As the Chinese luxury consumer evolves, so too must the brands that cater to them. Increasingly, luxury players are recognizing the importance of selling online in China, and those that don’t could be left behind. Here’s why e-commerce is crucial for luxury players in China – and how they can capitalize on it.
China’s Key trends in e-commerce
Luxury brands are looking for new ways to cope with the stress caused by the pandemic, which has made international travel difficult. To generate sales, dozens of luxury brands, including Gucci and Montblanc, have opened online stores in China.
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According to McKinsey’s 2019 report, China accounts for about one-third of the global market for luxury brands. Their purchases tend to be made while traveling abroad.
Pablo Mauron, general manager of Digital Luxury Group China, said that eight years ago, it was not possible to sell luxury online. In the high-end market, “touch and service in-store” is more important than ever. He said Covid-19 has really helped accelerate a lot of things.
Bain & Company’s 2020 report shows the global luxury goods market down 23 percent by 2020. This is a new record low. The value of the personal luxury goods industry fell from 281 billion euros to 217 billion euros between 2019 and 2020. China is the only country that has seen continuous growth in its luxury industry. China’s personal luxury goods market has grown 45% annually to €44 billion. Bain & Company estimates that China could become the largest luxury goods market in the world by 2025.
The biggest buyers of luxury goods in China are currently millennials and Generation Z. National media reports that the number of luxury goods sold via digital platforms in China has increased by about 150%, from 13% in 2019, to 23% in 2020. Shopping platform Tmall reports that 70% of millennials spend in the luxury category.
Wechat, China’s most popular social networking platform, has also contributed to the digitalization of luxury brands in China. In 2019, the gross value of goods sold exceeded 800 billion yuan. Between January and August, there was an 11.5% increase in digitalization.
RED Mall is also known in China as Xiaohongshu, where it shares a name and a social media account. It is the most trusted platform for cosmetics shopping and network sharing. More than 30 luxury brands have joined RED Mall. Many of them have also organized live streaming events to give more Chinese consumers the opportunity to meet the brand.
Navigating Tmall: a guide to luxury
Tmall, Wechat and RED Mall are the most popular platforms for promoting luxury brands in China. Tmall reports that over 200 luxury brands have opened digital stores on the platform in China since 2020. This has resulted in a 130% increase in sales value.
If a brand is new to the Chinese online market, they should choose digital channels with the built-in infrastructure. This will allow them to enter the market quickly and easily. It should choose between Tmall, JD.com, and a smaller national company like Pinduoduo. WeChat may also be an option.
Tmall is the market leader for luxury goods and services in China due to its size, recent acquisitions, and strong brand. Alexander Wang, Prada, and Cartier have opened official Tmall stores in recent months, while Bulgari has announced that it will open one soon. These brands have been added to the already impressive list of brands on Tmall. The platform’s recent move to live streaming means it will be an ideal partner for many multinationals.
Christina Fontana is the director of fashion and luxury at Alibaba Europe. She confirmed that Tmall, China’s largest customer engagement platform, has a wide range of brands and content curation. Fontana said that once a brand signs up, it can target any consumer, whether it’s Generation Z or an Urban Silver shopper. Our platform can target each user with different touch points.
Tmall offers luxury brands a variety of segments that are different from its competitors. This can make it difficult for newcomers to China to navigate. Tmall Classic, Tmall Global, and The Luxury Pavilion are just a few of the many opportunities Alibaba’s online landscape offers brands to build their brand, market, merchandise, and sell in China.
Tmall Classic requires brands to have inventory or products in China. Tmall uses algorithms that customize a customer’s page based on their previous shopping habits. They also compare promotions and calculate the best price discounts.
Once the store is created, brands will be responsible for its operation. This includes design, visuals, customer service, and even after-sales support. According to Fontana, brands decide what products they will show or sell. Often, the brands that are best prepared are the ones that succeed. Multiple stores can be opened in the same marketplace to sell different products, segments, or lines of distribution.
There are no significant costs to the platform other than annual fees and operating costs. Sales commissions depend on the category you belong to. Fontana says commissions can be refunded if you exceed a certain threshold. The cost difference between Tmall Classic and Global comes down to import taxes.
To manage their day-to-day operations, logistics and e-commerce, brands must work with Tmall partners. The latter can also open a store for a brand using trademarks. The platform certifies and grades TPs every quarter.
Josh Gardner is the CEO of Kung Fu Data. He acts as an E-Commerce partner, specializing in data analysis, brand monitoring, and business development within China’s largest e-marketplaces. He is also a partner of Tmall. He believes Tmall works in China because it can be trusted. “Tmall is approved. Gardner explains that it’s a status symbol for a brand’s official trade. “Consumers can be assured that they have the proper documentation and have met all the requirements to be authorized on the site. Tmall is an insider status that is part of something bigger.
According to Statista, Alibaba had 711 million active users on its online shopping sites in China at the end of December. Alibaba did not disclose comparable numbers. Gartner encourages brands to ask themselves if they are strong enough to launch. 90% of Tmall stores have sales of less than RMB 5,000,000, and 5% more than RMB 10,000,000. Make sure your brand equity is strong enough to make the venture viable.
Tmall Global, a cross-border marketplace, was launched in 2014. Tmall Global allows brands to sell across borders and bypass China’s strict product registration requirements. It is a strong competitor to JD.com and VIP.com, as well as Xiaohongshu and established daigou sellers.
Tmall Global allows brands to trade in China without the need for a legal entity. It is also useful for brands that do not meet China’s testing requirements, such as cosmetics companies, which must conduct animal testing. These obstacles can be overcome and controversial regulations overturned by companies that reject animal testing, such as Fenty Beauty.
Tmall Global is also a great place for brands to test how their products are received. According to Fontana, this allows companies to understand the Chinese market and how their competitors operate in China. Often, brands then make the jump offline or to Tmall Classic. However, regardless of the platform, companies must have a clear strategy and goals for tackling e-commerce in China.
Ms. Fontana mentioned Calzedonia, an Italian brand, as an example of platform Shopping to help China achieve its vision. She said they have a three-year plan to expand into physical retail. Tmall allowed them to discover which products were most popular and where the demand was coming from. They went from no presence at all to a global presence and opened a physical store a year and a half later.” The brand operates a classic Tmall store, which is more profitable and also has inventory in China.
It’s easier to move from Global to Classic once a brand has been established online. It is often simpler to use existing inventory on the mainland when brands are fully functional in China via Tmall Classic.
Gardner also believes this strategy makes sense. He adds that Tmall on Global provides support to brands, which greatly benefits their stores. He says Global can help you get started, but then you can move to the domestic market, which can give you five to 10 times more business. They are great at getting resources to the stores and getting you free traffic. Without that support, you will die.
Alibaba launched Luxury Pavilion in 2017 as an invitation-only service. It now hosts 180 luxury brands such as Chanel, Valentino , Burberry , Bottega Veneta and Burberry . The 2018 redesign of the site included a tab called “House” that allows luxury brands to invite only. This was done to increase the luxury feel of the site. Net-a-Porter’s online e-commerce platform, Richemont, launched a flagship store at the Pavilion in 2019. It also introduced brands such as Balmain, Jimmy Choo and Chloe to the site.
Alibaba’s addition of Luxury Soho to the Pavilion’s offering marked the entry of China’s largest e-commerce company into the luxury outlet market. The strategy shows the group’s desire to extend the product lifecycle on Pavilion. This new initiative allows for the purchase of seasonal products at discounted prices. It targets young luxury consumers, from China’s lower-tier cities or Generation Z shoppers, who are “just entering the luxury world.”
The initiative is intended to help brands clear their excess inventory. However, in a market that is just bouncing back, this latest initiative may prove difficult in the future. That’s according to Tom Griffiths, director of Verb China. He said Alibaba has some of the best luxury programs in the world. “However, Luxury Soho could end up hurting the Pavilion brand, which was supposed to be a haven for online luxury brands in China,” he said.
The new program places full-price items next to discounted items from the same brands. It will be interesting to see how this change affects Pavilion’s perception of the luxury industry, which is based on scarcity. Griffiths explained that exclusive luxury items are sold in a different way than mass market products and that “if a channel is not seen as a luxury experience, it will dampen consumption.” We need to analyze how Alibaba will position discounted luxury, and whether it will work in China’s smart elite.
All Chinese platforms require a serious marketing strategy
Alibaba is home to fifty percent of online transactions in China. At first glance, the global site for international brands may seem more appealing than the traditional site. The Luxury Pavilion and LuxurySoho platforms could also be attractive ways to reach a ready-made audience. It’s no surprise that luxury brands around the world have been working hard to raise their digital profiles in order to launch on these platforms.
These platforms can be used by some brands for cosmetic purposes. Gardner focuses on the process by which a consumer becomes interested in a brand. He said Tmall is not an activation platform. “I need to know how a person was influenced to buy. Does it create a demand from a KOL? You can track their moment of interest or the moment they make a transaction. This will help you decide which way to go.
The most important thing to remember about going online is to reach Chinese consumers in China. And more specifically, what types of buyers is a brand looking for. Tmall has over 10 million sellers, which means these platforms are not just about “build it and they will come.” That’s why brands need a targeted marketing strategy and a large budget.
While the platform has tremendous reach, it’s expensive to invest in. Fontana said, “We added 100,000,000 users last year, but they need to know your brand.” Fontana said, “If you think you can invest in this marketplace without marketing, you’re wrong. You need to tell consumers about your product and what makes you special. They won’t magically appear in your store.
Tmall and the Luxury Pavilion – Magic mirrors, Blockchain and a secret algorithm with Mei Chen
Tmall, under the umbrella of the all-powerful Alibaba Group, is the place to be if you want to sell to Chinese customers. Here are some numbers from Alibaba’s Alizila network ahead of 11.11 (aka the Singles’ Day shopping extravaganza): “More than 200,000 brands will participate in this 11.11,” Alibaba said. 22,000 of them will come from 78 overseas markets. One million new products will be offered. More than 500 million people will participate in the 24 hours, about 100 million more than last time.
China’s numbers are indeed impressive. Luxury brands must be able to offer quality and quantity, which is why the luxury pavilion was created. Tmall’s “app within an app” is a luxury haven where high-end brands can have the same high-end experience as in their physical stores.
As foreign brands hear about Alibaba and Taobao, Tmall Global and the Luxury Pavilion, The Luxury Conversation sat down with Mei Chen, head of luxury and fashion at Alibaba Group in the UK and Spain, Portugal and Northern Europe to learn more and dive into the world of e-commerce in China.
Let’s start at the beginning. What’s going on between Taobao and Tmall Global and the Luxury Pavilion?
Simply put, Taobao is still a C2C platform. That’s why Tmall was founded in 2008. The platform still focuses on fashion, both female and male. Aligning with government regulations in 2014 Tmall Global was launched to make it easier for international companies to tap into the Chinese market without having a Chinese entity, team or bank account.
Even without infrastructure or capacity, they can serve the Chinese market. Tmall Global is Alibaba’s B2C cross-border marketplace. It was created to meet the ever-increasing consumer demand for high-end products and provide a premium shopping experience. The platform is designed to help brands reach their target audience so that the customer experience is the best possible. It does this by using real-time analytics to optimize brand sales.
It was clear that Western luxury brands wanted better access to the wealthier segment. However, Tmall was not the right environment for them. Therefore, the company launched the Luxury Pavilion in 2017.
It is not in a separate app on mobile, but it is in the app. Although it can be found on Tmall, the Luxury Pavilion experience offers something very special and exclusive. Brands are only invited to the Luxury Pavilion.
This is not a decision made solely by Tmall staff. The data will show which luxury brands consumers consider.
The segmentation was also done for the consumer. The Tmall mobile app will show the Luxury Pavilion icon to luxury consumers that the algorithm has identified.
The icon is still available to those who don’t have it. They can access it by entering Luxury Pavilion in the Tmall app. They still have access to it, but the icon represents your luxury purchasing power. It’s accessible to everyone. You can still enter any luxury brand store anywhere in the world, but you may not have full access to special events or invitations.
The algorithm used to identify luxury consumers is not only based on the brands they search for, but also on the celebrities they follow and the movies they watch. It also takes into account their lifestyle behavior.
Tmall has nearly 700 million customers. The number of customers on the Luxury Pavilion is smaller, but the conversion rates are higher because they are segmented. Customers come to the Luxury Pavilion to buy and shop.
The Luxury Pavilion is not only built with luxury brands that Chinese consumers consider luxurious, but also based on customer service. Cross-border luxury experiences can make the ultimate luxury experience difficult. Even if the order is optimized, delivery can take up to 3-5 days. For the Luxury Pavilion, the time frame can be much shorter. That’s why brands that are already on Tmall’s main platform, not Tmall Global, can apply for the Luxury Pavilion.
All the brands listed on the Luxury Pavilion, Chanel, Burberry, and all other brands, have Tmall stores. However, on the Luxury Pavilion, the environment is more controlled. They are right next door to their luxury neighbors and it is easier to do luxury shopping, both from the brands’ and consumers’ perspective.
Tmall allows brands to still feel high-end with recent developments. Although Zara and Apple are not part of the luxury pavilion, Tmall’s environment can still feel luxurious. It is sometimes referred to as “Tmall 2.0.”
What are the most common questions and concerns international brands have about Tmall Global?
Tmall Global has maintained its position as the largest cross-border e-commerce platform in China. Tmall Global offers the most popular foreign products to Chinese customers. Tmall Global currently hosts more than 20,000 brands from over 4,000 categories, 77 countries and regions.
The number of brands on the platform has grown rapidly, from 5,400 in 2016 to more than three times today.
International brands may not know that you don’t need a Chinese business license to use the platform. This is something that can sometimes discourage brands from trading in China.
Tmall Global’s Global Source program is another aspect that many people don’t know about. It uses blockchain technology and big data to track every step of an imported product’s journey, from production to customs clearance to third-party inspection. This gives consumers the confidence to know exactly what they are buying and where it came from.
Tmall Global’s most active users were also born between 1990 and 1999. Tmall Global’s 2018 data shows that nearly half of Tmall Global’s active users were in the 18 to 28 age group.
What are your top e-commerce trends? Which technologies are having the most impact?
Consumers are always looking for the best of both online and offline shopping experiences. This is impacting the behavior of e-commerce platforms.
Tmall’s brand experience center, located in Shanghai’s K11 shopping mall, is a recent example. Tmall has partnered with brands to host pop-up activities in the space. These include a street culture exhibition organized by American skate shoe brand Vans, live performances by bands and immersive ice games.
The experience begins online when Tmall sends invitations to the brand’s preferred customers, but anyone can sign up using the Tmall Club website, the platform’s experiential marketing unit. Brands can gauge consumers’ initial interest to help them better engage with them offline.
AR technology is key to improving the shopping experience on Tmall. Brands want shoppers to feel more connected to the products they buy. This can be seen on seller homepages, where AR and 3D content is available, including magic mirrors that allow shoppers to try on through artificial intelligence.
Some data on Chinese consumer habits?
McKinsey’s research shows how closely the offline and online worlds are linked for Chinese consumers. Only 7% of clothing purchases are made offline, while 8% are made entirely online. In contrast, 49% of all purchases are truly omnichannel. 32% can evaluate online and make a purchase offline. Only 4% can touch and feel the product offline and then purchase it online.
In addition, the average Chinese consumer spends 358 minutes online per day, or just under six hours. This means that social networks have had a significant impact on the Chinese consumer journey. While only 37% of shoppers discovered new products via social networks in 2017, 50% of consumers now discover them through social.
The next step in the consumer journey is evaluating a product. In 2017, only 26% of consumers used social to review a product. Today, 48% of consumers use social platforms to learn about potential purchases.
25% of Chinese shoppers now make purchases via social media platforms when buying goods and services. This is a threefold increase from 7% just two years ago. In the buyer’s journey, the role of the marketplace is particularly interesting. Much of the discovery and research takes place in the same ecosystem as the transaction. Customers use Tmall for an average of 27 minutes per day.
According to our latest data, 20 countries/regions were the top cross-border sellers to China, including Germany, Spain and France (2016 figures).
Many beauty and fashion brands come from France, Italy and the UK. These brands have been very successful in China via Alibaba’s Tmall Global. Some of these brands include Charlotte Tilbury and MartiDerm. European brands are known for their high-quality materials, luxury design and luxurious lifestyles.
Chinese consumers are increasingly sophisticated, especially Generation Z (post-1900s, 2000s), and they want to express themselves through their clothes and their bodies. Niche brands are also in high demand for this reason.
What are the most notable characteristics of Chinese luxury consumers in terms of how they shop and purchase certain popular items?
Recent data has shown that China is responsible for more luxury spending than the rest of the world between 2012-2018. The average luxury consumer spends 80,000 RMB per year on luxury goods. This is equivalent to €11500.
This is largely due to people born after 1980, who account for about 10.2million luxury consumers. Together, they account for more than half of the luxury goods spent by Chinese consumers in the past year.
The main factors influencing purchase decisions are brand and design, with 72% of those born after 1980 saying this is the most important factor. This is followed by fabric/material (8%).
Including those born after 1990, 54% of shoppers who shop exclusively with luxury brands say they are loyal to five or fewer brands. That number drops to 29%.
Interestingly, 55% of luxury shoppers born after 1980 said they would buy more if an AI service recommended a product because it matched a product they already own, and 57% said they would buy more if they could try the item on in person. The in-store experience remains critical when it comes to purchasing a product. Today’s consumers expect personalized, technology-driven services from brands, both in-store and online.