It survives by developing new products constantly, keeping up with how consumers feel, and sometimes leading what they think they want.

As in clothing, trends in beauty turn over surprisingly fast, and whoever can keep up takes the market. Korean cosmetics manufacturers can now cut a product's development cycle to four months; most beauty brands need more than a year.

In this fast-response system, the contract manufacturers that control production have more and more say, and they have gradually moved from the OEM model — take the order, put someone else's label on it — to the ODM model, with their own R&D and their own intellectual property. With that step outsourced, cosmetics brands only have to market new concepts and trends, then use real products to test and fail quickly.

In most industries, though, rebuilding the supply chain that "fast-fashionization" requires is hard, so the change hasn't gone nearly this far. Of everything involved, the easiest part to copy is following the trend step for step.

In apparel, where fast-fashionization has already gone a long way, children's wear has become a new way in. As more and more young mothers become this market's main buyers, guessing what trendy details they want on their children's clothes — the same guessing game fast fashion plays with adults — has become the brands' main job.

Internet news, the spread of fast fashion, and the example set by celebrities and their children all work on these young parents. The sporty look, normcore, and big floral prints that were once popular among adults all get borrowed by children's-wear designers. At Gap's headquarters in New York, a dedicated children's and baby wear team designs new products on a monthly cycle, following the latest trends.

What Can the Movie-Ticket Business Tell Us?

Back to the phenomenon raised at the top of this piece. The companies that survived that wave of O2O and are now fixtures of your life come down to a few industries: ride-hailing (Didi–People's Uber, Yidao), movies (Maoyan, Wepiao-Gewara, Taopiaopiao), and food delivery (Baidu Waimai, Meituan, Ele.me).

Like every other O2O company, they first expanded their reach through frantic subsidies. Movies may be the perfect example: they grew by pushing development upstream, and so raised purchase frequency indirectly.

Selling a movie ticket is tightly linked to what comes before it — screening schedules, marketing and distribution. The early subsidies pushed people to make moviegoing one of their default forms of entertainment, and pushed the upstream to keep making more content.

Meanwhile, apps that could once only sell cheap tickets now recommend new releases and run film-review communities. Starting from the data they've piled up, and with capital behind them, ticketing platforms can keep moving upstream — from marketing all the way to the content itself, joining a film's early production as a co-producer.

In the process, the value of a platform like Douban, which once had a monopoly on movie information online, has been badly eroded. Today many people decide they want to see a film first and check Douban's reviews afterward, and plenty don't check at all, going around the platform entirely.

Douban is an interesting case. The site once sold movie tickets too, but its weak promotional muscle and its half-hearted commitment to the business became its own shackles. Sitting on a mountain of information, it never became an O2O winner, and it's still stuck on the question of how to get people to keep coming back.

If there's a lesson here for the brick-and-mortar economy, it's that it should take seriously the value created when information starts moving differently — and, of course, the people who make that information.

Don't Overstate What an "Internet Physical Store" Can Do

Moving from online to offline became a favorite subject among Taobao-native brands in 2016. The standout was probably Yinman, the cotton-and-linen clothing brand that had become Taobao's top seller across all categories; we named it a "QDaily New Company of the Year" at the start of 2016. At the time it was working its way offline from a purely online brand, hoping to have 1,000 physical stores open through franchisees by the end of that year.

In an interview with QDaily, founder Fang Jianhua mentioned one key number: what Yinman then paid to acquire a single new customer online had already passed what it cost to draw one new customer into a physical store in a third- or fourth-tier city. That's what made him jump into the market at a time when the industry generally thought offline retail was a losing proposition.

What Fang Jianhua described is the concrete version of "the traffic dividend is used up." But most people saw only that Yinman was opening stores, and missed the two things behind it. First, the great majority of those stores were franchises, so Yinman itself carried little risk. Second, Yinman picked store locations using Taobao user data, which in effect gave it a large number of storefronts working as displays, which in turn pushed online sales further. Yinman was trying to shift the cost of online promotion offline — not to shift all its sales offline.

The same pattern is even easier to see in home furnishing.

Take furniture, a bulky, expensive, non-standard product. Compared with buying it online, going to see the real thing, touch it, and work out how it combines with other pieces has become a fairly urgent need for consumers. Placing the order and getting it delivered online is only part of the sale; installation and repairs are still work that offline outlets have to do.

Taobao brands like Ziinlife and Muzhi Gongfang, on the strength of the reputation they built online, no longer need traditional furniture malls and dealer channels either. For them, finding the right spot offline and setting up a store as a showroom isn't very hard; they can even choose, according to their own needs, whether to open a standalone shop inside a creative district or move into a shopping mall.

This, too, treats the physical store as a large-scale promotional tool. At a moment when "the internet dividend is disappearing" is such a fashionable line, turning blindly to the brick-and-mortar economy could be fatal for a lot of people, and calls for caution.

Forget the Crude Idea of "Consumption Upgrading"

Let's restate this article's argument. In 2016 more and more industries tilted toward "fast-fashionization": read trends and market demand more precisely, produce more products quickly, put them on the market, reach a verdict fast, let the strong live and the weak die, stimulate more demand along the way, and use a faster production cycle to raise both purchase frequency and brand loyalty.

The influencer products and niche long-tail goods this produces are easily lumped together with "consumption upgrading," the phrase investors have been so keen to discuss these past two years. The fast-fashion industrial model has indeed handed the market countless new choices (and produced countless fads that vanish just as fast), but where it leads isn't the vague word "upgrading" — it's something far more complicated: differentiation.

On the surface the market is converging (compared with before). As we noted about food and drink trends in the previous piece, restaurant interiors, department-store overhauls, and entertainment product development are starting to look alike everywhere in the world. But fast iteration in fact produces different kinds of consumers, and the end result is that each takes what suits them. Spending has become a way of saying who you are, and the gap between one consumer aesthetic and another can be wider than the gap between consumers in different countries.

Under these conditions, how strongly and clearly an operator can speak in its own voice becomes the thing that matters most. What makes that harder than it used to be is that the surroundings have grown noisy, and an operator has to keep changing its methods in order to keep saying the same thing.

All of this, of course, assumes the person doing it knows who they are.

Cover image from Pexels