Luxury Brands Have Only Scratched The Surface of China’s E-Commerce

The luxury industry was ravaged by the COVID-19 pandemic this year, and former LVMH chair Pauline Brown called the public health crisis “a disaster for virtually every company in the sector.” Yet, Asia has seen a marked improvement in 2020, with a strong rebound in China, in particular. Now, luxury retailers are looking to identify and understand the emerging patterns in China to help boost their businesses there.

The already-strong Chinese e-commerce system thrived amid the virus, showing how the market has a promising future with more possibilities. In China, consumers resorted to e-commerce for essentials, groceries, luxuries, digital gadgets, and entertainment during the country’s lockdowns. Livestream marketing also took off during this period due to its natural customer friendliness and social accessibility.

What’s worth considering here is not only the e-tail progress of traditional luxury companies but also the digitalization of a broader range of lifestyle businesses thanks to COVID-19. The financial numbers from top brands like Hermès, LVMH, Dior, Givenchy, and Celine already show the success of their localized e-commerce strategies.

But looking further, niche markets in China are taking advantage of e-commerce, as well. For example, the French luxury speaker brand Devialet is using digital tools to reach out to lower-tier markets across China. Its CEO said they will continue to create a balance between physical and digital stores, as a large number of consumers now use smartphones to explore goods in China.

The brand saw a large number of customers pour into their online stores this year thanks to stay-at-home policies, which led to roughly 20 percent of Devialet’s sales last quarter coming from Chinese e-commerce platforms such as Tmall and JD.com. As such, China has become its second-largest market globally, thanks to quality-conscious Chinese consumers with strong e-purchasing power.

But brands must also realize that issues around Chinese e-commerce services and management could discourage their future growth. With the Chinese local e-commerce market maturing, purchasing conversions from online traffic are not as high as before, which is especially true for niche luxury e-sellers. Figuring out how to stay calm and competitive in a data-driven space is crucial.

The first issue? Depending on giant e-platforms can keep brands from making progress. Many brands started aggressive and innovative in the Chinese market, and their particular passion for local purchasers allowed them to do things differently there. But, over time, brands tend to fall into becoming followers on e-tail platforms. As profits grow, they play it safe and start to do what the selling data from the big platforms tell them to do. They stop channeling their enthusiasm to purchasers, which is the main thing consumers need from fashion brands.

Issue number two: group buying at discount prices is disrupting the market. Lately, many major Chinese e-tail giants have been launching group-buying services. Alibaba boosts its GroupOn-like App, Juhuasuan, while JD.com launched a dedicated group-buying app called Jingxi last year. They’ve targeted the luxury market by leveraging their own livestream resources and pricing rights.

But customer excitement driven by discount prices always comes with high risk. Many third-parties sell luxury goods without a brand’s knowledge, and there is little a brand can do to stop them from offering unsold stock via group platforms. Moreover, the discounts set by group buying platforms can seriously disrupt a luxury brand’s regular pricing strategy, leading to messy refund policies and after-purchase services. A recent example is when the group buying website Pinduoduo offered subsidies to customers for purchasing Tesla’s China-made Model 3 vehicles for 251,800 yuan ($36,270) — 40,000 yuan cheaper than the vehicle’s usual retail price.

One anonymous China e-commerce development manager at Amazon said that brands have so much more yet to explore across China’s e-commerce, stating, “I expect more surprises in China. Chinese customers are younger, digital-savvy, and enthusiastic. They browse freely online to find lower-priced goods and can afford expensive ones. That is the current Chinese e-commerce ecosystem.”

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E-Commerce