CHINA. GDFS, which describes itself as travel retail’s first membership-based global vertical e-commerce company, has opened its first physical store in downtown Hangzhou. The GDFS Experience store is located in the redeveloped, prestigious GDA Plaza building at the heart of the main shopping district in the city. The Moodie Davitt Report was on location for the official opening ceremony on Saturday.
GDFS, which has bases in Beijing and Hong Kong, also has big ambitions to grow in the travel retail market, and is establishing partnerships with selected duty free partners to increase sales to Chinese travellers overseas (more on this below).
The Experience store in Hangzhou – the first of several that will open this year – offers Chinese consumers the chance to test new products before ordering them online via the company’s website and having them delivered to their homes. The ground floor is dedicated to skincare, make-up and fragrances, while the upper level – which also features an Illy Café – houses leathergoods and fashion accessories.
GDFS offers the goods at prices that it claims are “in line with duty free stores” overseas and lower than Chinese domestic market prices.
As previously reported, consumers pay an annual membership fee of US$118 to benefit from shopping opportunities through the GDFS website (www.gdfs.com) and the physical and online offers of its overseas partners. Already some 120,000 members have signed up – with more than 1,000 more joining at the Hangzhou store on opening day, according to the company. For its e-commerce site, GDFS ships goods from its warehouse in Hong Kong direct to Mainland Chinese purchasers.
GDFS President and Founder Barry Chen said at the opening: “This is the first GDFS Experience store in China and it is also a new business mode. We are eager to provide more good services to our members, and bring a new consumption concept to the customer. From my perspective, our membership mode will have a big market in China, and the service shows its value to the customer.”
On behalf of landlord GDA Plaza, Vice President Hong Fei said: “Today is a special day as it’s the reopening of GDA Plaza after seven years of construction. It’s also the opening date for GDFS’ first store in China.
“As we all know, the Hangzhou Wulin business circle is among the top ten business districts in China. And among the top business circles, make-up and cosmetics consumption accounts for over 12% of the total market value. Therefore, Hangzhou has become the first choice for many cosmetics brands to enter the China market, and consumers in Hangzhou have created unbelievable sales for the brands.”
Vice President Diana Xi said: “The Experience store is a totally new concept. As an e-commerce company we have been doing good business but are always looking for something new. We know that people want to buy skincare online but for luxury bags priced at more than RMB10,000 for example they are more reluctant, because they cannot touch, see or feel the products.
“After we researched this we found that Chinese customers are not comfortable buying luxury purely from an e-commerce website. They were afraid that they might buy fake goods, goods that did not match the description online or not have after-sales service. A store offers an experience they cannot have online.
“That is one part of our thinking. The other is this: we know that travellers will still buy when they are away, but for those who cannot go overseas, we want to offer them the same benefits. That is the concept behind the Experience store. We want to offer the platform to people so they can have the same treatment at home and the same access to great brands at prices that are equivalent to duty free overseas. This is our goal.”
On the company’s plans to develop its network, Ms Xi said: “We have 120,000 paying members already, and we think that can double as we open more stores. The next Experience store will open in Ningbo in July, and we plan six to ten in the rest of 2017 and between ten and 20 across China in 2018.”
The first store should “conservatively” hit sales of around RMB100 million (US$15 million) in 2017. Ms Xi said: “We will open more shops so that figure will rise quite fast.”
On the choice of Hangzhou for the first Experience store, Ms Xi said: “We looked at other cities but we chose Hangzhou for several reasons. One, it’s the home of Alibaba and people here are very open about using e-commerce, and have strong purchasing power. Second, we have strong relations with Hangzhou and a warehouse in the duty free zone of the city.”
She added. “The store has great adjacencies to other luxury brand stores in the area, which is another benefit. We also have the first Illy Café in Hangzhou, where our VIP visitors can sit and relax in the luxury environment. Online is a tool, but the service you offer and the experience is very important. You cannot do everything online and you have to go the store for that experience.”
So far, around 80 brands are showcased in the store, though many are waiting to assess the concept’s progress before committing.
Ms Xi said: “We know that some big brands are still considering whether to join or not. We have talked to some of them and they are interested. They care about the service and experience the customer receives. After our store opens they want to visit and see for themselves and whether they want to cooperate. We are open to that.
“We are also bringing new brands to the China market. We have introduced skincare brand SLA from France and we’ll bring in six more later this year. We are prioritising brands that are not yet in China but have a history and track record in Europe or the USA, and we will help them to do the marketing.”
On GDFS’ membership-based model, Ms Xi said: “In China people are not used to paying for membership for an e-commerce company. But if they buy from us twice or three times they will have earned that money back, if you compare our prices with the China domestic market.”
Forging a duty free connection overseas
The company wants to work with foreign travel retailers, whose offers it will promote to the GDFS membership base. Those retailers in turn will be asked to provide members with shopping privileges and discounts. GDFS offers free shipping back to Mainland China and in future also plans to offer this service to other parts of Asia.
Elaborating, Ms Xi said: “Although our Advanced Members number 120,000 we have ten times that number in our database who have signed up for our updates. The Advanced Members receive better prices for products [the Experience store displays dual pricing for members and non-members -Ed] plus two very important services.
“One, when they travel abroad they can get discounts and VIP services through our partners in the shopping centres and duty free shops overseas. That can range from -10% to -25% off, and include Personal Shoppers and other services. They can rely on the authenticity of the products in duty free stores too.
“Secondly, they don’t need to carry their products home. We have logistics service centres that can ship the goods for them and we are opening more of these across Asia. So far we have these centres in South Korea and Hong Kong and are planning to open in other markets where the Chinese travel.”
GDFS aims to partner with selected duty free retailers and to promote their offers to the membership.
“For duty free companies we can showcase their marketing brochures and gift cards in our stores,” she said. “So when our members travel we can encourage them to shop at a particular duty free where they will get VIP service, offers and discounts. This can boost the sales to Chinese consumers at these duty free shops and encourage these travellers to buy more. After they return we’ll give them a further gift. We want our customers to buy more products, have more experiences, so we are seeking partners.
“The Chinese know about duty free but many don’t know the duty free retailers outside China. We will inform our members and let them know about our partners’ special services for our VIP customers.”
Asked how partnerships with the duty free retailers could work in practice, Ms Xi said: “Our first goal is to offer more products to our customers. We are open about sharing revenue or margin. The model is secondary and we are flexible in those conversations. It depends how many GDFS customers we bring to the duty free stores. We think first from our customers’ perspective. The more benefits our members receive, the more valuable our membership becomes. That is the priority and that makes these relationships win-win.
“We want to work with several duty free partners but be selective. We are having talks now.”
Beyond partnering with duty free retailers GDFS plans to enter the outlet mall business in China in the near future.
The company has other big plans to develop its shopping offer, including through its own duty free operations, which we will report on soon.