We recently sat down with Jeff Unze, President of Strategic Partnerships at BorderX Lab, to discuss the ins and outs of the Chinese market and how BorderX’s product, Beyond 别样 Fashion Discovery App, effectively taps into Chinese cross-border shopping. Jeff has been heavily invested in Chinese media and Asia-focused affiliate marketing for over 20 years.
CJ: How long has BorderX Lab been in business? How would you explain your company/business model?
Jeff: We just celebrated our 4-year anniversary in August 2018. The Beyond app has been live for about 3.5 years.Our company’s goal is to make it as easy as possible for Chinese consumers to buy cross-border from US and European merchants. We started with three Chinese founders, who were working in the US for Google and other companies. Whenever they went back to visit their families in China, they noticed that the online product selection wasn't as good and the products from the US and Europe were a lot more expensive.
We're currently in an environment where there's price asymmetry, but because of the internet, there's no longer information asymmetry—if I'm in China I can see how much a designer coat costs in China and then I can go to the designer’s primary site and wonder, "Why am I paying 50% more for the same product? I live in a developing market. There's no reason I should be paying more." So the idea was to take the price asymmetry out and create an accessible channel for people to buy cross-border. Chinese shoppers now have access to a full product line and the hot products that aren’t yet available in China through our app.
On the merchant side, we make it as easy as possible to enter the Chinese market. I've talked to several merchants that say, "Oh, we're going to go with one of the big Chinese platforms." But when you go that route you have to make a big upfront commitment. You have to commit to a big ad spend. And a lot of times they don’t break even until year three, if ever.
For us, there's no upfront fees—we're trying to make it easy for merchants and brands to come on and sell immediately. With us their first sale's a profitable one because it's a pure rev share model. It's a simple way to get your toe in the water in China, find your rhythm, and then really scale.
CJ: Logistics can be a challenge when tapping into international markets. What must Advertisers that want to work with you do to set themselves up for success?
Jeff: They don't have to do much on their end. Part of our value proposition is that we work with the merchant and take their entire product line and localize it. We do the translation work from the get-go. We categorize everything to make it easily searchable on the app. We write content about it to teach people what's new and cool about those products. When an order is placed, they just ship to one of our logistics centers, which are in Delaware, Oregon, and Los Angeles. So to the merchant, every sale looks like a domestic sale. The only thing they have to do on their end is whitelist our payment method because we're taking Chinese online payments and we're paying with our credit card. Once a product gets to our warehouse, we can get it to China in five days—it's pretty quick.
I’m always surprised how many companies have big problems with their domestic shipping. We've had circumstances where product takes two weeks to get to one of our logistic centers within the US. It should never take longer to get from one point in the US to another point in the US—that’s twice as long as it takes to get to China! We're to the point with some of our merchants where we actually pick up from their warehouse when we're doing a particular amount of volume so they don't even have to domestic ship. We can do that, especially for merchants with warehouses near our logistics centers. We're always working on making things better to offer a more consistent shopping experience.
CJ: Tariffs are a big thing for Chinese consumers. Do you help Chinese consumers with that piece of the purchase? Is it something they get to bypass when they purchase through the Beyond app?
Jeff: They don't bypass it, but we offer a lot of different methodologies. It really depends on customer preference—we allow them to make the choice themselves. You can order a product via our platform as duty delivered paid and pre-pay the customs. With that option, there’s usually an 9.1% customs rate, so it's a little bit lower than the average one. But we have other options as well including a courier (which is prepaid) and a postal route (not prepaid) which offers higher customs fees, but not all packages are checked. When we started, almost everyone wanted to use the postal method, but as the trade war has raged and customs check rates have gone up people are migrating to the prepaid routes. We do help with customs if there are issues. We have a 60-person client support team which is the biggest group within our company, and they handle all those front line inquiries.
CJ: What do you think the market or economic drivers are in the China market right now? Have you seen a shift in trends or has it been fairly stable?
Jeff: Oh, it's very interesting! I read a poll from a couple of years ago that said China was the most optimistic country in the world. In terms of their idea about the future and the level of wealth and happiness they expect to have, they're very optimistic. I think optimism is very well correlated to consumer confidence, and consumer confidence means more purchases. Because of this we've seen the Chinese willing to purchase more than they ever have. Even personal lending is just getting started in China where people are choosing to spend beyond their means. Here in the US, we've been spending beyond our means forever. China still has a really good level of growth. They have more millionaires than the US now. They're the largest travel cohort in the world for international travel, and that's just going to keep increasing. They’ve come up on the world stage very quickly, and I don't think that's going to stop any time soon.
CJ: In terms of the categories and product types that do well, what do you recommend to new Advertisers to gauge whether they’ll be successful?
Jeff: There's a lot of different ways that we go about figuring out if our merchants are going to be successful. Obviously, the best categories within our platform have always been items that don't require sizing—if you're waiting two weeks for product, you want to make sure the size is right. That creates a little bit of trepidation from the consumer if they're not comfortable with the brand. Usually, when shoppers start using the app, especially women, they'll buy makeup and skincare and then they’ll move to accessories and handbags, and then they get a little more comfortable and try shoes. After that, they'll move into fashion.
We've done a lot of things to try to alleviate that hesitation: We've gone to some of our merchants' stores and filmed try-on sessions with the merchants, we’ve gone to merchant headquarters to talk to their sizing pros, and we've developed fantastic sizing charts. Because we're content-based and content drives 70% of our sales, we can use that to move people around to different product categories. Beauty was our number one category, and then suddenly, last month it was shoes and streetwear. We're currently trying to build out that area more. This month, we're doing a shoes and streetwear push—we're putting out tons of content and working with influencers.
There are a lot of categories there that are underutilized on our app now, such as nutrition and mom/baby, that we're planning to continue to develop. When you take so many categories on, personalization becomes important—that's something we're spending a lot of time on as well. You don't want a man who comes to the app for the shoes to get nothing but makeup brands and skincare.
CJ: Are there any unique ways that you’ve used content to push a category?
Jeff: We’re doing this fun social media experiment to push streetwear. Hip hop is getting big in China and there are really good Mandarin rappers now. We filmed Ice the rapper with a few items from some of our brands and dressed him up, had him rap, and then we took that video, and we brought it to New York and showed it to rappers and streetwear people in New York and had them critique his look and flow. And then, we filmed them.
We also went to Fashion Week to film one of the leading shoe designers weighing in on trends and what's trending in China. We're planning to subtitle that and put a lot of this content on our app and in social media to establish ourselves as this destination for streetwear and cool new trends.
CJ: What are some of the social drivers for your business? Do you see trends that are different than the US market?
Jeff: Social proof is very important. We have a 12-person content team that writes about 60 articles a day—those pieces can be very effective, but then we've also found that if we add a social layer to it as well, the content will perform even better. We'll write content and then at the bottom of the content we have what we call “Haul Photos”, which are customer photos where our users show what it looks like on their wrist or on their face and give a little blurb about what they like about the product. When we add that element, the conversion goes up over 50% in terms of shopping cart additions and purchases. A lot of it focuses on the unboxing, that's an important element. We have some brands that will write a handwritten note every time someone buys a pair of shoes or something which goes a long way. People in China, they're not used to that. They really love that.
We also utilize influencers, or KOLs as they’re called in China. We’re good at content, but we're just one voice so sometimes it's more effective to have a chorus of people singing a product’s praises. People start to think, "Oh, wait, there’s a trend going on. I saw a KOL talking about this and the Beyond app is talking about it too, so this is worth buying." This creates the social proof. Chinese are much more SKU narrow, too. For example, there's a particular shade of lipstick that became a hot color in China and we sold something like 23,000 tubes in the course of three days when we had a sale. People really know what they want, and they want to buy that specific product. The Chinese consume 5x more social media than a typical American, and they post 3x more, so if something gets hot on social it can blow up very quickly—be it a sale or a color or a trend or a brand—and it can sell out.
CJ: Why do you think social media has become such an important part of their culture? Especially the shopping culture?
Jeff: I think in many cases they've leapfrogged a lot of our technologies and a lot of our shopping behaviors. For most Chinese people, the first phone they ever had was a mobile phone—they never had a landline because it wasn't built out. The first non-cash payment method they had was mobile payment—they never had a credit card because the banks weren't established. So they were able to leapfrog some of these legacy technologies that we've always held onto.
Chinese companies have had some well-publicized scandals in China centering around vaccines, children's baby formula, toys with lead and cosmetics. The China consumer protection policies are still playing catch-up to those of the US and Europe which is why cross-border is so popular. People who can afford it look overseas where we have a much better regulatory environment. With consumer trust so low, many shoppers put faith in their friends on social media and influencers that share their values and sense of style. Once Chinese shoppers trust a source, they're much more willing to heed and purchase based on their advice.
CJ: Are there other things that drive them to shop cross-border?
Jeff: It's basically authenticity and quality control. We’ve had some companies laugh and ask us, "Why do people buy cross-border? We're making the product in China and then we're shipping it here. And then we're sending it right back. And they're willing to pay more for it." But it’s precisely that it did ship here that makes it more attractive. It means it's passed our regulatory screening and is safe for Americans or Europeans to buy. Even if it's made in China, they know there's a quality standard that it's held to. So that's a huge.
Authenticity is obviously big as well. If they're paying for a brand, they want to know that what they bought is real. A lot of people buy because of the product asymmetry. Because of the way the Chinese platforms are set up and the high cost of warehousing, they usually only have access to a narrower product line. Only the best-selling products are available. But I think Chinese consumers are changing a little bit—they don’t want the same designer bag, for example, that everyone else has. They want to get the bag that you can only get when you take a shopping trip to New York or San Francisco. And they can get that on the US brand site but maybe not the Chinese version. There's also some asymmetry in the regulatory market as well. China demands animal testing for their skincare products, whereas the rest of the world has kind of shunned that. So there's a lot of brands in the US and Europe that are shut out of the China market because they refuse to test their products on animals. But cross-border you can still sell those. It's a one-to-one sale so it's subject to US regulation, not Chinese regulation. As a result there's a number of brands that consider us their best avenue.
CJ: What do you think are some of the common misconceptions or perceptions about the Chinese market that Advertisers tend to fall prey to?
Jeff: For the most part, people just don't understand how big the opportunity is. It’s kind of like when your grandma used to send you a check for $5 for your birthday like, ''Enjoy it! Go out to dinner, see a movie.'' And you’re like, ''Grandma that’s great, but I can't buy anything for $5.” Unless you keep your information current, you default to an outdated idea set from 20 years ago. Many people's perception of China's is that it’s still a developing market. They put China and India or other developing markets in the same bucket. They don't realize that it's soon to be 3X the size of the US ecommerce market. They don't realize there's more millionaires and billionaires in China than the US and that they're now the biggest cohort for international travelers.
There are also channel conflict misconceptions. Many companies developed wholesale partnerships 15 years ago or partnered to build a mediocre Chinese mall reseller storefront and are worried about ruining what they have already built. What we typically say is that there's two kinds of customers in China: There's the one that wants product delivered by one-day via drone and they don't mind paying more. They don't mind a little bit of authenticity concern or a smaller product selection. They just want to get it in one day and are happy going that route—like an Amazon shopper. But there's another consumer—a shopper that likes to travel, follows the latest trends, and desires unique products. Or maybe they're bargain conscious, and they just want to pay the same price as someone in San Francisco. Well, those people are finding some place to buy, and chances are it's a reseller and you have no control and you have no idea who they are. So there's no way to combat that. Distributed commerce is a new trend for a reason, and its basic tenet is to abandon false concepts of regionality or channel and reach customers where they get inspired and let them buy there.
I always like to ask merchants "How are you doing in China? Or what's your China strategy?" And if someone says, "We don't have a strategy." I say, "Well, you're probably already in China. You just don't know it."
I have a couple of sites I use to look up reseller activity. There's a big bag company that I think the last time I looked it was 17:1—they're selling 17 bags via resellers vs 1 through their official channel in China. If you want to control your brand, you must combat this. You need to figure out an official cross-border channel, so you can say, ''Buy from here, not there. This is authentic and it's the same price point and product selection that’s in the US.'' That way, we can start crowding out those bad actors who might be selling fakes. If you have a laissez-faire policy and “we're going to go with what we have” mentality, you lose control of your brand in China very quickly.
This article was Part 1 in a two part interview with Jeff Unze. Looking for more? Read on to Part 2.