Tips for Luxury Brands in Chinese e-Commerce Market

Sales of luxury goods grew 12% in 2009, to $9.6 billion, accounting for 27.5% of the global market, according to Bain & Co. In the next five years, China’s luxury spending will increase to $14.6 billion, making it the No. 1 luxury market globally. In 2009, China overtook the U.S. to become the world’s second-largest luxury-goods market, behind Japan. Roughly half of the luxury goods purchased in China are bought as gifts. (via AdAgeChina)

According to the latest (26th) report released by CNNIC, by June 2010, Chinese e-commerce users have reached 142millions and increased by 31.4% in past 6 months. Also via iResearch, the Chinese e-commerce transaction volume in Q1 2010 has hit rmb 1015.27 billion (~$150billion).

More and more traditional business see the huge potential from Chinese e-commerce, and some of the luxury brands see that too. Luxury industry in e-commerce, so can we find the perfect matching of both?

I was involved with a project consulting an international top luxury brand which is planning its e-commerce strategy in China. I am neither a big fan of luxury product, nor ever into the market. However, the experience of working with both a luxury brand and local e-commerce services was great. Here I want to share with you some of my finding which does not come with statistics by research but I hope you find it interesting as well as practical.

General Takeaways:

• Despite more and more business want to try out e-commerce, NONE of luxury brand is actively doing e-commerce in China.
• The market is very geographic. According to Taobao’s report, the TOP 5 e-commerce cities are Shanghai, Beijing, Shenzhen, Hangzhou, Guangzhou which generate ~22% transaction.
• Counterfeit issue in China has to be considered, especially for luxury market.
• Despite the e-commerce market is hot here, it is still NOT that mature. People are expecting more about cheaper price online.

e-Commerce in practice:

• Platform – think over whether to build the online platform on your own or go partner with the existing e-commerce platforms;
• Logistics – Efficiency, safety and reliability. Usually this can be easily solved with the partnership with other platforms;
• Payment – it’s not the difficult part usually as there are several payment gateway you can easily integrated into your own platform
• (Social) Marketing – the internet culture is very different in China, e.g. you need learn how to talk to local via old style – BBS (online forum) which is amazingly popular in China and you also need understand the power of new media, such as microblog. Do check Sina’s microblogging service which will be leading Chinese social media.

Build your own e-commerce platform:

• The advantage is that you have full control of your user’s profile which you can use for direct marketing, such as sending newsletter, data analysis etc;
• But can you legally do that in China? In order to run e-commerce in China, you may need a Chinese partner set up a JV, or do a WFOE structure;
• Understanding Chinese users’ online behavior is important. It is very different so it must be concerned when you design the UI/UX? Check out all those popular e-commerce sites, you will see the layout of each site is QUITE similar.
• And don’t forget that you yourself need deal with logistic which sounds easy as there are several logistic companies you can choose and the price is relatively transparent. But if you are a luxury brand, you don’t want your packaging damaged, got dirty etc when it arrives at your customers, right?

Work with third-party e-commerce platform:

• It’s the solution suitable for small/medium company. For sure, they will offer you a full package: user base and traffic, online e-commerce platform, logistics, even customer support via IMs, Call Center, email etc; then you just need decide on what product you want to sell online;
• But if you really care about your brand, make sure the platform the third-party provides can be fully customizable. Most of the existing e-commerce platforms can not offer you fully customizable design; they can only do with different templates; As a luxury brand, you don’t want to give your customer a Cheap looking, do you?
• For sure, the thirty-party wants some commission, probably per transaction basis; the rate could be varied, depends on what category of products you sell online.
• It’s a safe and easy strategy to start with your e-commerce: Partner with one big platform which can drive traffic and revenue for several years, in the meanwhile you can learn the market and plan your own e-commerce platform. Yes. That’s workable, but make sure that that partner allows you export all your customers’ data upon the contract expires.

Which platform is the best for the business?

• Taobao, well, yes, you can not ignore such a giant which takes ~80% Chinese e-commerce market share; Go talk to them and they have a good team which is able to deal with International brand.
• But Taobao is not everything. Especially for a luxury brand, it’s risky!! Keep that in mind, people come to Taobao for Cheaper stuff;
• There are several others you should check, such as MSN Shopping and Ule China for brands, 360buy and newegg for electronic product, dangdang for books and so on. They may offer you something which Taobao may not, e.g. more customizable platform.

(image from Replicastore)