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Jun
2015

Online luxury fashion customers

Current luxury e-commerce consumer habits and demographics

In our June 2013 issue, we reported on the luxury e-commerce market in China, the history, the current players and the market trends in a country that will become the largest in the world. In this issue we review findings from our own research into consumer attitudes to purchasing luxury online, the drivers for doing so and the concerns of those who do not use e-commerce sites to buy luxury products.

In a study of over 1200 Chinese individuals aged from 18 upwards, and split approximately 50/50 male and female, they key fashion buying and online channel selection motives were confirmed using a 51 point survey lasting five weeks. In the following pages, we discuss some of the key findings of the study, touching the surface of what is a very important topic for luxury brands at this time.

The luxury e-commerce market in China

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Currently, China has 242 million online shoppers, approximately 43% of all the countries Internet users, and more than any other country in the world. This online consumer population is twice as large as that of Japan, and 75 million more than that of the US. According to data from iResearch, the Chinese market size of online shopping was worth 461 Billion RMB in 2010 and 773 Billion RMB in 2011, a 67.8% year on year increase. At the end of 2012, the online shopping market in China increased to 1304 Billion RMB, a whopping 68.6% year on year growth. Web agency Go-Global forecasts the population of Chinese online shoppers will increase to 423 million by 2016, generating sales of 2.8 Trillion RMB per year.

However, in the enormous Chinese luxury market, we estimate that e-commerce sites have contributed less than 6% of sales in 2012. According to the China E-commerce Research Center, and shown in the chart opposite, the online luxury market has increased from 2.89 Billion RMB in 2009 to 6.4 Billion RMB in 2010, a 121.4% year on year growth. In 2011, the market grew 67.2% to 10.7 Billion RMB. During the first half of 2012, the market was worth 13.5 Billion RMB. Continued growth is expected in subsequent years to deliver 23.76 and 37.24 Billion RMB in 2013 and 2015 respectively and has yet to be verified.

Background to the study

Domestic apparel consumers are increasingly accustomed to buying luxury goods online. In 2012 due to the slowdown in the domestic luxury market, luxury brands in China really began to sell products online in order to find a new way to increase sales revenues.

This increase in activity online, and the immaturity of both consumers and the luxury e-commerce sector make the necessity of such a study very urgent. Chinese consumers are the target of marketing for all luxury brands, so that the study of consumer behaviour is essential for any brand to win in the market. The full study identifies and analyses fashion consumer motives, classifies different consumers groups based on their characteristics and behaviour, and analyses and validates the relationship between demographic variables and purchase behaviour. The following data is a snapshot of the content of the full report.

Online Luxury Fashion Consumer Buying Motivations

Based on a pre-study the buying motivation factors for purchasing luxury fashion online were divided into two parts, those for buying luxury fashion and those for the choice of online as the channel.

Buying Motives: why buy luxury?

1) To show off

Buying luxury goods to show their wealth and status to others

2) Be part of a social circle or as gift giving
Demonstration of the right to belong to a social group i.e. We all own a bag from the same brand which is seen in public and private. Although gift giving within government circles has taken a hit in the past 12 months, the practice of giving gifts is still important to belong to social groups or to strengthen social relationships.

3) Leadership status
Because luxury is seen as a status symbol, ownership demonstrates a position in social hierarchy or trend leadership

4) Ownership of quality
Consumers believe that famous brands and expensive luxury products are of better quality in terms of design, material and craftsmanship than non-luxury products

5) Self reward
Buying luxury is used to commemorate a special time for the individual or to put them in a positive mood or remove negative emotions

Channel motives: why buy online?

1) Discount
Most Chinese are price sensitive, so they pay a great deal of attention to the lower online purchase price and are eager to buy discounted goods

2) Comprehensive choice
Not only can they see and buy more products online, they can find more information via this channel as well

3) Reduce contact with sales staff
Some consumers want to buy without what they consider interference from sales staff, this could be due to high or low self-confidence. Shopping online can provide an independent shopping space

4) Explore their options
Consumers consider that shopping online is a journey of exploration, and can lead them to new products and brands they might not otherwise come

5) Entertainment and relaxation
The online research and purchase process is entertaining and relaxing for some

Interviewee demographics

Of the 1200+ interviewees, the split between male and female respondents was 49.4% to 50.6%, their age, income and occupation are shown below.

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Overview of the findings

In the following section, is a high level summary of the results of the study, a weighted scale of 1 to 5 was applied for all the responses provided where 5 is a maximum value.

Consumer motivation factors

As can be seen in the table opposite ‘ownership of quality’ gained the highest value of all the buying motivations and was therefore the most important to them. ‘Self-reward’ was the second most important factor, and to make a purchase to be ‘part of a circle’ or as ‘gift giving’ was third. To ‘show off’ and ’leadership status’ were the least important purchase motivations.

These findings demonstrate a shift in the attitudes of those buying luxury when compared to those some years ago as we would have expected the ability to show off to be higher on the list, as we might for leadership status. Now consumers are less concerned about the perception of the general public, but they need to still belong in a personal circle remains of moderate importance. The subject of quality of everything is a topic of social discourse in China, or perhaps more accurately the cases of poor quality that often make a big splash in the media. The key attribute of luxury that is quality of materials, design and construction play well to this social concern and as we can see, are the key purchase motivator among today’s consumers.

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The findings of the online channel selection motivations are shown in table below. The ‘comprehensive choice’ and ‘lack of contact with staff’ rank as the two most important motivators for buying online. Perhaps surprisingly, buying online as a means of entertainment and relaxation ranks higher than saving money via discounted prices, and the ability to use an e-commerce site as a way to explore new choices ranked lowest.

As with the purchase motivations, we see a shift from just buying online because its cheaper than in the store to those where the consumer wants to be given a wide range of choices, and prefers to make their own selection rather than having to deal with sales staff.

This is likely to be indicative of a maturing of consumer experiences, knowledge and confidence and also a result of more Chinese travelling internationally and experiencing what they consider as better service, and a wider choice than they find at home. The ability to explore new brands or the wider market is perhaps unexpectedly ranked lowest as the majority of consumers will want to see new brands in the media first and then see them in a store before having the trust to buy them online.

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E-commerce consumer groupings

Using cluster analysis based upon the 1 to 5 ranking of each motivation fact, the 1200+ consumers in this survey can be broken into the following groups.

Self-expression oriented consumers (12.5%)

Key motivators: ‘Ownership of quality; ‘Self reward; ‘Comprehensive choice’

  • This type of consumer is usually relatively affluent, and will have started purchasing or using luxury some time ago. They will also understand the brand history and culture, appreciate its value, and through purchasing luxury they will fulfill their spiritual and emotional needs and be satisfied as a result. Most of them will buy luxury goods to commemorate some special events in their lives and reward themselves.
  • Because of the level of experience and knowledge they have of purchasing luxury products and the confident they have, these people are more willing to try some exclusive luxury brands or those who haven’t yet entered China. Brands and product ranges online will meet their demands in this regard, and when purchasing luxury items, whether they are discounted has little influence on them.

Show off and social circle oriented consumers (22.3%)

Key motivators: ‘Show off’’; ‘Social circle acceptance and gift giving’; ‘Discount’

  • This type of consumer is the only male-dominated group of the 4. They are happy to demonstrate their wealth or status by buying luxury goods, win the respect and attention of society, or to satisfy their ‘elitist’ mentality. Some of them will use luxury to upgrade to or be admitted into a higher status level social group.
  • These consumers have a form of market blindness, the cultural connotation of the luxury brand is not important to them. Among them, there are also some pure gift-giving individuals who use luxury goods to build or enhance relationships with the people who will bring them potential benefits, in business especially.
  • The proportion of students in this group is significantly higher than other 3 groups which is a result of an immature competitive attitude amongst single children who are pampered by their parents and grandparents.

Mature and practical consumers (17.9%)

Key motivators: ‘Ownership of quality’; ‘Reduce contact with staff’; ‘Discount pricing’

  • Excellent quality, unique design and advanced technology are three factors that this type of consumer values most when selecting luxury goods. They tend to be low-key and do not need to show off or to highlight the brand Logo’s. They have their own ideas and opinions and don’t want to have too much contact with retail staff who they feel are unhelpful and don’t know them as individuals.
  • Luxury is a way of life for them and reflects their lifestyle. On one hand, they believe that the high price of luxury goods is a result of high quality, good design, and excellent technology. But on the other, they also pursue a rational or fair price, so discounting has greater impact on this type of consumer.
  • The proportion of SME owners and employees or self-employed people in this group is significantly higher than the other three groups.

Traditional entry-level consumers (47.3%)

For them, the luxury goods remain relatively mysterious and new, and because of their lack of understanding and knowledge, they are easily affected by many motivators, each having a significant impact on them.

  • Traditional entry-level consumers accounted for 47.3% of the group studied, demonstrating that a large proportion of Chinese luxury consumers are still in their infancy in terms of experience and understanding, and that although the country has many people who are relatively mature luxury consumers, brands are still having to deal with a high proportion that are not. The upside of this situation is of course the huge untapped potential available to luxury brands.

Where shop online?

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Of those in the study who are luxury e-commerce buyers, it is possible to see in this graph where they prefer to shop.

The independent reseller of luxury items called a Daigou is still the most popular place to go to buy luxury items online, probably because their prices are always competitive to official sites belonging to brands or other official e-commerce retailers, and because the available choice from the grey market can be wider than that offered on the other platforms.

The site operated by the brand is likely to be selected over third party or department store sites, and in fact the latter have a very low representation in China, which is why their popularity is lowest of all four options. Delivery and payment method can also contribute to the decision as where to buy, because some sites only accept Visa payments, which few here have access to, and often product is shipped from outside of Mainland China and can be delayed.

What prevents Chinese consumers from buying online?

Of those in this study who had not yet purchased luxury fashion online almost ¾ indicated that they may possibly choose to do so, the main reasons that are preventing this purchasing practice according to those questioned are discussed below. Only 14% said that they would not buy online indicating that the potential for luxury e-commerce sales in China is significant.

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For those who have not yet purchased luxury online, six possible risks were identified that concerned them. Pre and post sales service and product authenticity were key concerns as was a fear that the entire process from ordering through to delivery could be too stressful for them. Having personal information shared or stolen was considered a high risk, the time spent confirming the website was good, the product was genuine etc. was a problem to many, as was the feeling that money may be paid and no goods sent by the e-commerce site. The fear of loss of personal bank data also presents an issue.

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Service risk: If the newly online purchased product is unsuitable, return or replacement can be difficult. If the product is broken, the repair process may be complicated.

Function risk: The product could be a fake, or the product I receive may be very different from the pictures shown online.

Mentality risk: Compared to buying in a store, I could become stressed about issues that may happen during the purchase process. These people are likely to be anxious about waiting for the express arrival, and worried about damage on the way.
Privacy risk: My information entered online may be disclosed to other companies, or used without my permission.

Time risk: A consumer may spend a lot of time verifying the reputation of the online retailers with friends or BBS groups. Delivery is not immediate and it may take a long period to receive the products that were ordered.

Economic risk: Paying in advance is required but the goods may not be sent. Hackers may access my financial data and misuse it.

Establishing an online luxury presence in China

As a result of this study and our own experience, what advice would we give to any brand that wishes to establish a luxury e-commerce site targeting Chinese consumers? The following are a few suggestions based on a simple 4P model.

Products

  • Get brand official authorization: If you plan to sell products from a luxury brand on your site, ensure you have official authorization to do so, and demonstrate that to the consumer. LV for example does not give approval to anyone to sell its products online, yet they can still be found.
  • Cooperate with affordable luxury brand: Those buying online tend to be younger on average than those spending in stores, they are also more price sensitive. A market therefore exists to introduce affordable luxury brands and products to China.
  • Conduct B2C Daigou business: A Daigou is typically an individual running a basic service from their home, yet many are trusted suppliers. An opportunity exists to establish a Diagou service as a business.
  • Find a trusted after service partner: An important facet of e-commerce in China is quality post-sales service, find a reliable partner to do this for you.

Price

  • Make the price clear: Pricing on many sites is deliberately made grey, and often prices are inflated so that discounts can be applied. Clear pricing builds trust with consumers and creates repeat business.
  • High price strategy (for those brands that less known in China): Don’t underestimate the value of high pricing in China. A high price is associated with quality and luxury, new brands can us pricing to establish their reputation.

Place

  • Cooperate with e-commerce in other sector: If you work in the fashion sector, partner with those from another sector such as cosmetics or watches. Share databases and other marketing resources for mutual benefit.
  • Build offline experience store: Chinese consumers like to see, touch and try product before they buy, but once they understand the quality and value of a brand, they no longer need to do this. Establishing an offline experience store can build consumer trust and does not need to be permanent.
  • Establish a company in FTZ: Although the government policy related to Free Trade Zones hasn’t yet been issued, there will be an opportunity for those in the luxury sector to leverage this in the coming years.

Promotion

  • Reputation building: It may sound basic, but building a reputation in the media, and especially via social media is often executed badly. Chinese consumers also buy approximately 50% of their purchases via mobile devices.
  • Television advertising: Demonstrates status and money that in turn mean consumer trust and confidence. Its often not as expensive as might be imagined.
  • Membership recommendation system: Belonging to a brand club or VIP group is common. Use rewards as a means to generate personal recommendations from existing shoppers to their contacts.
  • Credit services for consumers: A recent service available via some sites in China is to offer payments for luxury goods in installments via a banking partner.
  • Additional Services: Many consumers buy new or second hand products online and want to confirm with the staff in the retail store that they are authentic. This facility will make the e-commerce site offering it more attractive than those that do not.

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