Avery Booker of Jing Daily investigates why Macy’s, Neiman Marcus & Net-A-Porter are using an Online-to-Offline e-Commerce Model in China
CONSUMERS
China’s Luxury E-Commerce Market Heads In A New Direction
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Credit: This is the featured image credit
Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.
PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.
In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”
The Fondation Cartier pour l’Art Contemparain building in Paris
Avery Booker of Jing Daily investigates why Macy’s, Neiman Marcus & Net-A-Porter are using an Online-to-Offline e-Commerce Model in China
Avery Booker of Jing Daily investigates why Macy’s, Neiman Marcus & Net-A-Porter are using an Online-to-Offline e-Commerce Model in China
Last year, Jing Daily predicted that China’s nascent luxury e-commerce market, following massive investment by domestic and international companies in 2011, would see continued growth in 2012 but a broader industry shakeout due to overcrowding and undersupply.
As Reuters noted shortly thereafter, China’s e-commerce market, “once the darling of private equity and venture capital firms,” was set for a period of intense competition for exactly the same reasons.
Now, less than a year later, these prediction are being realized as e-tailers – fighting for market share and to secure better and more stable supply lines while also offering the discounts and perks demanded by Chinese shoppers – are finding it increasingly difficult to stay afloat, let alone turn much of a profit.
“ Once the darling of private equity firms, China’s e-Commerce market is set for a period of intense competition ”
The contentious market is having a disproportionately heavy effect on upstart Chinese platforms, which, absent the stronger relationships with major luxury brands enjoyed by their global competitors, are finding it harder to stay afloat.
Following in the footsteps of the late NetEase Premier, the first casualty of the luxury e-commerce shakeout (which shuttered in January after less than one year), many domestic Chinese e-tailers are either downsizing or closing shop altogether.
Over the past year, the closing of Wooha.com was followed by deep cuts in staff at Xiu.com and Shangpin.com and the resignation of VIPKu’s CEO. As Technode recently pointed out, luxury-focused B2C site Jiapin.com may be next on the chopping block, with rumors swirling that the site may shut down in the near future.
“ The closing of Wooha.com was followed by the resignation of VIPKu’s CEO and deep cuts in staff at Xiu.com & Shangpin.com ”
Disenchanted with the inherent challenges of China’s luxury e-commerce market, many e-tailers are seeking solutions to combat low profit margins and ways to take advantage of still-high demand for luxury goods among China’s middle class.
After all, the country remains the world’s second-largest luxury market, and though many luxury consumers do a significant portion of their shopping on overseas vacations, landlocked shoppers in inland China – and shoppers looking for brands that are otherwise hard to find in their hometowns- remain key demographics for luxury e-tailers.
Yet demand itself isn’t the problem – it’s supply. Concerned about a loss of brand image, domestic Chinese e-tailers find it difficult to secure stock from major luxury brands which they then have to deeply discount. As such, these retailers have no way to guarantee stock, price or quality to potential shoppers in China. Mix that in with long lead times, and the result is this year’s well-anticipated industry shakeout.
However, perhaps having watched these developments over the past several years, some international luxury retailers may be moving in the right direction. Adopting a comparatively new e-commerce model, O2O: Online to Offline commerce, an “authentic and full-price” business model.
Retail giant Macy’s has invested US$15 million in the domestic Chinese online retailer VIPStore and is on track to launch sales on VIPStore’s luxury site, Omei.com, in spring 2013. The site will deliver “original priced” goods that are timely, exclusive, and readily available.
As Jing Daily noted this past spring, American luxury retail group Neiman Marcus is also set to kick off its own China expansion this year, with a US$28 million investment in the privately held e-commerce company Glamour Sales Holding.
“ Concerned about a loss of brand image, domestic Chinese e-tailers find it difficult to secure stock from major luxury brands ”
Similarly, Net-A-Porter Group Limited, the UK online luxury fashion retailer, acquired the Chinese members-only discount e-tailer Shouke.com back in February and, shortly thereafter, launched a Chinese version of its “Outnet,” offering a higher-end set of designers and labels as well as discounted items.
The Shouke/Net-A-Porter partnership, along with Neiman Marcus and Macy’s, may have a fighting chance in China’s cutthroat market if they stick to an O2O model. (Or at least adapt it to suit their business goals, as is the case with The Outnet.)
Unlike the “race to the bottom” strategy employed by domestic Chinese luxury e-tail hopefuls, O2O-focused sites can offer in-season collections at more profitable price-points, experiment with capsule collections, offer richer content and highlight fashion advice and expertise.
“ O2O e-tailers have the potential to capture a more sophisticated, wealthier, and more discriminating niche luxury consumer in China ”
These features, paired with the greater “cred” enjoyed by far more established names like the 105-year-old Neiman Marcus, means that foreign O2O e-tailers have the potential to capture a somewhat more sophisticated, wealthier, and more discriminating niche luxury consumer in China than their local counterparts, which continue to battle it out for thinner profit margins.
At the same time, pairing with companies from the Greater China region, like VIPStore, Glamour Sales and Shouke, makes for a valuable shortcut to learn about, target, and profit from the local Chinese consumer. On the face of it, O2O looks like a smart strategy for success in a tough Chinese luxury e-commerce market — albeit one we’ll have to watch closely in the year ahead as it remains, for the most part, uncharted waters in China.
To further investigate Chinese e-Commerce on Luxury Society, we invite your to explore the related materials as follows:
– Why Luxury Brands Need to Optimise e-Commerce in China
– The Top 50 Most-Searched for Luxury Brands in China
– News & Clues about China’s Online Luxury Boom
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With a decade of experience working in the Greater China market, specializing in luxury branding, new media, and trend forecasting, Avery Booker has closely watched and chronicled the emergence of the global Chinese luxury consumer on the world stage.
