China Economy

Livestreaming is taking off in China, but it's not driving much sales in a market still reeling from coronavirus

Key Points
  • As consumer brands try to boost sales in the coronavirus-induced economic slump, one of the hottest trends in marketing has yet to prove its worth on the macro level.
  • Within e-commerce, livestreaming-driven sales so far likely only account for between 2% to 10%, analysts estimate.
  • But in a worldwide economic slowdown, if not recession, livestreaming can still offer an opportunity for growth.
A couple wearing protective facemasks as a prevention measure against the COVID-19 coronavirus walk at a nearly empty shopping mall in Beijing on February 27, 2020.
Nicolas Asfouri | AFP | Getty Images

BEIJING — As businesses try to boost sales to during the coronavirus slump, one of the hottest trends in marketing has created plenty of buzz — but it has yet to prove its worth on a macro level.

In the months since Covid-19 prompted millions of people in China to stay at home, plenty of people — from celebrities to government officials and automakers — have jumped on the livestreaming bandwagon that was already taking off. They are now selling directly to consumers via what can be hours of live video. 

In fact, the number of e-commerce livestreaming sessions topped 4 million in the first quarter, according to China's Commerce Ministry. More than 100 government officials participated to promote local products, the ministry said.

To me, (livestreaming) is going to be a new normal channel to drive new sales, create new revenue streams. 
Jialu Shan
International Institute for Management Development

Online platforms such as Alibaba's Taobao marketplace, Kuaishou and Pinduoduo have reported an explosion in livestreaming activity. Taobao said the number of new merchants using the site's livestreaming platform surged by more than eight times in one month — from January to February, while transactions grew more than 160% year-over-year in March.

"Before the pandemic, livestreaming was only seen as an option for brands to reach Chinese consumers," Jialu Shan, economist and scholar in Asian and Emerging Markets at the International Institute for Management Development.

"But now it (has) become very integral to how people shop,“ she said. "To me, it is going to be a new normal channel to drive new sales, create new revenue streams. But that is not to say that every foreign brand should (jump) into livestreaming without doing everything else."

Limited share of sales

At least for the first quarter, the impact on Chinese consumption was minimal. Retail sales still plunged nearly 20% from a year ago, with sales of big-ticket items such as autos tumbling further, official data showed. 

Online sales of physical goods grew 5.9% from a year ago to 1.85 trillion yuan ($264 billion), accounting for just over a fifth of retail sales overall, according to the data.

Within e-commerce generally, livestreaming-driven sales likely only account for about 2%, estimated Bruce Pang, head of macro and strategy research at China Renaissance. For Chinese e-commerce giant Alibaba, he expects the figure is near 5% and will rise this year.

Other industry estimates range closer to 10%. Official data wasn't available.

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"Despite the popularity of livestreaming sessions, the product return rate is two to three times higher than the brands' official e-commerce purchase (channels)," said Bob Wang, vice president, strategy, social and customer relationship management, at Ogilvy in Shanghai.

He noted much of the purchases are impulse buys, and that generally people still enjoy going to physical stores much more than shopping online. 

Forced to experiment with the unknown

Covid-19, which has infected more than 3 million worldwide, has killed over 217,000 people since it first emerged late last year in the Chinese city of Wuhan. The domestic outbreak has stalled, but the virus has spread overseas in a global pandemic. Attempts to contain the virus have severely disrupted economies around the world.

Businesses in China have had to adapt quickly. Barcelona-based skincare brand Isdin shifted an offline promotional event in March to a livestream session with internet personality Li Jiaqi and Chinese rapper, Lil Ghost. The company said nearly 15 million tuned in, compared to a few hundred that an in-person event might draw.

I think this market has just begun. E-commerce livestreaming will become a daily (aspect) of a merchant's brand, a new kind of brand marketing scenario.
Zhang Guowei
head of JD Live

Monthly sales topped 100 million yuan for the first time in March, the company added, pointing out it ran promotions online for weeks ahead of the livestream. As is the case for many brands, Isdin said its overall spending wasn't much different from that for a more traditional strategy.

Model is 'hard to predict' 

A key challenge for brands looking at livestreaming is managing their relationship with personalities known as key opinion leaders — or KOLs, and agencies known as multi-channel networks (MCNs).

"If there's a livestream without a (key opinion leader), then it can't really last," said Xu Lei, a spokesperson for Xiaohongshu, a social media site popular with the fashion crowd. French luxury brand LVMH held its first livestream on the app last month; Givenchy has one set for Wednesday evening. 

But it's very expensive to hire an internet personality for a livestream, and consumers tend to be more loyal to the KOL than a brand, analysts said. Relationships with stars like Li Jiaqi can also tend to be expensive one-offs, rather than longer-term partnerships.

In some instances, the host was unable to sell the prepared inventory, or the stock ran out, said Gao Huan, a senior director focused on retail and manufacturing at consulting firm Alvarez & Marsal in Beijing. "It's just really hard to predict."

"I don't think a lot of people have established a business model to calculate a (return on investment) for this one," she said.

Training salespeople to do livestreaming presentations could reduce costs, analysts said. But brands still need to consider how to stand out given the slew of streams available.

Longer-term trend

Livestreaming e-commerce still offers growth opportunities in an economic slowdown.

"The global brands, they're very much aware and they're very much glad (about) the bouncing back that is happening in China," Ogilvy's Wang said. "They're embracing all these new marketing activity that is happening in China."

The trend has also spread beyond prevalent platforms such as Taobao and Kuaishou. 

JD's affiliate Dada, which delivers for grocery chains such as Walmart, announced Tuesday it is rolling out a livestreaming e-commerce platform with one-hour delivery. Dada said it sold about 2 million yuan worth of goods during two livestreams this month.  

"I think this market has just begun," said Zhang Guowei, head of JD Live — the livestreaming arm of JD.com. It can definitely release more spending, he said, according to a CNBC translation of his Mandarin-language remarks. "E-commerce livestreaming will become a daily (aspect) of a merchant's brand, a new kind of brand marketing scenario."