Lux­ury brands face the up­hill e-commerce climb

China Daily (Canada) - - CHINA - By ADAM XU

The Sin­gles Day shop­ping event this year recorded 91.2 bil­lion yuan ($14.19 bil­lion) in sales on Tmall, sig­ni­fy­ing the un­de­ni­able de­vel­op­ment of e-commerce. For a con­sid­er­able pe­riod of time, Taobao was the sym­bol of China’s e-commerce and viewed as the Chi­nese version of eBay among for­eign­ers. It was re­garded as a low-end player in the cus­tomer-to-cus­tomer mar­ket. Western brands used to con­sider China’s e-commerce chan­nels a sewer for dis­pos­ing dis­counted prod­ucts and dump­ing in­ven­to­ries.

That is true to some ex­tent: Consumption ca­pac­ity and af­ford­abil­ity in e-commerce are still lim­ited de­spite re­cent growth. Top brands have been pru­dent in en­ter­ing into China’s e-commerce, es­pe­cially in col­lab­o­rat­ing with Alibaba over the past three to five years. To­day, with China’s e-commerce mar­ket boom­ing, Western brands, in­clud­ing lux­ury brands, have be­gun to re­think their e-commerce strate­gies in China’s mar­ket.

Over the past three to five years, growth in China’s e-commerce has im­pelled Western brands to think dif­fer­ently.

They’re also look­ing at China’s e-commerce mar­ket dif­fer­ently be­cause of the end in growth for lux­ury brands af­ter the na­tion im­posed its aus­ter­ity mea­sures on lav­ish spend­ing and im­ple­mented its anti-cor­rup­tion cam­paign. Since then, China’s roar­ing e-commerce has ap­peared to be a life­sav­ing straw.

Th­ese lux­ury brands have also been con­fronted with tremen­dous chal­lenges in ex­pand­ing their off­line sales. In­creas­ing rent and la­bor costs and the reck­less ex­pan­sion of shop­ping cen­ters have led to mar­ginal ef­fects on top line growth.

Tmall’s suc­cess and Alibaba’s US listing have led Western brands to change their per­cep­tion of Chi­nese e-commerce, par­tic­u­larly its as­tound­ing size and growth rate. The 57.1 bil­lion yuan in sales for Tmall on Sin­gles Day last year is com­pa­ra­ble to the off­line sales num­bers for the Black Fri­day event in the United States in 2014. But the as­tro­nom­i­cal 91.2 bil­lion yuan in sales for Sin­gles Day this year has rocked the re­tail in­dus­try around the world.

Western brands must also think about the post-1980 and post-1990 gen­er­a­tions who have be­come the main on­line con­sumer group in China. Their dom­i­nance of this mar­ket can be seen in the ap­parel busi­ness, with growth rates of en­try-level lux­ury brands tak­ing the throne from cheaper brands that used to make up the ma­jor­ity of e-commerce sales. This consumption ca­pac­ity is get­ting pro­gres­sively closer to the price range of­fered by lux­ury brands.

Through e-commerce chan­nels, th­ese two gen­er­a­tions make pur­chases and deepen their knowl­edge of cer­tain brands.

Nev­er­the­less, many top Western brands have a vague un­der­stand­ing of China’s e-commerce, which is why they find it to be im­por­tant yet dif­fi­cult. Many have no idea how to get started. The feel­ing of in­se­cu­rity haunts many ex­ec­u­tives at many multi­na­tional cor­po­ra­tions and top brands who have at­tached great im­por­tance to Chi­nese e-commerce.

Sev­eral years ago, a num­ber of lux­ury brands dipped their toes into dif­fer­ent mar­kets. None chose China. To­day, a few lux­ury brands are look­ing to work with Tmall.

But which type of brand is bet­ter suited for start­ing an e-commerce site? Al­though prices in the Chi­nese e-commerce mar­ket are ris­ing fast, they are still rel­a­tively low. To put it sim­ply, lower tier brands find it eas­ier to get into e-commerce, while pres­tige brands need time to cul­ti­vate their e-commerce mar­kets.

Uniqlo and Decathlon are two good ex­am­ples. They are both suc­cess­ful in China and their off­line re­tail ex­pe­ri­ence is su­perb. The two brands de­fine their prod­ucts as pop­ulist and high-qual­ity, tar­get­ing var­i­ous con­sumer groups. Uniqlo ranked atop the ap­parel in­dus­try for Sin­gles Day 2015.

Due to their lim­ited con­sumer group and high pric­ing, lux­ury brands need to find their start­ing points to find and cul­ti­vate e-commerce cus­tomers.

The au­thor is a Shang­haibased part­ner with Strat­egy&.

Adam Xu

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