💹Market opportunities
Last updated
Last updated
Online luxury sales to grow by up to three times the current market size, to account for an eighth of China’s 1.2 trillion RMB luxury market by 2025. Online luxury sales in China lag other categories by a large margin, with just 8 percent of respondents indicating they went online to make their last luxury purchase, compared with half of the people who do so when buying apparel or consumer electronics.
Among post-’80s consumers, just 1 percent told us they made their last purchase online, compared with 29 percent who said they would be prepared to tap digital luxury commerce in the next year. Post-’90s consumers are more comfortable going online to shop, but there is still a substantial mismatch between the 18 percent who said they did so last time out, and the third of respondents who indicated it was likely they would in the next 12 months. Looking to the future, luxury brands can tempt their young customers online by digitizing the intimate, personalized experience that attracts them to brick-and-mortar stores.
Virtual try-on services and matching suggestions curated by artificial intelligence (AI) both increase the likelihood consumers will purchase online, as can premium perks like 24-hour white-glove dispatch, and distinctive shopping bags. When it comes to devising an online sales strategy, few brands have chosen to establish a comprehensive presence across China’s multifarious e-commerce channels, comprising brand-owned as well as mainstream B2C platforms like Alibaba’s Tmall, and luxury verticals like a domestic player, and London-based Net-APorter.
The imperative for global brands is to become the leading form of social capital for China’s young luxury consumers and stay there. This demands an “always-on” approach centred around a rapid cycle of new and refreshed product launches that intimately intertwine with ready-to-go viral media, including “sticky” nicknames and innovative campaigns.
Newness and exclusivity could also be fostered through launching limited editions, collaborations with KOLs and influencers, and hosting an annual calendar of special events, particularly around art and fashion. China’s young luxury consumers are more interested in aspiration than heritage, making it imperative for brands to modernize their stories and deliver them through digital channels.
Savvy brands should design an integrated marketing strategy that satisfies young Chinese consumers’ appetite for consuming media at every available touchpoint, whether they are online or offline, and whether they are travelling or staying in China. Local digital marketing teams should be empowered to make quick decisions and entrusted to experiment with the new media formats and channels favoured by young consumers.
Since the majority of luxury purchases are made offline, brands should also reimagine the in-store experience. Catering to young consumers’ desire for personalization—to feel different and valued—is key, as is doubling down on the concept of the store as its own media channel. Brands would also be wise to invest in highly trained staff capable of maintaining one-to-one relationships with customers in and beyond the store, in effect becoming their personal stylists, backed by customized narratives and personalized product recommendations powered by AI.
As research has shown, there is an unparalleled opportunity to tap demand for luxury among the affluent residents of China’s lower-tier cities, most of whom remain underserved by brick and mortar stores. Instead of over-expanding store footprint, brands should devise a targeted travel retail strategy that captures these consumers on the move – and follows them home.
Having done so, sales staff can maintain a long-term relationship with the consumer through the astute use of WeChat and other social platforms. Light asset store formats like pop-ups are worth consideration for brands with sufficient sizzle. Reaching young Chinese consumers also requires a considered approach to e-commerce, one which cultivates a rich and consistent brand image on owned platforms, while making sharp choices over whether or not to reach for the eye-popping traffic on mainstream e-commerce platforms. Finally, as young consumers blur the line between engagement and purchase, domestic and overseas, and online and offline, the new battleground for luxury brands requires fundamental organizational transformation. This requires not only winning in digital, but also more seamlessly integrating business units across brands, functions, and regions.
Speaking about Farfetch, there are still hurdles. A joint venture with Alibaba could potentially cannibalize Farfetch’s existing operations. A previous, much-hyped Farfetch venture in China with JD.com failed to generate any momentum with consumers. Additionally, many luxury brands still yearn to consolidate and control the digital channels that connect them to consumers wherever they are in the world — with no third party involved.
