Word has been whirling that luxury site Jiapin.com would be shut down. Throughout the luxury e-commerce market, more players are losing their flame. The downturn started since second half of 2011 when Wooha.com closed down, Xiu.com layed off its staff and CEO of VIPKu resigned. Why the crisis all of a sudden and any chance they can weather the downturn?

Bad News Pouring In

The Chinese luxury B2C market got started from 2009 on. At that time, lots of entrepreneurs and investments saw the picking up trend in this sector and flocked to it. Unexpectedly, in two years bad news pours in. Nice dream becomes a nightmare and a hot potato for many investors.

Jiapin.com once boasted that, “In the luxury B2C area, we are definitely best of the best. Our monthly sales reaches tens of millions RMB.” While lately rumor has it that the company is having a major downsizing with 200 jobs cut (almost half of the startup). CEO Yang argued that it was just a strategic layoff in which some unnecessary positions and expenses were cut off, and the aim was for an efficient and optimal group.

Jiapin isn’t the only bad news broke out lately. Luxury channel of the portal site Sina is also said to stop business operation very soon. Another one ShangPin.com shared the bad luck in that it did a big layoff this February…

Excess Supply?

China has undoubtedly become the second largest luxury goods market now, but why the great demand hasn’t brought great profits to e-tailers? Actually even many top designer brands have come to China, they are not really into the idea of e-commerce. Mostly luxury companies are very serious about its brand image, and they want to protect the image under luxurious price. They don’t need to compete with low-price merchants by allying with e-tailers, because that will go against its marketing positioning and may also violate its own pricing system.

According to iResearch, the market researcher, sufficient supply is the biggest problem for luxury B2C sites. When the top luxury brands hold their supplies, the e-tailers can’t ensure the stock, and even can not have a say in pricing. Furthermore, the brand licensing is also strictly controlled by the luxury brands, which puts the e-tailers in a dilemma. As a result, most luxury B2C players resort to overseas purchasing agents for supplies. This is clearly not a good solution for the order will thus take a long time to finish (sometimes over months), and the quality of the goods can’t be guaranteed either.

From a consumer perspective, it is easy to assume that most luxury lovers do not really care about the prices. B2C sites offer discounts for its users, but the customers are not grateful. Actually they doubted if these discounted goods are authentic and if the quality is good.

Industry insiders said that consuming habit of the luxury goods lovers and the problem of supplies are the two main causes for the sudden crush of this market. Try out goods in brick-and-mortar store is part of the wonderful shopping experience, which can never be realized online.

O2O: the New Direction

A solution customized for Chinese luxury e-tailers is badly in need, and it might be O2O. Recently Vipmssp.com is launching an “Authentic and Full Price” business model. Unlike the low-price competition, the conception of “original price” sounds very innovative. To obtain authentic goods from the brands and make available the latest products in time can ensure the quality and supplies at the same time. Currently some top brands are still taking a wait-and-see attitude towards this model.

This June, Jiapin.com won a $15 million investment from Macy’s and Intel Capital and the site will cooperate with Macy’s offline stores by selling some Macy-only products on Jiapin’s online channel Omei.com. The O2O model combines the offline merchants and e-commerce platform, which is seemly a feasible transition for luxury e-tailers, as it offers customers with good shopping experiences as well as attractive discounts.

动点科技驻湾区记者. Charlie is an entrepreneur based in San Francisco and Hong Kong who calls herself the undefeated caffeine champion. You can reach her at charlie.sheng (at) technode.com

Join the Conversation

1 Comment

Leave a comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.