Does Ultra-Luxury Have a Digital Future in China?

Key Takeaways: Many of the well-honed best practices of luxury retail are rooted in what works for the European and American markets. China’s dramatic rise in personal wealth over the last decade occurred parallel to a similarly spectacular growth of e-commerce in the country. There is already definite consumer demand for buying ultra-luxury online, with over 340 product units on Tmall priced between 7,710 and 77,100 (50,000 and 500,000 RMB) selling during June. The success of Tmall’s Luxury Pavilion has helped quash luxury brand concerns about selling their products through digital channels. Since 2017, over 200 brands and designers have joined the platform, which recorded 159-percent growth in 2021 year-on-year. Nevertheless, for many in the industry, e-commerce is only considered a viable option for entry-level or mid-tier luxury products — yet unsuitable for high-priced, ultra-luxury items. The usual reasoning is that consumers will not be willing to part with large sums of money without visiting physical stores. Luxury retail traditionally relies on a mixture of exquisite visual merchandising and extensively trained sales assistants to facilitate these larger purchases, which seemingly cannot be recreated on a computer screen. Shopping online is natural to all tiers of Chinese consumer Many of the well-honed best practices of luxury retail are rooted in what works for the European and American markets. But as with many things, China is exceptional. Chinese shoppers are simply more digitally savvy than consumers in other places, and these behaviors extend to all levels of purchasing power. China’s dramatic rise in personal wealth over the last decade occurred parallel to a similarly spectacular growth of e-commerce in the country. As a result, shopping online is natural for most consumers, and for many, it is considered the default way to make purchases. That is especially true for younger consumers, who grew up practically native to e-commerce. Research conducted by Tmall and Bain & Co. found that millennials account for more than 70 percent of luxury sales on the platform, and Gen Z is the fastest-growing segment in the category. Moreover, many of China’s ultra-wealthy now live outside top-tier cities and do not have convenient access to luxury stores. But e-commerce allows them to purchase products they want and can afford without having to travel hundreds of miles. Additionally, the experience of buying luxury online in China is superior to anywhere else in the world. Tmall has helped foster a truly premium e-commerce experience on Tmall via the Luxury Pavilion. Consumers can check and compare products with others and can easily make returns if they are not happy. They can also interact with sales assistants and instantly receive in-depth information about products through various high-tech mediums, including augmented reality (AR). In China, these convenient features are often a better option for shoppers than visiting physical stores. Data shows the demand is real Re-Hub’s analysis identified that there is already definite consumer demand for buying ultra-luxury online. We found that on Tmall, over 340 product units, priced between 7,710 and 77,100 (50,000 and 500,000 RMB), were sold during June. Top-level luxury consumption is especially prevalent in the watches and jewelry category. For example, two Vacheron Constantin watches from the brand's Overseas Collection with a hefty price of 64,135 (416,000 RMB) were sold during the month. Even for more accessible luxury items like handbags, we found that the most premium-priced luxury items outsold less expensive models. Handbags priced over 2,312 (15,000 RMB) sold the same amount of units as those priced in the 1,850-to-2,312 (12,000-to-14,999 RMB) and 1,387-to-1,850 (9,000-to-11,999 RMB) categories combined. At the highest tiers of the luxury market, consumers expect and demand brands to have an e-commerce presence. Luxury brands that do not leverage the available opportunities to capture consumers' attention could lose relevance and, in turn, growth opportunities in China's hyper-competitive market. Max Peiro is CEO of Re-Hub, and helps luxury and beauty brands in Asia to generate growth opportunities using AI and data solutions.

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Does Ultra-Luxury Have a Digital Future in China?