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Jan
2016

Luxury e-commerce: promotion or sales?

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A single push notification from a WeChat account (WeChat is the most popular texting, voice messaging app in China), without wide publicity, marked the launch of Cartier’s Chinese e-commerce platform at the beginning of November. 20,000 reads of the message is nothing compared to that of a print advertisement, but perhaps it is what the brand wants: to keep it low profile?

E-commerce has been an area of uncertainty in China because luxury brands have feared it may harm their image and status. And for the Chinese consumers a physical location is an important part of their luxury shopping experience, although e-commerce is now an accepted way of life. Though the product itself and the price matter the most, the location of the purchase is an extension of their lifestyle and taste. Hence with this part missing, it’s uncertain if online luxury shopping would really be welcomed, however, it is unavoidable.

The manner in which Cartier launched the e-commerce site, may be a result of their conservative character and a means to target a select and known consumer group to test its effectiveness and value. So do the existing consumers want to buy online, or does the site just drive them to the store?

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The pros and cons

Cartier actually opened its first online store in 2014 on the website of Selfridges, the UK luxury department store. At that the time a brand spokesman said ‘customers can enjoy the same level of service online as in store and via the Internet more information can be presented to customers, and so the whole shopping process will be smoother’. If this was their view then, why such a soft launch in China?

Every luxury brand is concerned about the potential negative perception of the its status once it goes online, therefore launching the e-commerce site quietly and directly to its loyal followers helps test the water and minimize risk, and if the feedback is negative, rectification becomes simpler, in theory at least.

The second point is that luxury stores have traditionally given the impression as accessible to only a select few which keeps their market status high when sales is good, but worse the situation when sales drop, mainly because first-time or infrequent consumers may refuse to visit luxury stores as they are seen as inaccessible and prices are considered to be out of their reach. The solution is to provide information online and thus to give consumers confidence to visit a store and browse, which may in turn increase the possibility of converting a potential customer into an actual one.

Lastly, for many Chinese who love to compare prices of the same product in stores around the world, putting prices online may actually accelerate a purchase decision and decrease deliberation; if a potential consumer in China can see that the local price is not that much more than the price in Europe for example, they may buy there and then, or visit their local store very quickly. The approach may also prevent some consumers from using a Daiguo and chose to make a purchase directly themselves.

How have other brands entered the e-commerce market?

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The psychological online purchase barrier

Now that the e-commerce payment process is relatively smooth, do Chinese consumers feel secure enough to buy a 20,000 RMB plus ($3,087) luxury item online, rather than visiting a store?

Early this year, KPMG released a report entitled ‘Chinese Online Consumers’ that assessed online luxury shopping habits. 45% of respondents regularly used online platforms to purchase luxury products. For those under 4,200 RMB, they were confident in making the purchase on the Internet, which is up from 1,900 RMB in 2014 growing by 121%. However, the price point is much lower than that of an entry-level item from a brand like Cartier.

In China, the regulations related to online shopping deliveries and returns are not as strict as those in the U.S. or Europe. Once something goes wrong before or on the arrival, the seller and delivery company may shift the blame between one another. Though the dispute may be settled in the end, it will take a considerable time before the customer can actually be reimbursed. Hence the limit of acceptance of shopping online really depends on how much risk shoppers are willing to take for a single purchase. It’s not about how much Chinese consumer consumers can afford, but about how much they can afford to lose in the worst-case scenario.

When buying expensive items online, the Chinese always prefer cash on delivery. However, rather than waiting for what may be a delayed delivery, actually going to the store and having their chosen product in their hand is much preferred. This is also the principal reason why Chinese travelers buy so many things during their trips; they can enjoy a good bargain on one hand, and have what they purchased immediately on the other.
Getting the online/offline balance right

Luxury brands once showed great hesitation to sell online, especially after so many high end fashion brands opened e-commerce platforms and closed them relatively quickly, is it really that hard for luxury brands to make the e-commerce decision? According to Mckinsey, online luxury sales currently account for only 6% of total luxury revenues, worth currently approximately $15.5 billion but estimated to be 18% by 2025 or about $77.6 billion. A number big enough to attract luxury brands!

After witnessing the $14 billion one-day turnover of the shopping festival of a Chinese online shopping platform, Tmall.com (see our following article: $14 billion in One Day: China’s Single’s Day Shopping Festival), the growing acceptance of Chinese consumers for shopping online is apparent to all. The further attraction is the cost of a platform accessible to all being much lower than that of opening multiple city stores. Opening an online store and keeping the appropriate number of physical ones therefore becomes an easy calculation for luxury brands. (Find store reduction from the table below)

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Summary

Digitalization is inevitable even for conservative luxury brands. On Cartier’s website, we can now find retail prices and direct purchase is offered on a basic line of products, and its easy for visitors to choose to complete their purchase with or without registration. After completing the necessary personal information multiple payment methods are available, including Alipay, the online payment tool developed by Alibaba making the site more acceptable to every Chinese consumer.
Whether the Cartier online platform will help to increase or attract more potential customers remains to be seen. But at least now we see no real difference between the e-purchase process of a luxury brand and that on a regular website.


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