Are Chinese E-commerce Platforms Ready for a Luxury Update?

One lucky Audemars Piguet fan in Beijing got more than he bargained for. After placing an order on the brand’s WeChat store, to his surprise, the merchandise was delivered to him by the brand’s CEO, François-Henry Bennahmias, and Richard Liu, founder of e-commerce giant JD.com. The Swiss luxury watchmaker’s first foray into e-commerce in China, with technical support provided by JD.com, is one of the shining examples of how luxury brands are embracing e-commerce across the nation. Special editions of Audemars Piguet’s iconic sporty watches – priced from 149,000 yuan to 463,000 yuan (HK183,100 to HK569,000) – available on the WeChat store can be bought using WeChat pay. “Online sales are growing day by day,” Bennahmias says. “We have customers who would buy a 60,000 yuan watch online. It’s a matter of building trust every day.” Early adopters such as Secoo have been tapping the Chinese luxury e-commerce market since 2012. More recently, Chinese online marketplace giants JD and Alibaba jumped on the bandwagon to launch platforms dedicated to luxury brands, having their share of the pie through better customer insights, enhanced shopping experiences and exclusive online offerings. Alibaba Group is the owner of the South China Morning Post. Andrew Robb, the chief operating officer of online fashion giant Farfetch, says the main factor driving the growth of the Chinese e-commerce market is the increasing popularity of mobile phones and the WeChat app. “It is redefining how consumers and brands interact,” he says. “The Chinese fashion consumer has become more sophisticated, focusing less on price and much more on quality, selection, and service.” With more domestic and international e-commerce giants upping their game in China, the eco-system of Chinese luxury e-commerce is evolving quickly. Farfetch strengthened its development in the Chinese luxury market by collaborating with JD, which invested US397 million in Farfetch to form a strategic partnership in 2017. In August last year, Alibaba launched Luxury Pavilion – a by-invite-only e-commerce platform within the Tmall marketplace, and it recently updated the service with a VIP loyalty club. JD, too, unveiled an e-commerce app called TopLife last October. Luxury Pavilion features about 50 luxury brands including Burberry, Maserati, and Zenith. TopLife also works with high-end labels such as Fendi, Rimowa and Saint Laurent. While some luxury brands have been slow in developing e-commerce in China due to challenges in internet protocol protection and brand prestige, the potential of the market is simply too big to ignore. “China is a special digital environment – much more advanced and so different from that of the West,” says Luca Solca, head of luxury goods at Exane BNP Paribas. “But I believe international luxury brands need to enter the arena.” Sales of luxury goods in China hit 142 billion yuan last year and Chinese shoppers accounted for 32 percent of the 262 billion euro (HK2.396 trillion) global luxury market, according to Bain & Co. The sales are largely driven by China’s tech-savvy millennial generation – the average age of Chinese luxury shoppers has dropped from 35 to 25, according to the World Luxury Association. Changes in the attitude and behavior of China’s affluent millennial shoppers are also fuelling market growth. “Online luxury shopping used to be [associated with] discounts, but this is not the case today. Millennial luxury fashion consumers crave choice and quality,” Robb says. Jessica Liu, president of Tmall Fashion and Luxury, agrees. She believes that customers are moving away from discount products and are seeking exclusivity and new ideas. “The desire for new arrivals is strong,” Liu says. “It means a lot for customers to have items they covet earlier than anyone else. Instead of [looking at] prices, customers are focusing on whether they can buy the hot ‘it’ piece and how fast they can get their hands on it.” Through big data collecting, Chinese e-commerce giants have the advantage to precisely figure out who their existing and potential customers are. Unlike traditional bricks-and-mortar stockists, e-commerce players which operate social media platforms and other entertainment outlets – gain more comprehensive insights into customers’ lifestyles.mobi “Under the Alibaba umbrella, apart from the online marketplace, there are also other platforms that cover entertainment, social media, and retail service,” Liu says. “The data that we gather from these different platforms help us build a precise profile of our potential customers.” Alibaba owns Ali Music, Ali Health, Alisports and Ele.me. The decision to include Luxury Pavilion within the Tmall site, Liu says, was aimed at helping luxury brands gain insight into their clients and provide them with the exact products they desire. “By understanding our customers’ way of life, their preferred way of traveling, their favorite films and more, we can find the best way to approach them,” Liu adds. Indeed, international luxury brands have been testing the waters with direct e-commerce channels and WeChat stores. According to a Deloitte Report, 40 percent of fashion brands and 38 percent of luxury watch and jewelry brands had developed direct e-commerce business as of May last year, and 6 percent of fashion brands and 14 percent of watch and jewelry brands now operate WeChat shops. The popularity of mobile payment in China has also fuelled the growth of luxury e-commerce. “Mobile payment is more advanced in China than in any other market, particularly driven by WeChat,” Robb says. “It gives customers a convenient and easy way to shop, which fits well with luxury brands’ strategies.” Hu Shengli, president of JD Fashion and Lifestyle, says the luxury industry has traditionally relied on personalized shopping in bricks-and-mortar stores. “We created Toplife to provide customers with services that are in line with their bricks-and-mortar experience.” Through the help of technology, prestigious bricks-and-mortar shopping experiences can be replicated or enhanced online. Both TopLife and 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 the runway. “Luxury brands are opening more flagship stores that are not only a point of sales but also a [universe] that represents the brands’ DNA. The brands can communicate with customers on a deeper level and nurture a long-term relationship,” Liu says. “The Luxury Pavilion is working towards providing technical support and services for the brands to build their maisons online.” Making use of multimedia possibilities, digital stores, luxury brands and e-commerce sites interact with customers through content they choose. They even engage digital influencers to raise brand awareness. Earlier, Net-a-Porter launched EDIT – its online magazine in simplified Chinese characters - to tap rich shoppers on the mainland. The website features fine jewelry and luxury watch brands including Cartier, Chopard, and Tiffany in its fashion campaigns. “Putting fine jewelry and luxury watches in a fashion context makes them more accessible and relatable to our customers,” says Elizabeth von der Goltz, global buying director of Net-a-Porter. “There’s a great young generation of Chinese customers who truly embrace fashion, not only the big-name brands but also new brands.” The luxury online shopping experience is not complete without the delivery of products, and logistics has 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 premiere delivery service where elegantly dressed couriers wearing white gloves deliver purchases to customers in electric cars. Luxury Pavilion engages its VIPs through exclusive events and gatherings. Prospects are certainly bright as the market continues to grow and major online marketplaces expand into luxury segments. “As Chinese consumers become increasingly interested in discovering new luxury brands and expressing their individuality through online platforms, we estimate that online sales of luxury goods will continue to grow,” Hu says. “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. However, whether e-commerce would ever replace bricks-and-mortar luxury in China is still debatable. “I don’t think online shopping will completely replace the bricks-and-mortar experience,” Bennahmias says. But he says there is solid growth in online sales, and an increasing number of customers will turn to online shopping services. This story by Vivian Chen originally appeared in SCMP STYLE.

Are Chinese E-commerce Platforms Ready for a Luxury Update?

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Published June 22, 2018

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Are Chinese E-commerce Platforms Ready for a Luxury Update?