For those of my vintage, China Livestreaming and the KOL may sound like 1990’s electronic pop bands which occasionally find a following on Spotify. In 2021, this relatively new phenomenon is quite different and, being China, is on a greater scale. Online, interactive marketing to the modern consumer – the era of the social media influencer has arrived.
We have written before of the Alibaba Singles Day extravaganza, which last November recorded revenue in excess of Rmb370bn in a day, generating sales for over 250,000 brands, and encouraging over 800mn customers to spend. The commercial success of this event has attracted an increasing number of brands, including international names with over 30,000 involved last year, but the influence of the Key Opinion Leaders (“KOL”) has been a relatively new contribution for success.
Livestreaming emerged in 2015 but it was the introduction of Taobao Live in 2016, on the Alibaba platform, which combined the livestream feature with eCommerce and accelerated consumer adoption. There are now, it is estimated, to be close to 10,000 KOLs on Alibaba’s Taobao Live platform.
Perhaps your experience of a home shopping channel on TV will have tainted any enthusiasm for a sales pitch, but the China KOL is offering more than a product. The influencer craves consumer interaction, as the larger audience generates increased sales, and has created the ‘personal’ relationship with their followers on social media channels. The appeal of being with your peer group and enjoying a similar ‘in store user experience’, and often buying products at a promotional price has convinced over 400mn of the population to be active users.
Li Jiaqi is one of the leading KOLs in the beauty industry and was responsible for selling over U$145mn of lipstick products on Singles Day. The adoption of livestreaming as a career has proved a successful transition from the previous role as a sales assistant on a L’Oreal beauty counter. With over 800mn monthly followers on Douyin, the China version of TikTok, the video-sharing social networking service, the ‘King of Lipstick’ has re written the rulebook. You read correctly, Li is a ‘he’ and has the influence to tempt Jack Ma of Alibaba to compete in lipstick sales on the Taobao platform, as pictured below.
The success of Taobao Live has unsurprisingly attracted new entrants to facilitate this interaction and established companies such as Baidu, JD.com, and the relatively recent Douyin now provide livestreaming services, although Alibaba remains the largest player with an estimated 80% market share.
The emergence of the Covid virus resulted in the closure of many stores across China and this served to accelerate the adoption of livestreaming by businesses. The breadth of product offering has expanded rapidly over the last year with even the regional farmers creating their niche by selling direct to the public, and many other consumer brands following suit.
The screen shot below left is that of Proya, one of the leading domestic cosmetic companies in China, and a holding in the Aubrey GEM portfolio. Almost 90% of its revenues are generated from its skincare product range which is based on marine and plant ingredients. Proya’s target audience is the tier 3 and lower cities. The young professionals of Shanghai, Beijing and the other larger metropolises may have the salary which can afford international brands, but the majority of the young, aspirational, predominately female population is conscious of price, hence the appeal of the Proya ASP Rmb100-300 compared to international brands at Rmb500. A call with management last month highlighted the importance of the livestream to test new product categories which can then increase production with evidence of commercial success, and we remain convinced of their growth prospects.
The enthusiasm for a competitive price is not always the primary consideration for the consumer in China, and this is seen in the success of the leading premium infant milk formula (“IMF”) supplier, Feihe, screen shot above right. The Company estimates its market share in the IMF premium segment to be 13% and approaching 25% in the super premium category. The premium segment growth is driven by increased urbanization, higher disposable income, health awareness, demand for trustworthy IMF products, and the majority of parents opting for one child only. Feihe has developed relationships with Mother & Baby stores to support sales and the pricing premium, and therefore expand profit margins through their club membership. Their livestream channel offers product marketing opportunities and supports the key offline distribution channels through repeat custom. Our most recent call with management confirmed our expectations of sales growth exceeding 20% for the coming 2 years, which supports the continued position in our fund.
Is the livestream and KOL impact likely to continue? The sales figures suggest this will be the case, with Industry analysts expecting last year’s livestream revenue to have more than doubled over the year to almost Rmb1trillion, with Li Jiaqi alone believed to have generated sales in excess of Rmb10bn. Born in 1992, he may have missed the opportunity for the electronic pop music education, but the King of Lipstick has more than compensated for that.
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