After the pandemic, luxury brands met recovery thanks to the APAC region and e-commerce sales. Hermes, which published its 2020 results a couple of days ago, even reached +16% of growth for Q4 2020. How? By offering an omnichannel experience and proving its ability to adapt with high online sales. In China, e-commerce is definitely essential for luxury brands if they want to perform. Surprisingly, some luxury brands like Chanel prefer to step aside. Discover everything about e-commerce in China and its impact on luxury brands’ performance.
Chinese E-commerce Market Overview
Key Figures of E-commerce
In China, e-commerce is the quintessence of business. The Chinese spend a lot of time online to search for information online and purchase the products they are looking for. Online shopping is way more convenient for them compared to go shopping in retail stores. For instance, 50% of the worldwide e-commerce is generated in China.
On average, you have 6-8 seconds to retain a Chinese online customer. Doing e-commerce does not actually mean you will perform online. To do so, you have to understand the Chinese habits on the internet and increase your brand attractivity with product presentation, strict selection, page design, call-to-action, easy navigation, and online experience.
As a consequence, 50% of e-commerce is driven by social many in Asia. Why? Because online shoppers want to communicate and engage with the brand. The key in China is to implement cross strategies with social media and e-commerce or even go further by selling directly on social media. For instance, WeChat (Chinese Facebook & WhatsApp) and Little Red Book (Chinese Instagram) have incorporated their own stores on the app.
Importance of Shopping Experience vs Price
The primary motivation for shopping online evolved among Chinese consumers. Before, they used to go shopping online for “price, assortment, and convenience”. In a word, they wanted to find the cheapest products in vast quantities. This motivation was entertained by the existence of “fake products” and counterfeited online that were always cheaper. Today, giant platforms like Alibaba fight against counterfeiting to improve the quality and the experience of shoppers online.
In China, 80% of luxury shoppers prefer to buy online. Why? Because they want to find “quality, value, service, and experience”. Compared to retail stores, online shopping faces no limit of creation or imagination. Thanks to AI (Artificial Intelligence) and VR (Virtual Reality) incorporated features, e-commerce platforms are delivering a unique shopping experience. Some luxury brands like LVMH and Prada decided to go alone on e-commerce. Many more like Gucci, Balmain, or Burberry decided to take advantage of Tmall Luxury Pavilion or Faftech (former JD Toplife) to reach Chinese luxury shoppers better and faster.
Better Target Luxury Shoppers from Lower Tier Cities
Luxury brands used to concentrate on Chinese top cities like Shanghai, Beijing, Shenzhen, Hangzhou, etc. The majority of luxury stores are located in the top 15 cities in China thinking it would be easier to target luxury shoppers because they are located in big cities. Well, this is not exactly the case… According to McKinsey, 75% of the wealthy Chinese consumers live outside the top-tier cities.
E-commerce in China is a key strategy to target luxury shoppers and especially Gen Z. Indeed, the 25 – 34 years old are the main users of e-commerce platforms, accounting for 31% of e-commerce users. They often complain about the lack of accessibility of luxury brands in stores in lower-tier cities. If your brand is not in their city or available on e-commerce websites, how are they supposed to buy your products?
Chanel Case Study: How the Luxury Brand Missed the Shot with E-commerce?
Chanel is a great example of a luxury brand that decided not to go online. Today, the luxury brand is selling fragrances, skincare, and sunglasses online. These product categories are available on e-commerce platforms, but not fashion. Why? Because Chanel considers fashion is too premium to be in e-commerce stores.
A Firm Favorite for a Significant Experience Offline vs Online…
Even in 2021, Chanel does not want to follow the e-commerce business opportunity. This is a strong commitment and decision at a time where everything is digital in China. The main reason exposed according to Chanel’s top executives is that a great shopping experience in luxury is necessarily offline. The features enabled by online e-commerce platforms cannot replace the in-store experience. For Chanel, a digital experience can only be a pure beauty experience like the Lip Scanner they released in February 2021.
On this strong statement… Chanel is alone. The majority of luxury brands decided to go online and benefit from the premium features offered by e-commerce platforms. In December 2020, Gucci joined the Tmall Luxury Pavilion and is generating good results. Even Hermes, the reference of luxury in China that values traditional in-store retail sells online. In China, the business reality is different from the West. Avoiding digital in China is like “shooting yourself in the foot”. This is why the resounding declaration of Bottega Veneta leaving social media in January 2021 was half true as the brand is still on Chinese social media.
… Resulted in a Decrease in Brand Visibility and Sales
According to Vogue Runway 2020, Chanel faced a 30% reduction in views of their fashion shows. In a word, fewer people watched their fashion week’s events and catwalks last year. On the other hand, Gucci and Louis Vuitton stay steady and met the same views as last year. Especially in a post-pandemic world, a luxury brand must exist online to maintain its visibility. Hopefully, Chanel benefits from a great brand awareness among Chinese consumers. So, the luxury brand will not collapse in the coming weeks.
The facts are clear for Vogue Business: “Chanel would have sold more if the e-commerce path was chosen“. After the Covid-19 crisis, it was more convenient for luxury shoppers to switch from offline to online shopping. The luxury brands that better perform in 2020 were those that chose the e-commerce path. As we mentioned at the beginning, Hermes met growth in Q4 2020 thanks to its adaptability with e-commerce assets in Asia, and especially in China. Even the luxury brand Louis Vuitton doubled its online sales between 2019 and 2020.
Main Luxury E-commerce Platforms in China for a Premium Shopping Experience
Tmall Luxury Pavilion – The Quintessence of Luxury Online Shopping
The Tmall Luxury Pavilion is an “app within an app”, available on Tmall. Brands can benefit from the striking force of the e-commerce giant Alibaba to reach and engage with consumers in China. Alibaba decided to launch Tmall Luxury Pavilion to offer a more high-end online shopping experience to luxury consumers. On the platform, luxury brands have the possibility to replicate their iconic flagship digitally while using VR projection and immersive experience.
Tmall Luxury Pavilion is answering all luxury brands’ concerns from design to the shopping experience. On the app, your brand has 100% control over the online store: colors, font, product assortment, merchandising, consumer experience. The main advantage of this e-commerce platform lies in the ability to target only luxury shoppers. Not everyone has access to the Luxury Pavilion, only the wealthy consumers and VIP clients. According to Alibaba, consumers spend an average of 159K USD per year on the Luxury Pavilion. Favoring this platform would help you achieve a higher conversion rate.
How to enter the Tmall Luxury Pavilion? You need to build a project and invest to have the chance to be selected by Tmall to enter the Luxury Pavilion. In 2020, 80% of the brands applying to Tmall were rejected. If you want to access the most exclusive and high-end e-commerce platform, you need to show opportunities of selling your brand to Tmall.
Secoo – The Luxury O2O Successful Platform
Secoo is another Chinese luxury e-commerce platform dedicated to fashion, jewelry, watch, leather goods, and accessories. The online-to-offline strategy (O2O) enabled by Secoo is ideal for luxury brands that want to engage with Chinese consumers with a unique experience. Online, you can find information, watch live streaming, place an order, and complete the payment process. Offline, Secoo owns several retail stores in Shanghai, Chengdu, or Xiamen to offer membership service and a VIP experience.
In September 2020 for Spring Festival, 14.8 million USD of luxury goods were sold in only 5 hours. The majority of Secoo’s customers are well-educated professionals with a high-income and a luxury appetite. They always look for a unique experience both online and offline. And you know what? Online sales are always increasing while offline sales are decreasing. Chinese consumers enjoy retail stores to live unique experiences but not to purchase. A distinctive strategy must be implemented if you do not want to lose sales.
How to enter Secoo? The process is similar to Tmall’s one. You need to build an impactful project and work with a local agency to facilitate your entry.
Xiaohongshu – The Rising Star of Social Commerce
Xiaohongshu literally means “Little Red Book”. It is the Chinese Instagram where users share photos, videos, and shopping advice. Compared to Instagram in the West, shopping on social media is way more used in China. On average, Chinese netizens spend 6 hours per day on their phone. They scroll social media posts, updates, news, and are always looking for the last trends to follow. The store incorporated on Xiahongshu is an easy way to maintain your premium image and increase your sales.
If you are a luxury brand, Xiaohongshu will help you reach a higher conversion rate among Chinese women. We would not recommend this app for men brands. On Xiaohongshu, 80% of the users are women. It would be a payback strategy only if you share qualitative content, engage with your followers, share users’ posts about your products, and implement call-to-action.
How to open a store on Xiaohongshu? First, you need to create an official account for your brand on Little Red Book. Then, you will have the possibility to register your store. The process is easier compared to other platforms because it is social media with a cross-border e-commerce model (CBEC). You will not need to have a Chinese license to sell your products. You can directly generate sales and Xiaohongshu will take care of the packaging and delivery.
Key Advice to Perform with E-commerce in China
In China, the most common mistake is to invest in advertising instead of branding first. The Chinese are very sensitive to word-of-mouth and brand image. If you want to perform, you need to invest in a Chinese website, Baidu SEO, social media, forums, press, influencers, and KOLs. In a word, branding is key for luxury brands.
If you develop your e-commerce channel too early, you may lose a lot of money. For instance, a watch brand invested €1 million on Tmall in 1 year and sold only… 7 watches. Why? Because they decided to focus only on e-commerce and advertising while forgetting about branding and e-reputation. You need to rethink your strategy. First, you build your image. Then, you generate sales.
At the Gentlemen Marketing Agency, we propose tailored solutions for luxury and fashion brands looking for e-commerce services. Our experts can help your brand breaking into this market with a high return on investment (ROI) through branding and sales. We have worked on +1000 projects and have helped multiple brands meet their objectives with e-commerce in China.
You can contact our team of experts to discuss your e-commerce project in China