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Digital China Leaving Ostrich Brands Behind

Chinese consumers are flocking to the Internet to make luxury purchases on local e-commerce sites. International luxury goods brands need to get their heads out of the sand to catch up, says Luca Solca, head of luxury goods at Exane BNP Paribas.
Ostrich traversing sand | Source: Shutterstock
  • Luca Solca

LONDON, United Kingdom — Many international luxury brands believe they are not online in China, by far the world's largest luxury goods market. But, in fact, thousands of products from a wide range of international luxury brands are available at hundreds of online retailers operating within the country.

According to a survey of 5500 consumers across 48 cities, conducted for Exane BNP Paribas, a mere 7 percent of Chinese luxury consumers purchase from luxury mono-brand websites. In contrast, 45 percent buy online through local e-tailers, 35 percent buy via daigou (professional agents who buy in the West and sell locally) and 13 percent buy from foreign websites. By allowing grey market imports and fakes to fill the online gap, luxury brands not only lose sales, but risk losing control of their brand image. Putting one’s head in the sand is not going to make the problem go away.

Infographic identifying Chinese digital consumer purchasing channels | Source: Exane BNP Paribas

Price is the main motive for shopping online, according to 48 percent of respondents to the survey, which was conducted prior to the devaluation of the euro, which opened up a record gap between Chinese prices (renminbi) and European prices (euro). Forty-eight percent of respondents spend CNY 1,000 (about $160) to CNY 5,000 (about $800) per year, 37 percent spend between CNY 5,000 and CNY 20,000 per year and 6 percent spend between CNY 20,000 to CNY 100,000 per year.

Yet, there is a very significant opportunity to serve consumers beyond lower prices. 25 percent of interviewees said they sought greater brand and product selection online. 18 percent wanted easy delivery. A whopping 100 percent mentioned authenticity as a criterion when choosing which e-commerce website to visit, while 70 percent cited authenticity as their major concern; quality was their second highest concern, with less than 15 percent of mentions).

Soft luxury goods are the most frequent purchases, with handbags (73 percent of purchases) and ready-to-wear (71 percent) far ahead of other categories; watches and jewellery bring up the rear with 29 percent and 21 percent respectively. At one level this is natural, as the higher average price of watches and jewellery mean they are purchased less frequently. However, I suspect that the significantly wider soft luxury versus hard luxury price gap between China and Europe along with concerns about authenticity may also play a role. The most frequently purchased brands are Gucci, Prada and Louis Vuitton, confirming a strong mega-brand grip on online sales, putting them ahead of accessible luxury brands.

It seems obvious that European luxury goods brands need to partner with local players, for example through concession agreements, if they want to reach China's vast Chinese online public. Tmall is the unavoidable choice, but not Tmall alone, if European luxury brands want to execute a sound distribution strategy in China. I commend brands that have locked in partnerships with reputable Chinese online retailers, with the aim of cleaning up their digital channels: Louis Vuitton, Burberry, Saint Laurent and Balenciaga are leading on this front; Longines, Gucci, Ferragamo, Prada and Miu Miu seemingly still have their heads in the sand.

Luca Solca is the head of luxury goods at BNP Exane Paribas.

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