SHANGHAI, China — Almost a decade after Lauren Santo Domingo and Aslaug Magnusdottir launched Moda Operandi, the luxury e-tailer is gearing up to face one of its biggest challenges yet: breaking into the Chinese market. At the third annual BoF China Summit, supported by the Savannah College of Art and Design (SCAD), Santo Domingo and chief executive Ganesh Srivats sat down with BoF to reveal their growth plan for the business at this critical juncture.

China’s economic slowdown isn’t deterring luxury players like Moda Operandi from seeking ways to tap into China’s massive middle class (size estimates vary according to differing income thresholds but range from 120 million to 300 million). In fact, the market is more critical than ever, since Chinese consumers accounted for 33 percent of global luxury spending in 2018, according to Bain & Company.

At last week’s event, held at HKRI Taikoo Hui, Santo Domingo — now the company’s chief brand officer — and Srivats explained how they envisioned moving into the dynamic market. At present, Moda Operandi is setting up headquarters in Shanghai and hiring a local team, as opposed to the norm of “having a team in Hong Kong that happens to dabble a little in Korea, Japan, China, Taiwan and Hong Kong,” said Srivats.

Srivats, who joined the company in August 2018 after serving as vice president of Tesla and holding multiple roles at Burberry, is focused on localisation. “We don’t have an Asia Pacific strategy, we don’t have a Greater China strategy, we have a Mainland China strategy,” he told BoF.

The stakes are high. If Burberry and Dolce & Gabbana’s recent marketing faux pas are any indication, a lack of engagement with local culture can be fatal for even the most esteemed foreign names.

“I almost think that could be a dangerous thing, if we all get invested in this idea of China as a major cash cow and [focus on] how quickly we come out here and squeeze that all out,” Srivats continued. “We really made an early decision… to become part of the local fabric and really understand this country from the inside out.”

As such, the company’s expansion into China will be mostly hands-off for its currently US-based staff. Just how far Srivats is prepared to tinker with Moda’s business model — conceived as a digital trunk show allowing consumers to shop straight from the runway — to suit the local market is unclear.  But he seems open to pushing the envelope further than most luxury executives.

“We’re not going to create a Chinese version of [the global website]. We’re going to build something here from the ground up,” he continued. “I’ve already told all of my leadership team from New York that they don’t get to dictate to the Chinese market what we’re going to do over there.”

What won’t change is the underlying business model. By allowing consumers to place orders upfront, the retailer will be even more focused on data. In a market like China, where consumer preferences are subtly but critically distinctive, the firm is therefore in a good position to harness the wealth of consumer data on offer and use it to their advantage.

According to Srivats, this data-driven “forward position inventory” model gives Moda Operandi “the best chance of actually selling versus buying it and hoping for the best,” which he calls “one of the biggest detriments for cross-border luxury retail companies” in China.

Though Srivats admits that Moda Operandi hasn’t utilised its data to its full potential, Santo Domingo is adamant that it is on the right path. “Whether it’s New York, London, Paris or Milan, within seven minutes of that collection going down the runway, we know what are the stand-out colours, styles, shapes, silhouettes, sizes and regions that those looks are going to,” said Santo Domingo.

Indeed, China’s tech-savvy consumers are poised to appreciate Moda Operandi’s data driven, consumer-first business model — the country is notoriously relaxed in its data privacy regulations, which has powered the growth of its flourishing start-up ecosystem, and its consumers expect convenience and personalisation whether they’re buying groceries or couture-quality eveningwear.

But with such a new market comes new barriers to entry and a challenging operational environment. From taxes and duties regulations to logistics and returns, many foreign companies face stumbling blocks in China, which explains why the lion’s share of western brands and retailers opt for forging deals with retail behemoths such as Alibaba or JD.com, who do the heavy lifting.

We’re not going to create a Chinese version of [the global website]. We’re going to build something here from the ground up.

Moda Operandi will have its share of competitors in the arena too.  Western e-commerce stalwarts Net-A-Porter and Farfetch (two such companies that have chosen sides in the Alibaba versus JD battle) have already been battling it out in China for years. However, Moda Operandi’s tech-powered unique proposition could give Srivats’ team an edge without having to side with local giants.

Considering the segmented nature of China’s vast consumer landscape, knowing, as Srivats put it, “what Shanghai consumers want versus what Beijing consumers want,” is merely a starting point.

Further down the line, seeking additional strategic investment from China could be part of the winning formula. According to Srivats, the company raised 70 percent of its entire capital in its last round of funding — $165 million out of a total $290 million. Notably, one of the lead investors was Hong Kong-based real estate mogul Adrian Cheng, who founded the K11 retail chain and has a stake in jewellery giant Chow Tai Fook.

Nevertheless, for a pioneering firm like Moda Operandi, it is rather late to be entering China.  Whether the firm can achieve its growth targets here will depend on whether it can elevate its data capabilities and acquire users in a highly competitive market, while adapting to local operations and getting to grips with unique behaviours and platforms used by the Chinese consumer.

When probed about the trade-off between developing WeChat mini-programmes or a dedicated app, for example, Srivats responded, “I don’t think it’s an either-or decision. I think it’s about sequencing [and prioritising] how we bring [the Moda] product to market… in China that’s quick and allows us to engage with the local audience so that we can start learning.”

“Perhaps WeChat is that platform. But then over time how do we have a native experience that is fully custom-built? That takes time, so part of it is being able to get a product to market with some speed and agility. [But] rather than looking for a big quick win, [it’s a process of] looking three, five years out, and then making sure that we’re putting the right foundations in place that allow us to scale sustainably,” he added.

Going forward, the e-tailer’s business strategy will continue to be rooted in amplifying the company’s original business model of connecting designers directly to consumers. “[But it’s asking] how do we make that a richer experience for the consumer; how do we add more value to the designer community as we scale, and how do we use data and technology to make both sides work more efficiently?” Srivats explained.

To a certain extent, Srivats and Santo Domingo seem resigned to the fact that, in a fast-moving market like China, any growth plan they sketch will only ever be a loose outline that needs constant change, regular updates and perhaps even a major pivot along the way.

“We’re really excited,” he said. “Let the chips fall where they fall, right? Because if we want to really be here, we have to really embrace it like locals.”

The Savannah College of Art and Design (SCAD) is the Associate Partner of the BoF China Summit

HKRI Taikoo Hui is the Venue Partner of the BoF China Summit

Shanghai Fashion Week is the Strategic Partner of the BoF China Summit

For further information please email chinasummit@businessoffashion.com



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