E-commerce in China

Five years on and the coronavirus pandemic has revealed just how important e-commerce is to the future of luxury goods. Unlike the music industry, which has Spotify, or the hotel business, which has Booking.com, the luxury fashion industry is still without a single dominant online player.

But this month, Richemont, which owns Cartier and Van Cleef & Arpels, and the Chinese technology titan Alibaba announced that they were making a $1.1 billion investment in the online fashion retailer Farfetch. The Pinault family, whose company, Kering, owns Gucci, Saint Laurent and Alexander McQueen, also increased its stake in Farfetch by $50 million through its investment vehicle Artémis.

Scott Galloway, a professor of marketing at New York University’s Stern School of Business, agreed. “A supreme luxury e-commerce group is a compelling idea, but no one so far has been able to pull it off,” he said. According to data released last week by the management consulting firm Bain & Company, online luxury purchases were worth $58 billion in 2020, compared with $39 billion in 2019, nearly doubling the sector’s share of the market for global luxury sales to 23 percent from 12 percent.

If we look at the biggest e-commerce players in China, Taobao is paving the way, with more than 490 billion U.S dollars of gross merchandise volumes, followed by Tmall and JD.com.

Online purchasing has become the most dynamic growth engine for Chinese luxury spending, registering a growth rate of 27% in 2018 to reach 10% of total luxury sales according to Bain & Company's“ Luxury Goods Worldwide Market 2019”.

The two e-commerce behemoths Alibaba and JD.com have placed a strategic primacy on the luxury market. In addition t o launching the dedicated luxury platform Luxury Pavilion in 2018, Tmall fostered a strategic partnership with Yoox Net-a-Porter in 2019 and expanded collaboration with luxury brands launching their official online stores on Tmall. There are more than 150 official online stores offering luxury brands on Tmall's Luxury Pavilion platform. Meanwhile, JD.com has merged its luxury platform Toplife into Farfetch China in 2019, which provides JD customers with access to Farfetch's more than 1,000 luxury brands.

According to Gartner L2, the percentage of luxury brands on Gartner L2' s index operating a flagship store on JD.com has grown from 11% in 2017 to 20% in 2019.

In addition to collaborating with these leading e-commerce platforms, more luxury brands have stepped up their e-commerce businesses by launching their own official e-commerce websites or by driving sales to official e-commerce WeChat mini-programs.

The reasons for shopping online vary. Hong Kong consumers are price-conscious. They buy online due to cheaper prices and because it is easy to compare prices. Mainland China consumers are convenience-focused. They buy online because it saves time and offers an easy way to browse collections.

In China, Kering has been a leader in digitalization of the luxury sector. In 2017, Gucci was one of the first luxury fashion brands to create its own official Chinese website. Other brands under Kering have gradually set up official websites, WeChat stores and WeChat mini programs, with online campaigns based on various festivals in China like the Chinese Lunar New Year, Chinese Valentine's Day and the Singles Day－Tmall's key consumption period.

Recently, several brands of the group have launched livestreaming fashion shows on social media platforms, including Weibo and Douyin to get closer to younger consumers.

Boutte said the online luxury industry is only beginning in China.

Of Kering's 2020 online contributions to total retail revenue, the Asia-Pacific region grew especially fast last year, doubling from 3 percent in 2019 to 6 percent in 2020.

However, the ratio is still far below Western Europe and the US, which were 22 percent and 24 percent, respectively, in 2020, having also doubled over the year. It's not because Chinese customers are not digitally savvy－on the contrary. It's just that e-commerce of the luxury sector is still at a very early stage. Yet the digital executive said e-commerce is going to continue growing and accelerating in China. It (the acceleration) is expected to come from leveraging the specificities of the Chinese digital ecosystem, and also some breakthroughs in some technologies. While believing creativity and long-lasting client relationships are the core of the luxury experience and value proposition, the pandemic has confirmed Kering's consistent investment in e-commerce and digital tools.