Luxury Brands Are Capturing the Huge Potential of Chinese E-commerce

Source: Prada‘s Official Weibo

The great potential of luxury online sales

Even though the Chinese luxury market is still mostly an offline market, the share of its online sales is expected to grow from 8% to 12% by 2025. The market context underlying this is that the global personal luxury goods market is expected to surge from 2,406 billion RMB in 2018 to 3,117 billion RMB in 2025, a roughly 4% annual growth rate.

On the other hand, from the consumers’ perspective, the percentage of purchases from Chinese customers will have doubled from 19% to 40% of the personal luxury goods market according to McKinsey‘s report in 2019.

51% Chinese customers are much more likely to buy luxury products on generalist marketplaces while only 23% of consumers in the West will do it.

Therefore, to better capture the momentum of the increasing luxury consumption online, many brands have already partnered with dedicated luxury e-commerce platforms such as Tmall Luxury Pavilion and Secoo to reach out to Chinese consumers better and faster. Unlike the situation in the West, 51% Chinese customers are much more likely to buy luxury products on generalist marketplaces while only 23% of consumers in the West will do it.

Rothy’s
Source: Rothy’s

The e-commerce context in China provides a huge opportunity

Utilizing luxury platforms has a great additional value to luxury brands – to access to a wider consumer base, especially those in lower-tier cities because these dedicated luxury platforms like Tmall Luxury Pavilion are inherited within or based on e-commerce platforms which have a greater number of users. Take Taobao as an example, it has a monthly base of 657 million active consumers. By betting on China’s online platforms, luxury brands can reach out to tech-savvy generations as well as customers outside of the large cities.

Besides, while luxury brands lack retail presence and may be incapable to have their own logistic chain and ensure the quality of delivery, dedicated luxury e-commerce platforms have the scale to deliver goods to consumers in second tier and third tier cities.

The pandemic is pushing luxury platforms forward

During the first phase of the pandemic, when basically all shopping malls are closed, brands suffered a huge loss as the Spring Festival was meant to be a strategic point for them. Brands who have already create an online retail network had the opportunities to compensate for the loss and further enhance the online retail systems during the challenging time.

The very crisis actually became an opportunity when it comes to luxury platforms. JD.com itself forecasted at least a 10% rise in revenue for the coronavirus-hit first quarter and it indeed is the best evidence to show the potential of them.

Dior’s Tmall flagship store will debut on June 21
Source:Dior Tmall

The highlight news of this month may be that Dior has opened its Tmall flagship store with a simple and sudden notice posted on Weibo. The flagship is specified as flagship store of “Perfume and Beauty Products”, strictly named as Chanel’s Tmall flagship store to distinguish and emphasize the product line.

It is not difficult to understand the cautiousness that top luxury brands are making steady moves online. Though in many cases their beauty lines are the first to test on e-commerce platforms, the more essential fashion apparel and leather accessory line will not be available on them soon. By doing this, brands themselves are keeping an appropriate distance from e-commerce to maintain the prestige images among consumers so that e-commerce will still act as a complement to offline stores, but not a substitute.