Recent study shows, sales of luxury goods through digital channel accounted for 6% of total sales, it is about $ 15.5 billion — this figure will change to $ 77.6 billion in 2025, and this is corresponding to 28% of the total sale. This performance in the e-commerce channels, will directly affect the annual sales of all luxury goods.
McKinsey analysts showed that United States and China will be the largest two countries on luxury goods in e-commerce market; both of the countries have the incredible active social networks with broad customer base which include customers from all ages. Additionally, customers buying luxury goods that shifting to e-commerce platform are increasing everyday, so it is important and necessary to expand the brand using digital media. 95% of luxury buyer use mobile telephone and 2/3 of them are active in social networks weekly. Interestingly, customers generally have top five brands in their list when they are browsing online, based on the study. So it is important for luxury suppliers to consider how to insert their brands into customers’ top five list. There are important factors showed in the study that will influence customers’ view: Store, Public Praise, Searching Engine, Salesperson and Brand’s Web Page.
According to the statistic, the sales of clothes and makeup shares 7.2%, bags shares 6.2% as a second place and watch and jewelry are 4.1% in global e-commerce market excluding China. These numbers look low, because the biggest e-commerce market China is not counted in the data. From Chinese statistic in 2012, makeup sold via e-commerce reached 58.14 billion CNY. The number is still increasing. Clothes are second biggest category in e-commerce web Taobao (taobao.com).
Luxury brands are still in the testing period in e-commerce, there is no fully successful case yet. “We are just trying e-commerce right at the moment, no pressure, our e-commerce department is quite relax”, one of the LVMH manager mentioned. Even most of the Luxury company is running e-commerce strategy now, but we still can’t pick up shining case here. For example, Amazon is always showing their passion on luxury products, they even invested a huge studio in Brooklyn for fashion shows, which is the signal sent to Luxury suppliers. But still, they haven’t found a steal luxury partner for themselves. But the data shows that, this kind of trending and passion of e-commerce to luxury market is right. Amazon will stand 14% of clothes market in US, previous is 5%. By 2020, Amazon will claim to the top of clothes market bit on Macy’s. Experiment of luxury in e-commerce will getting mature soon. It is obvious that customers’ shopping habits and trend are shifting to digital market, based on McKinsey’s data.
One hand, the data showing us a great future of luxury’ e-commerce, but on other hand we also heard many negative stories. The progress of this shifting is still very slow and prudent. For example, Celine authorized Net-a-Porter on their products, it looked like great deal, but the goods over $3600 are still sailed in offline. Burberry is always has the high tentative in digital market, but they turn down the collaboration with Tmall recently.
In China, NetEase and Sina turned down their luxury shopping platform, even they have very juicefull browsing volume in China. Recently, Jiapin also was forced to reduce stuff around 200. It is obvious that Chinese luxury is facing the big challenge in e-commerce. “The one will get a serious problem who is playing with luxury business online”, Gong Wenxiang, Huabei Online manager mentioned. The average amount of e-commerce bill is around 200 RMB. China is one of the biggest luxury market in planet, but luxury market is basically based on offline mode. The reason is simple, most of the luxury brands are already live in Chinese market. Additionally, luxury suppliers have high requirements on retailers, the supply chain is under the control. It is difficult for small size e-commerce firm to get source of luxury products. This situation pushes small size e-commerce retailers using different way to get them, for examples, smuggling and copying, which make the public lose the trust on luxury online. The price is another factor influencing Chinese e-commerce. luxuries have different prices between China and abroad, generally international price is cheaper than China, so some customers decide to use overseas purchasing, and it is popular now.
Deeper Analyze Chinese Luxury E-market
Luxury is going to e-commerce, is it a pseudo-proposition?! Typically, luxury products are focusing on limited customer with higher incomes; but e-commerce in China is focusing on general public. The features of luxury price and customer are not on the same direction of Chinese e-commerce principle. It is difficult to find a common field between this two concepts. Classic commercial ways have more clear definition and brand image, but e-commerce today is more like a channel lack of clear definition and structure. For instance, super market such as ICA is different from hypermarket such as NK, it is not suitable to put NK’s products in ICA. Right at the moment, Chinese e-commerce concept is standing for CHEAP principle, and this psychology will extending for long moment. So there is a big conflict between luxury and e-commerce. This situation causes Chinese e-commerce hard to get luxury source from big brand. Additionally, price war is a typical strategy of Chinese e-commerce, which is the not the will of luxury.
From perspective of customer, there is no big concern to buy cheaper product through e-commerce, but it is serious deal and problem when they focusing on expensive one online. Is it the real one, is it suit on me, what if I want to change or return…etc. In China, customers who have enough capability to bear the price could buy the real luxury when they are traveling; or as I mentioned before, they choose overseas purchasing. A statistic shows that Taobao’s overseas purchasing will increase till $ 3.1 billion. Plus, most of luxury customers are not sensitive to the price, they think that discount will influence brand image. Discounting strategy of luxury is not really effective way using in Chinese market, probably globally.
Customer psychology and shopping experience are other key factors. for example, part of luxury customers buy luxuries because of their story, history and cultures. Shopping experience is another important factor, and it is an upgrading part of your shopping habits. No defense on anyone, not everyone have the full courage go into LV store, but most of them want it! Imagine, a fashioned lady is going in LV store accompanied with her man. After a complete introduction from store sailor and cup of coffee, the picked the best one. Then her men slash the card generously and go out from store with a big LV packet and shining smile. People are on the street watching on them…etc. For Chinese, this is a classic western shopping experience, no more sales promotion, repay or on sales; it is so clean, neat. You will never feel these super experiences when sit front of computer and looking for e-market. It is important to physically try product when customer looking for dreaming luxury, and e-commerce can not offer this experience.
There is different type of customers. No doubt, female is still biggest aim in e-commerce market, since female customer are more focusing on clothes, bags, shoes and jewelry. Chinese market still not really effetely working on this circle of customer.
The last thing I would like to mention is that fake and copy product in China. The copy or me-too product has been killing the passion of luxury customers for many years. For expanding the market, many e-commerce platforms are trying to copy product or smuggle goods. For instance, Dangdang’s Tissot watch crisis, Jumei’s 90% fake product crisis are part of stories in China. Hermes’s CEO Dumas said that there 80% of Hermes in China are fake!
In The End
I have mentioned and discussed above of luxury e-commerce, there are many situations, conflicts and problems. I think it is good to understand and pose point out the issues, which could help us on the right solution. Of course, there are still more research and deeper analysis on this study. And both from e-commerce and luxuries, they are all looking for suitable solution.