An Overview of the Chinese Fierce Luxury E-Commerce Battle

The global personal luxury goods market is expected to grow from 2,406 billion RMB in 2018 to 3,117 billion RMB in 2025 (a roughly 4% annual growth rate). According to McKinsey, the percentage of purchases from Chinese customers will have doubled from 19% to 40% of the personal luxury goods market.

Even though the Chinese luxury market is still mostly an offline market, the share of its online sales is expanding to grow from 8% to 12% by 2025.

As a result, luxury brands aiming to capture the huge potential of China have listed e-commerce as their must-have sales channel. While brands like LVMH and Prada are choosing to go solo on e-commerce, others have taken advantage of dedicated luxury platforms such as Tmall Luxury Pavilion or JD Toplife …to reach out to Chinese consumers better and faster.

Benefits of cooperating with luxury e-commerce platforms from brands’ perspective

1. Access to a wider base of customers, especially those in tier 2- 3- lower cities

Chinese customers are much more likely to buy luxury products on generalist marketplaces such as Tmall or JD (51% in China against 23% in the West).

Big e-commerce players such as Tmall and JD have spent many years and effort to build trust with Chinese consumers. Currently, they have millions of Chinese consumers browse and shop on their platforms at ease every day.

Being on such platforms not only enhances your brand credibility with new customers but also enables you to access and convert a large number of users without having to build your own traffic.

Furthermore, the vast majority of luxury stores are located in the top 15 cities in China, but 75% of the wealthy Chinese consumers live outside of these cities, according to McKinsey.

Dedicated luxury platforms have the scale to deliver goods to consumers in second-tier and third-tier cities where luxury brands lack retail presence. By betting on China’s online platforms, luxury brands can reach out to tech-savvy generations as well as customers outside of the large cities.

2. Big data enables more targeted and personalized marketing initiatives

Through big data collecting, Chinese e-commerce giants have the advantage of precisely figuring out who their existing and potential customers are.

Unlike traditional brick-and-mortar stores, e-commerce players which operate social media platforms and other entertainment outlets – gain more comprehensive insights into customers’ lifestyles.

These platforms help luxury brands gain insight into their clients and provide them with the exact products they desire. By understanding customers’ way of life, their preferred way of traveling, their favorite films, and more, brands can find the best way to approach them.

3. New technologies to enhance the omnichannel experience

A customer tests make-up virtually via TMall’s Luxury Pavilion

Through the help of technology, prestigious brick-and-mortar shopping experiences can be replicated or enhanced online.

Both JD Toplife and Tmall Luxury Pavilion use augmented reality (AR) and virtual reality (VR) to promote omnichannel sales. JD, for example, launched an AR-enabled Styling Station mobile app, which allows customers to virtually try on beauty products.

Luxury Pavilion replicates luxury brands’ iconic flagship stores overseas via VR projection to offer shoppers an immersive experience for shoppers. VR technology is also used in the “see-now-buy-now” scenario where customers can shop on the runway.

Moreover, dominant e-commerce platforms also invest in new selling initiatives such as the live-streaming channel, shopping holidays which they invest heavily in marketing, and product reviews integrated from other platforms such as Xiaohongshu… which brands are allowed to exploit to boost their sales.

4. Available top-notch logistics system

The luxury online shopping experience is not complete without the delivery of products, and logistics have been one of the reasons some luxury brands were hesitant to embrace e-commerce.

But this challenge has been overcome through partnering with e-commerce giants that have already established delivery networks nationwide.

Toplife offers luxury shoppers a “white glove” service – a premier delivery service where elegantly dressed couriers wearing white gloves deliver purchases to customers in electric cars.

Audemars Piguet CEO Francois-Henry Bennahmias and JD founder Richard Liu hand-delivered an Audemars Piguet watch to a lucky owner

Luxury Pavilion engages its VIPs through exclusive events and gatherings.

Since China is such a big market with so many luxury customers living in areas with limited access to luxury shops, it’s only natural that they buy luxury goods online. Speedy delivery is one of the advantages.

4 most popular platforms for luxury shopping

1. Tmall Luxury Pavilion

Considering that Alibaba has proved to be the most popular e-commerce platform in China – with 44 percent of millennials and 42 percent of non-millennials choosing it as their favorite online shopping channel –Western luxury brands are looking to Alibaba to make inroads to the increasingly wealthy and wildly young Chinese consumer.

In August 2017, Tmall launched the Luxury Pavilion, a platform for luxury brands outside of China to sell their goods to Chinese customers without having to build their own infrastructure. The Luxury Pavilion promises to provide customers with access to exclusive offers, celebrity events, flexible payment options, priority purchases, and door-to-door returns; and offers brands the ability to create “a personalized and seamless online-to-offline experience for its top customers.

At launch, there were only 17 brands on the Luxury Pavilion. Now, that number has snowballed to more than 100 with some of the biggest names in luxury, including Givenchy, Versace, Tod’s, Stella McCartney, and Tag Heuer.

Tmall even celebrated the launch of Valentino in Dec last year by debuting its new computer-generated “digital influencer,” Noonoouri, wearing a Valentino outfit.

In October, Richemont and Alibaba announced a joint venture to bring Chinese versions of Net-a-Porter and Mr. Porter to the Luxury Pavilion.

A base of increasing and strong purchasing power customers:

According to figures from Alibaba, Luxury Pavilion’s roughly 100,000 customers spend an average of $159,000 each, per year. And a little less than half of those consumers are 28 years old or younger.

Additionally, in the last year, sales through the Luxury Pavilion have grown by 46 percent, and the number of luxury shoppers grew by 36 percent.

Millennial consumers were born in the age of the internet and are incredibly digitally savvy and increasingly sophisticated and knowledgeable. They don’t see the same distinctions between online and offline, but they are looking for exclusive experiences wherever they go.

With Luxury Pavilion’s understanding of local consumers as well as its investment in technologies, Luxury Pavilion can help brands be innovative, stay connected and interact with these millennial consumers across all touchpoints.

But despite such efforts from Tmall, luxury brands still perceive downsides, including the platform’s mass-market nature which means many shoppers on the platform are there to price-compare everyday staples like shampoo or diapers.

Luxury brands also know they will be shopped against third-party luxury sellers and competitors, and depend on Tmall for data.

2. Secoo

Secoo is another leading luxury fashion retailer in China selling luxury clothing, footwear, jewelry, watches, bags, and accessories.

Over the years, Secoo has successfully built an integrated O2O platform which consists of an online platform (website and mobile app) and offline experience centers, providing an ideal channel for luxury brands to reach out to Chinese consumers.

Secoo was initially founded in Hong Kong in 2008 by Richard Rixue Li and Zhaohui Huang. In 2011, Secco officially stepped into the online luxury e-commerce business.

Currently, more than 300,000 stock-keeping units (SKUs) from more than 3,000 brands are sold on its integrated luxury fashion retailing platform, with an average purchase per customer exceeding 3,500 RMB.

Secoo has built a large and loyal customer base with high purchasing power. The company has accumulated more than 18.7 million registered members as of 31 December 2017. The majority of Secoo’s customers are well-educated professionals belonging to the middle and high-income populations in China.

The online platform allows consumers to conveniently select products, place orders and complete the payment process, while the offline experience centers serve as a complementary channel that provides high-quality consumer and membership services and experience.

As of December 2017, Secoo has ten offline experience centers (including three pop-up stores) located in Beijing, Shanghai, Chengdu, Tianjin, Xiamen, Qingdao, Hangzhou, Changsha, and Malaysia4 .

In 2018, Secoo expanded direct collaborations with 83 brands, including Canali, Philipp Plein, and Versace Porcelain. Besides, Secoo announced a strategic partnership with and L Catterton Asia, an LVMH-backed private equity firm. Through the deal, and L Catterton will invest US$175 million in Secoo.

3. JD Toplife

Toplife is the luxury e-commerce platform launched by Chinese online giant in 2017.

The site is “an exclusive full-price online shopping platform” that allows brands to sell directly to consumers through a luxury e-commerce ecosystem that incorporates online stores, premium customer service, delivery and marketing, and warehousing and inventory.

The site is set to merge with Farfetch China, as part of a new partnership agreement between the two companies. The agreement will effectively see close down its Toplife venture, which it launched in 2017, as part of its ambitions to expand in the luxury goods market where it is competing with the Luxury Pavilion page under Tmall, which is owned by Chinese rival Alibaba.

The new deal will also give Farfetch a “Level 1” entry point on the app of JD. In exchange, JD will gain access to Farfetch’s network of more than 1,000 luxury brands and boutique partners.

Previously, Farfetch and were already partners in areas such as logistics, technology, and marketing.

Its annual active customer accounts stood at 305.3 million by the end of 2018.

4. WeChat 

Thanks to WeChat “drops” and mini-programs, Tencent is now vying with Tmall Luxury Pavilion and Toplife to become the go-to online destination for Chinese luxury consumers.

According to the new Luxury China 2019 Digital IQ Index report by Gartner L2, 60 percent of fashion brands now offer WeChat stores this year up from just 36 percent in 2018. Most brands now feature some form of commerce option through their official WeChat profiles and 88 percent link to their mobile site e-commerce from WeChat.

WeChat e-commerce business is appealing to luxury brands because it gives brands control over the customer experience that they perceive to be crucial to brand equity.

Additionally, WeChat’s mini-programs feature has been the main factor in driving premium brands to create built-in WeChat stores. Gartner L2’s data shows that 70 percent of fashion brands now have at least one mini-program, up from 40 percent last year.

WeChat Mini programs enable brands to create different functions within this app. One could be for customers to buy the product. Another could be for brands to build a loyalty program. Customers can pre-order a product or set up an appointment with the offline store.

It’s also the social power of WeChat that separates it from giant e-commerce like Alibaba and, which focus more on transactions. Shoppers can, for instance, talk to shop assistants over WeChat or check their membership status with just a few taps on the screen.

Luxury is shifting from exclusive distribution — limited retail footprint in major cities — to favoring convenience: being able to purchase goods wherever you are, whenever you want.

Going forward, luxury brands will need to find new ways to create a sense of exclusivity. This could include more personalized services and products based on the data captured by these luxury e-commerce platforms, as well as delivery and packaging innovation, among others.

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