Cross border e-commerce merchants in the luxury category can win new customers and grow their revenue streams in China, but before diving into this complex market, there are some interesting new trends they should know about.
The luxury retail category has been booming in China for many years, but that didn’t always translate to cross-border e-commerce success in this category. Not long ago, consumers in China had few luxury e-commerce options and would need to visit a posh retail outlet for their luxury shopping experience. But that’s rapidly changing, as more high-end brands are embracing digital channels to reach their international customers. Formerly, luxury retailers were reluctant to expand their cross border e-commerce presence due to concerns about maintaining brand integrity and the overall shopping experience. Many luxury brands regarded their online presence as a way for consumers to discover goods, then visit a store to make a purchase. But today, 45% of luxury consumers in China are buying online.
There are several factors driving the growth in luxury online sales in China. First, Chinese consumers are one of the top global markets for overall cross-border e-commerce. Our own research shows that 65% of Chinese online apparel consumers aged 18-54 have made a cross border purchase. Secondly, China has a captive audience of consumers who are eager for luxury goods, especially jewelry, watches and designer accessories. Our research also shows that Chinese consumers with a higher household income are more likely to make cross-border purchases. In fact, China accounted for one-third of all global spending on luxury items in 2018. And third, China’s younger generation of consumers are more open to making high-ticket purchases online without the need to touch or try on items.
The rise of social media selling in China
The ways in which Chinese consumers interact with cross border e-commerce brands in the luxury category extend beyond e-commerce platforms or brand-owned sites. This includes social media selling, which has previously been a challenge in this market due to internet censorship of many Western social apps. But as WeChat, one of China’s most popular instant messaging apps, gains more ground, e-commerce merchants are finding ways around this. Top luxury brands such as Louis Vuitton, Cartier, and Bulgari are now connecting and selling to millions of customers through WeChat.
But WeChat isn’t the only player in Chinese social media. Other top social sites in China include Qzone, Douyin – Tik Tok, and Weibo. Cross-border e-commerce merchants who are investing in direct-to-consumer platforms will also need to formulate selling strategies for these channels to reach the luxury consumers in China.
While the celebrity influencers trend seems to be losing steam in the U.S. and other western markets, they are wildly popular on social media in China. McKinsey & Company notes that 87% of Chinese consumers learn about luxury goods through celebrity endorsements.
Customer experience is everything
Just because luxury consumers in China are more open to making purchases online doesn’t mean they have lower expectations around their experience. High-touch customer service is the hallmark of the luxury category and that hasn’t changed as brands shift to digital channels. This has forced many luxury retailers to rethink their approach to shopping online. Some are even offering a “white-glove” butler-style delivery to Chinese consumers. Jewelry and handbags are delivered via limo by a tuxedo-wearing driver who hands off a beautiful, branded box to the consumer. It’s too early to tell if this trend will take hold, but it shows that luxury retailers need to move out of their comfort zone if they hope to appeal to younger, social media-savvy consumers in China.
Brand control is still a priority for online sales
One of the big reasons the luxury market has been slow to embrace e-commerce in the past is that selling online carries added risks for retailers who have built their brand by focusing on exclusivity. Luxury brands selling into China still need to retain control over how their brand is positioned, where it appears, and whether it appears in consumer searches alongside down-market goods that may chip away at its branding. Even China’s biggest online marketplace, Alibaba, has created a luxury-only marketplace, Tmall Luxury Pavilion, to address these concerns. For this category in particular, a direct-to-consumer e-commerce strategy is vital.
Before luxury brands rush to build out their Chinese e-commerce sites, it’s important to note that not all e-commerce platforms are built the same. Just like any other market entry, luxury e-commerce merchants must do their research before making the investment. It’s true that Chinese consumers are eager to search for cross-border luxury offerings, but they’re also sensitive to factors like local online payment options, currency fluctuations, taxes and duties, and a frictionless checkout and easy return experience. A strong cross-border e-commerce site needs to account for the local preferences and nuances of doing business in China and make it easy for a Chinese luxury consumer to find what they want, buy it and have it delivered without any unexpected roadblocks.
To learn more about how Flow’s cross border e-commerce platform can help, contact an expert for a demo.