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Luxury brands look to online sales in China in aftermath of pandemic

By LIA ZHU in San Francisco | China Daily Global | Updated: 2020-06-11 10:21
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The logos of French luxury group Kering and fashion house Balenciaga are pictured on Kering headquarters in Paris, April 20, 2020. [Photo/Agencies]

Luxury brands are looking to Chinese e-commerce sites to boost sales as their businesses struggle in the rest of the world because of the COVID-19 pandemic. But experts say Western brands aren't yet prepared to be successful in China, the world's most important luxury market, because of their reliance on brick-and-mortar stores and lack of savvy when it comes to digital retailing.

Fashion house Balenciaga is among the latest brands to join Alibaba Group's e-commerce site Tmall. Balenciaga's Tmall store opened last month and is the Paris-based brand's only online official flagship store on a third-party platform.

Affected by the coronavirus pandemic, American fashion brand Michael Kors also turned to Tmall to launch a new customization service ahead of a global rollout later this year. The brand recently initiated its first Super Brand Day, a Tmall program allowing participating brands to offer flash sales and special offers on their Tmall storefront.

Bulgarian shoe brand By Far recently opened a flagship store on Tmall's rival, JD. The coveted brand has seen 65 percent of its products sell out after just four days, and about 90 percent of its products sold out after a month, according to a JD news release.

Apple, in partnership with Tmall and JD, has cut prices of its latest iPhones in China ahead of a major annual online shopping festival called 6.18.

Many global brands are focusing their post-outbreak e-commerce retail strategies on Chinese consumers as they emerge from lockdown and get ready for online shopping events.

"We expect China's luxury segment to come back fastest, hence it is critical for brands to be well-positioned with Chinese luxury consumers," Daniel Langer, CEO of management consulting firm équité and a professor of luxury strategy at California's Pepperdine University, told China Daily.

Chinese consumers are responsible for around 40 percent of the global luxury market, and that is expected to grow to 50 percent by 2030, according to a forecast by équité.

As the Chinese market returns to normal, and Europe and the US are just starting to reopen their economies, the ability to connect with Chinese consumers can define whether a business survives or not, said Langer.

"For many Western brands, it will be critical to participate now in the rebound of the Chinese economy and the increasing appetite of Chinese consumers to restart spending, as their businesses in the rest of the world struggle or even come to a standstill," he said.

The luxury sector has "come back in a big way", said Adriel Chan, executive director of Hong Kong-based Hang Lung Properties, at a recent webinar held by Asia Society Southern California. The company owns 11 mostly high-end shopping centers in China.

"April (sales were) basically equal to last year," said Chan. "That's a little bit surprising in the magnitude of the recovery, so I think that if this continues, luxury retail, at least in the Chinese mainland, will continue to do very well."

In China, luxury brands are shifting strategy to take advantage of all the online channels available, he said. "The luxury brands' CEOs that we talked to just a year ago were saying that online sales were accounting for 5 to 7 percent, and they saw it going up to maybe 15 percent when we most recently spoke to them," he said.

But Langer noted that most Western brands aren't yet prepared to be successful in China because of their high dependency on physical locations and a lack of mastery in the rapidly changing area of digital social media and social selling.

"There are two particularities of Chinese consumers that are different to other markets — they are the youngest luxury consumers with a sweet spot between 25 and 35 years of age, and they are the most digital," he said.

"Chinese consumers are also purchasing, to a large extent, through key opinion leaders, influencers and social shopping. Therefore, a presence on digital platforms like Tmall and JD can be critical for brands to connect with consumers and capture the brand audience," Langer said.

The Western brands lack the ability to connect with affluent, highly educated and successful female Chinese consumers, who account for about 70 percent of the Chinese luxury market, he added.

Even before the coronavirus pandemic started, the luxury industry had been in a state of disruption, as technology shifts and digital business models have rapidly changed consumers' preferences. Industry experts predict a drastic, long-term decline in the luxury sector, and the pandemic is accelerating the decline.

"Brands need to step up their excellence in managing the entire digital space by creating relevant content for their customers and measuring shifts in consumer sentiment in real time," said Langer. "There is a sense of urgency for brands to dramatically step up their digital skills if they want to survive."

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