In a 3-part series, Margot de Groot van Embden explores new trends in China’s luxury market and presents case studies of Mihaibao and Dongjia.
When Giorgio Armani opened its first store in China in 1998, only a few ultra-privileged visitors and wealthy foreign travelers ventured into the small boutique, located within Beijing’s Palace Hotel. But as the Chinese market kept developing, Armani followed other luxury mega-brands and opened extravagant flagship stores.
Things got more complicated when the Chinese started to embrace e-commerce. The first to experiment with a “luxury e-store” in 2010, Armani failed in its attempt, and by 2014, sales performance plummeted. Last September, the brand stepped down from its pedestal to partner with JD.com, China’s second-largest B2C (business to customer) retail platform, which now hosts Armani’s e-store. With about 258 million active monthly users, JD.com is propelling Armani to a radically new scale. But for the luxury brand, this change represents a challenge to maintain its luxury positioning and to stay “clear of the masses.”
Going or Not Going Online: That Is No Longer the Question
Though e-commerce sales have grown at a mind-boggling rate over the last five years in China, the luxury sector has been rather slow to open itself to online retail. The perception of e-commerce as something mainly intended for “mass market products” made luxury brands fear that by entering the e-commerce market, their precious pieces would degrade to the same level as fast-fashion clothes, commodity goods, or worse, counterfeits.
As China’s $752 billion e-commerce market grows – it’s expected to reach $1.7 trillion by 2020, and new generations of internet-inclined high-income customers are increasingly willing to purchase luxury goods online, it is hard not to jump on the bandwagon. In fact, last year, many foreign luxury megabrands took the plunge. While Louis Vuitton and Gucci opened their own online stores, the majority followed Armani’s lead to partner with national e-tailers.
However, the same old question remained to be solved: If online retail helps luxury brands reach a broader audience how will they maintain their unique and genuine “luxury appeal” online? More specifically, how do the brands recreate the “sense of exclusiveness” for high-end customers through the new horizontal model of the platform economy?
National e-tailers are challenging traditional luxury megabrands
Jack Ma, Alibaba’s CEO, has been one of the first to call for the “democratization of internet and online retail”. However, the recent creations of “VIP only” and “limited access” spaces for valuable customers contradict “democratization.” Last summer, Alibaba inaugurated its “Luxury Pavilion,” an invitation-only platform reserved for high-spenders from its T-mall e-commerce platform. This month, its Chinese rival JD.com retorted with its own luxury platform Toplife, emphasizing its high-end delivery service, a “white-glove” hand-delivery to the clients’ doorstep.
The “platform model” to cater to an increasingly segmented market
Facing a very diversified population of high-income Chinese customers, foreign luxury brands are striving to depart from a traditional supply-led and monolithic approach to adapt to an increasingly complex local market. Today, they are competing with national “e-tailers” and nimble startups, who take full advantage of the “platform economy” to better target specific sets of wealthy individuals. Launching highly specialized e-commerce platforms, they are able to cater the “luxury need” of various types of Chinese high-income customers, from the rising middle-class looking for Western brand-name luxury goods at the best price, to the most sophisticated clients in search of curated luxury items and rare artifacts.
In fact, this “platform revolution” is transforming the luxury retail landscape in China. Once made up of a few international megabrand flagships, the market has transformed into a sophisticated online and offline luxury ecosystem. This is what Jack Ma calls the “new retail”, proclaiming a new age in which national players might take the lead over their Western counterparts. Mihaibao and Dongjia, are two telling examples showing how online Chinese platforms offer innovative formats to meet the demands of ever-changing Chinese luxury consumers.
Margot de Groot van Embden is a Junior Fellow at Asia Centre and can be contacted at groot2@hotmail.fr.