It’s clear that domestic luxury consumption in China has been heating up, and e-commerce represents a key opportunity for brands to sell to digitally savvy Chinese consumers. According to KPMG, approximately 50 percent of luxury goods sales in China will be made online by 2020.
With the large number and purchasing power of Chinese luxury consumers, the question many luxury brands face is should they open their own e-commerce sites or launch channels on major third-party marketplaces?
Traditionally, luxury brands have been hesitant to join e-commerce sites in China. Some brands are worried about the lack of control of brand image and availability of counterfeits. More importantly, the marketplaces’ mass-market images represent another deterrent for luxury brands to get on board. However, a number of luxury brands that were slow to embrace e-commerce have dramatically altered their direction and are now signing exclusive deals with major e-commerce marketplace players such as Tmall, JD.com, and Vipshop.
Another key component of this discussion is the major e-commerce companies themselves. The competition between them has become fierce. Earlier this year, news broke that brands were asked by one major e-commerce player to “choose one or another” platform to join, and offered exclusive business benefits in exchange. It’s uncertain whether this is true, but it has become increasingly clear what kinds of long-term benefits brands can enjoy by choosing particular platforms. This calls for a careful examination of major e-commerce players in China.
Fung Global Retail & Technology used data from the largest online survey of consumers in China, ProsperChina Quarterly Survey, to publish a report on the landscape of the e-commerce apparel market in China which helps elucidate some of the fundamental differences between different e-commerce platforms and their demographics.
Tmall: good product diversity at lower prices and value-conscious millennial customers
Tmall is the largest B2C platform in China, it offers a wide a selection of affordable products and decent logistics and attracts value-conscious shoppers. Consumers born in the 1980s with high-incomes is the key demographic of the site. Its recently launched, exclusive Luxury Pavilion offers a VIP portal for these consumers and delivers a premium shopping experience. Additionally, Tmall will lead the implementation of Alibaba’s New Retail Initiative by integrating online and physical retail spaces through data technology, which could serve as an opportunity for brands to explore combining their online and offline channels.
JD.com: still playing catch-up in the apparel market
Known as the “Amazon of China,” JD.com is Tmall’s biggest rival, but in the apparel market it is trailing behind Tmall. It has a smaller apparel product selection and less competitive pricing compared to Tmall.
However, JD has launched its own luxury site Toplife, which is separate from its main e-commerce platform. Unlike the invitation-only Luxury Pavilion, this site is open to the public, and targets high-end consumers through the use of big data. This stand-alone site signifies JD’s ambitions for the luxury industry. However, it’s still too early to determine whether this will shift consumers’ perceptions of JD as a mass market site.
JD’s best-in-class fulfillment infrastructure is a key differentiator among its competitors, especially considering Chinese consumers often expect same-day delivery. The efficiency of JD’s delivery service is better suited to meet consumer expectations, but whether this effectively encourages impulse buys of luxury goods online is still unknown.
In addition, the company formed a strategic partnership with Tencent in 2014. The deal enabled both parties to leverage their respective strengths in e-commerce and social messaging in order to strengthen their competitive position against their shared competitor Alibaba.
Vipshop: High customer loyalty, focus on delivering VIP service
Applying a similar model as Gilt Groupe, Vipshop is China’s leading online discount retailer. Customers gave Vipshop the highest score on branding and quality. Even though the company has limited product offerings compared to Tmall and JD, its goal is to maintain a core of loyal customers. According to the company’s financial report, over 93% of orders are placed by repeat customers and over 79% of customers are repeat customers. It launched a super VIP program earlier this year and seeks to improve its customers’ shopping experience. Moreover, American label Marc Jacobs launched its first China e-commerce channel on this platform.