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Jun
2015

The Chinse luxury e-commerce market

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General market

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 1,304 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.

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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 adjacent, 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, and is predicted to reach to 17 Billion RMB by the end of that year. Continued growth is expected in subsequent years to deliver 23.76 and 37.24 Billion RMB in 2013 and 2015 respectively.

The development history of luxury e-commerce in China

The history of luxury e-commerce in China is not long compared to that in the West, but it has developed rapidly, and luxury online shopping websites here experienced three dramatic fluctuation periods in the past eight years.

  • The foundation period (2005-2009)
  • The development period (2010-2011)
  • The adjustment period (2012- )

The graph on the following page shows when most of the well-known luxury e-commerce websites in China were established and some major issues that have happened since the first websites were founded.

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Classification of luxury online shopping websites

Based on our own research and analysis of luxury online shopping websites in China, they have been separated into three categories.

  • Third party B2C sites offering flash sales, big discounts and membership only; represented by the Shangpin and Glamour Sales in China, and Gilt overseas.
  • Comprehensive department store shopping websites with large product lines and large coverage, such as Yintai and Neiman Marcus.
  • Luxury brand B2C websites such as Burberry, Armani and Coach, which are normally established and operated directly by the brands or powered by the third party like YOOX.

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Domestic luxury online shopping; a comparison of major Chinese luxury e-commerce sites

Aiming at the huge opportunity represented by the domestic market, over 40 luxury e-commerce websites established themselves in China between 2009 and 2011. Based on our research and analysis of the domestic players, the table below makes a comparison between some representative websites.

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International luxury online shopping sites operating in China

Early in 2011, Italian luxury shopping website LuisaViaRoma and Shopbop affiliated to Amazon launched their Chinese website to attract higher spending Chinese consumers. Yoox followed introducing its shopping website Thecorner.com.cn offering product at regular prices.

Since 2012, THECOUTNET belonging to NET-A-PORTER, yoox.cn and well established American department stores Neiman Marcus and Macy’s have been exploring the Chinese luxury e-commerce market. Unlike the growth overnight achieved by domestic websites, these foreign luxury e-commerce websites have established good relationships with brands and consumers, have effectively balanced their brand image, price and service experience, and more importantly, all the products online are officially authorized. Meanwhile, luxury brands such as Armani, Burberry and Coach have opened their official brand shopping websites one after the other, which has caused a significant challenge for the domestic luxury e-commerce sites.

The foremost problem for the luxury e-commerce market in China is the authenticity of product in the eyes of consumers, according to the CEO of Shangpin, which is also the biggest challenge for domestic luxury e-commerce websites.

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Domestic and international luxury e-commerce sites; the differences

2012 was a year of change in the Chinese luxury sector, and e-commerce was affected

  • Authenticity: Domestic sites found their positions strongly attacked by their foreign peers, and overseas purchase by consumers themselves when travelling. Their problems were compounded with the issues of low trust and unstable supply channel as almost 99% of domestic e-commerce websites have not attained official authorization from the brands whose products they sell. By comparison, all foreign luxury shopping websites are authorised which earned them greater trust from consumers, hence exerting enormous pressure on domestic players.
  • Brand relationships: Because of their good relationship with luxury brands, international luxury shopping websites are regarded as more favourable in terms of brand authenticity, product diversity and price superiority across the same collection.
  • Customer service: Other than the advantages they offer in terms of brands and price, international luxury e-commerce sites deliver better customer service as well; either the user experience online or the after service off line. Using YOOX as an example, they provide a personal shopper service on the website to help customers find what they want; product changing and refunding is another important service, they even allow customers to try on their purchases while the delivery person waits.

Market positioning

The diagram below demonstrates the positioning of both the domestic and foreign websites, in terms of price and product control.

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Market trends

The challenges facing luxury e-commerce consumers in China

Lack of official brand authorization and unstable supply of products

  • It is understood that the supply of luxury goods to domestic shopping websites is mainly from outlets in foreign countries, branded retail stores, brand agents or product directly purchased from brands, and not direct from the brand itself.

Lack of luxury experience online

  • Consumers of luxury e-commerce lack user experience, in terms of product and service experience, brand selection, purchasing, distribution, pre and post sales customer service.

Influenced by the contradiction between luxury brands and agents

  • Many luxury shopping websites purchase directly from distributors or agents, which has had a side impact on the traditional offline branded sales channel. On the one hand, brand agents wants to make greater profit by taking advantage of prices online and saving the expense on physical distribution channels, and on the other, luxury brands are doing their best to maintain a superior brand image.

The market opportunity for Luxury e-commerce consumers in China

With the improvement of consumer understanding and recognition of luxury brands, and the increasing cost of retail space, many brands have restricted their geographic expansion and now may not meet the demands from luxury consumers in second, third or even fourth tier cities. E-commerce offers them a way to resolve this issue. For the luxury brands without a physical presence in China, testing the water via luxury e-commerce and then opening a physical store is a wise way to expand.

It is crucial for luxury e-commerce to focus on the consumer experience of online stores, from website design to product presentation, the purchasing process to after sales service, all of which need to deliver a sense of luxury to consumers.

Introduction to the Luxury e-commerce consumers in China

Chinese consumers purchase luxury goods online primarily to save time (24.7%), the discounts (20.4%) and the home delivery service. The greatest difficulty and barrier for domestic luxury e-commerce is the instability of supply of luxury goods, the lack of customer experience and poor after sales service. Based on the research of Fortune Character, almost half of consumers questioned have a positive attitude towards luxury online shopping and would like to try it. 10.3% consumers are comparatively trusting, however 32.8% of them refuse to purchase luxury online.

More details about Chinese luxury e-commerce consumers can be found in the following issue of LIC.

 

“Every order taken by 5Lux has specific staff members to follow it up. We believe attention to detail is very important, reflected by exquisite packaging and a small gift to the customer according to the frequency of purchasing and preferences, which is evidence of the customer’s repeated purchases on our website.” The CEO of 5Lux

 

“The foremost problem for luxury e-commerce in China is the authenticity of product in the eyes of consumers, then is the quality of the product, and finally is after sales service. Therefore, luxury e-commerce needs to focus on these three key points.” The CEO of Shangpin

 

“We have adopted a steady development strategy to optimize the online shopping environment in China, rather than looking at the short-term profit. We hope that shopping online can provide consumers with a new joyful luxury shopping experience, which will be owed to the application of multi-media, including fashion movies, fashion shows and exclusive reports and interviews with famous designers. It is predicted that China will become one of three largest markets for Yoox group in the world.” The founder and CEO of YOOX group


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