Luxury brands like Burberry and TAG Heuer have increased their digital presences significantly in China in recent years, selling products either on marketplaces or on their own online stores.
They are targeting increasingly affluent Chinese consumers, many in their 30s, who are among the world’s biggest buyers of premium goods. Chinese consulting firm CBN Data estimates Chinese consumers accounted for 46% of retail sales of luxury goods in 2016, though other studies suggest China represents about a third of the global luxury market.
Demand for luxury goods slowed in China over the past few years as a result of a government crackdown on corruption and slower growth on China’s stock markets. Bain Consulting says Chinese consumers purchased 17 billion euros ($20 billion) in luxury products in 2016, down 2% from 2015.
Online sales are picking up due to relaxed government regulations on importing goods purchased online for personal use, and luxury brands are bringing prices in China more in line with those elsewhere instead of charging more in China, as had been the case.
While many luxury brands have cut back on opening bricks-and-mortar stores in China, they are moving swiftly to use digital channels to sell more to consumers who live in small towns without local luxury stores. Web sales will account for 13% of total luxury sales in China in 2021, up from 7% in 2016, according to CBN.
Growth is particularly strong in high-end cosmetics for international brands like Estée Lauder. “In China, our third largest market, we nearly doubled online sales in fiscal 2017 (ended by June 30, 2017) and we’re again the top prestige beauty company on Tmall for Singles’ Day,” Dennis McEniry, president of Estée Lauder’s online division, said on a recent conference call with investment analysts.
“China will offer momentum for future growth,” McEniry says. “We operate in 170 cities. For online sales, an enormous amount of these purchases come from cities we do not operate in brick-and-mortar, which makes the distribution in China efficient, but also the opportunity to grow new consumers come from cities where we do not operate today.”
Two dominant Chinese e-commerce players, Alibaba Group Holding Ltd. and JD.com Inc., are also stepping up their efforts to work with luxury brands. On Aug. 1, Alibaba launched a Luxury Pavilion on its marketplace Tmall.com, selling special-edition products from brands like Burberry, Hugo Boss and La Mer.
Alibaba also introduce a new subsite, Tmallspace.Tmall.com that sells luxury products available in small quantities. In September, fashion brand Lowes, owned by LVMH Moet Hennessy Louis Vuitton SE, started to sell a special-edition handbag on Tmallspace, priced at 15,900 yuan ($2,400).
Some other brands are collaborating with China’s largest e-retailer JD.com Inc. For example, Italian fashion house Armani has begun selling several of its lines on JD.com this year.
Another is French apparel and accessories company Yves Saint Laurent, which announced in July plans to selling online in China, working with JD.com and Farfetch, a U.K. e-commerce company. JD invested $397 million in Farfetch in June, taking a large, but unspecified stake in the U.K. company that sells luxury goods on its own websites while also operating e-commerce sites for other premium brands.
The alliance will allow the 200 brands and 500 multi-brand retailers that work with Farfetch to access JD’s vast customer base and its nationalwide logistics network, including JD Luxury Express, a courier service for high-end products.
JD.com ranks No.1 of Internet Retailer China 500 and Farfetch UK Ltd, is No. 89 in the Europe 500. While Alibaba’s big retail marketplaces in China, Taobao and Tmall account for about three-fourths of online retail purchases in China, Alibaba is not ranked because, like eBay Inc., it is a marketplace operator that does not sell goods on its own behalf.Favorite