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Jun
2015

Luxury e-commerce September 2013

General market performance

The cooling of the luxury sector in China that began in 2012 has definitely had a knock on effect on the e-commerce market, although Chinese sites have suffered more than their international luxury e-commerce counterparts.

According to its 2013 1H report, Yoox made a 207 Million Euro profit, a year-on-year growth of 22.8%. Its growth in Italy and the US were 18.5% and 30.8% respectively, the results across all its other regions including China reached 63%. Richemont’s luxury online retail provider Net-A-Porter also achieved double-digit growth, Asia being a major contributor.

Current challenges

Authenticity of product purchased is still the most important factor that consumers are concerned about above all and may stop them buying online. Reliable products are the guarantee of profitability for each site. 75% of the clothing on TheOutnet.com is directly authorised by the brand, whilst it is 25% from Net-A-Porter. This reliance on a good relationship with brands is critical, Shopbop is able to sell the latest collections online and directly ship to consumers from abroad, while Yoox is the provider and technical support for a number of luxury brand official online stores.

With these giant international luxury e-commerce websites aggressively entering China, Chinese consumers have started to change their attitude to online luxury purchasing, 60.6% of them are now willing to try luxury online. For some circles of white-collar workers, it has become a fashionable trend, where people love to talk about how they bought a handbag on an international website and then wait for days for the product to be shipped from aboard. The experience is new to most Chinese consumers and makes them stand out amongst their friends.

While international players are providing Chinese consumers a new and exciting purchase experience that gives them both face and high levels of excitement and anticipation, domestic websites have started to change their strategy and look for new business models. The only Chinese luxury e-commerce site to gain VC investment in Q3 of 2013 according to information in the public domain was Secoo.com which received tens of millions of US dollars in its series C financing round in August to be used for marketing and upgrading the website. When founded, this enterprise was a technical company providing a consignment platform for luxury, but now it has become a luxury one-stop service provider. Its main business involves luxury e-commerce, luxury social clubs, the appraisal and sale of second hand luxury items, in addition to luxury product maintenance.

The second-hand luxury channel is its biggest feature which it strengthened when it started selling second-hand luxury cars online, including BMW, Benz, Porsche, Ferrari, Lamborghini etc. at prices ranging from 300 Thousand to 5 Million RMB.

The online consumers

In China, luxury consumption can be roughly grouped as follows:

  • Bespoke consumption: they do not care about the price and only care about the designer; specific brands are not that important, but they are seeking the unique. These people are looking for “expensive”.
  • Habitual consumption: Luxury is part of their life, and purchasing for the list price is ok, however getting a cheaper price would be great. These people are looking for “new”.
  • Accidental consumption: Consumers of mass brands, saving for months to buy discount luxury brands, they are more likely to buy cost-effective basic products. These people are looking for “face”.
  • Gifting consumption: consider the authenticity of the product and whether there is a fapiao available.

At present, the main consumers of luxury e-commerce are those in the accidental consumption group, but their weakness is a lack of repeat consumption. Consumers from the habitual consumption group are the ideal target as they have strong repeat purchasing power and can be easily driven by the circle of their friends. The greatest opportunity for e-commerce sites will be the habitual consumers who hope to get a new collection immediately. They have the money but may don’t have time to go to Hong Kong or further to buy the product. Bespoke consumers will never buy online.

Consumer opinion

“From the women’s point of view, when we go shopping we enter the store, select and try the products, and the whole process are filled with pleasant excitement, an experience e-commerce cannot offer. Although in the third-party e-commerce websites, you can benefit from good discount, no one can guarantee the quality of the product, not to mention the service. Official online shops of the brand will always have the same price as in the physical store. If I want to buy some luxury without going to the store, I will choose a Taobao daigou. I think if the brand will consider setting up an official outlet store online, people will be willing to buy.” Miss. Li, an online consumer.


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