Tmall’s 'Premiumization' Slowly But Surely Snags Global Brands

An image from Calvin Klein's Tmall store. (Tmall) Singles’ Day, the annual Chinese online shopping bonanza created by e-commerce giant Alibaba, generates jaw-dropping sales records every year—and this year was no different. On November 11, Alibaba’s C2C Taobao and B2C Tmall customers bought US$9.3 billion (RMB57.1 billion) worth of goods in 24 hours, an enormous leap from last year’s US$5.8 billion. It’s no secret how e-tailers accomplish these staggering results: every year, they offer rock-bottom discounts on everything from electronics to groceries that would put a U.S. Wal-Mart on Black Friday to shame. For most retailers interested in tapping the China market, the figures generated from this annual shopping event are a clear sign that e-commerce is one of the most important methods of reaching Chinese consumers. For luxury, however, it can be a source of extreme anxiety as high-end brands fret over whether or not to embrace the Alibaba empire, wondering if Chinese customers will think lower of them by seeing their goods next to deeply discounted items like those offered on Singles’ Day. This conflict stems from the fact that Alibaba’s Tmall and Taobao are by far the biggest platforms for online shopping in China, and a growing number of international luxury brands—including Burberry and Tesla—have jumped onboard in the past year. Thanks to Tmall’s reputation for selling imitation and “gray-market” goods, many brands previously eschewed the site—until Alibaba’s plans for a U.S. IPO prompted it to make a major push toward legitimacy by courting international labels. While Burberry is perhaps now the most well-known international luxury brand on Tmall, premium labels across sectors have been slowly making their way onto the site. On September 19, American label Calvin Klein became one of the first few major international fashion and accessories brands to launch a shop on the site, joining a small group that also includes Ports 1961, Fossil, and Citizen. Burberry's shop on Alibaba's B2C e-commerce platform Tmall. (Tmall) The small size of this group of global fashion brands highlights the fear that a Tmall presence will dilute a brand’s high-end image. Even price-conscious fast fashion has been wary—Zara joined in June 2014, but competitor Topshop opted to head to the more high-end online fashion boutique ShangPin instead this fall. Other luxury-related sectors have been more willing to log on to Tmall, however. The platform has proven to be a staple for a huge number of high-end global beauty brands including Dior, Chanel, Lancome, Clarins, Estée Lauder, Clinique, Lancôme, and more. With lower prices and thus more mass appeal, the “affordable luxury” status of beauty has made Tmall an ideal spot for brands, and many readily offered Singles’ Day discounts this week. Top Chinese jewelers also openly embrace the site: Chow Tai Fook, Bao Bao Wan, Chow Sang Sang, and Lukfook all have Tmall stores. High-end automakers are part of another segment that might start making its way to the site—although they are even more reticent than fashion at the moment. In late October (just in time for Singles’ Day), Tesla began taking orders for its Model S electric car on Tmall (although rumors have surfaced that the company may be suspending its Tmall partnership and its online shop is currently down at the time of publication). This comes several years after Mercedes-Benz held a flash sale on Taobao and Lamborghini displayed models on Tmall. Buick, Chevrolet, Geely, and Shanghai Volkswagen are the only other car brands to have Tmall stores. While brands worry about sacrificing their luxurious image by taking a space on Tmall, Alibaba has been trying to allay their fears with signs that it is becoming more legitimate. For example, it has announced several efforts to fight fakes, and has inked promotional deals with the China-Britain Business Council as well as the Italian and French governments to promote their countries’ brands. In addition, starting a Tmall shop can offer brands one enormous benefit that companies like Burberry have seen as vitally important to a brand's perception in China: protection from the rampant sales of fakes and gray-market goods on the sites. Other companies have tried additional tactics to get fakes off Alibaba’s sites—Kering filed a lawsuit this past summer while LVMH signed an agreement with the company last year. So far, however, Burberry’s model of officially opening up shop has proven to be the most effective: L2 Think Tank reported last spring that the British brand had virtually all of its gray-market goods removed from Alibaba’s sites after opening a store, while those for most other brands still linger. This isn’t a surprising result, since a presence on the site clearly gives a brand much more leverage than a lawsuit or agreement. While brand dilution is a concern for high-end label considering joining the site, the unchecked proliferation of fakes can certainly harm a brand’s image. As a result, the current decision these labels face seems to be a tradeoff between two risky options—but China’s booming e-commerce market means that the brands that get it right could meet with big rewards.

Tmall’s 'Premiumization' Slowly But Surely Snags Global Brands

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Published November 13, 2014

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Tmall’s 'Premiumization' Slowly But Surely Snags Global Brands