In its latest bid to capitalize on growing Chinese demand for luxury, Alibaba invested more than $100 million in online retailer Mei.com, which specializes in flash sales of luxury goods.

The e-commerce giant has struggled to attract international brands to Tmall –  its previous foray into selling high-end products – due to the abundance of gray market and potentially counterfeit goods. Only 9% of the 100 brands featured in L2’s Digital IQ Index: China Luxury had brand shops on Tmall. One of them was Burberry, which last year became the first foreign luxury brand to establish an official Tmall store.  Few brands followed Burberry’s move, even with the added incentive of having control of their brand image on Tmall. After Burberry launched its shop, close to 6,000 lower-priced gray-market items were removed from the platform.

China Luxury E-Commerce Adoption

By investing in Mei.com, which works with more than 2,400 brands including Armani, Zegna and Longchamp, Alibaba will be able to expand further into luxury e-commerce. At the same time, the retailer can use Tmall’s resources to broaden its offerings, user base and logistics.

Chinese consumers accounted for nearly one-third of global luxury purchases last year, despite the economic slowdown. With China now outspending the U.S. in e-commerce, an increasing number of these transactions were online: 8% of luxury purchases took place online in 2012, up from 2% in 2010, and Baidu queries for luxury brands rose by 36% on the year. At least once a month, 70% of consumers search online for luxury brands.

However, local brands have been more aggressive than foreign brands in using platforms like Tmall to tap into this rapidly growing market. Just 21% of fashion brands sell online 
in China, compared with 79% in the U.S., and many foreign brands that do sell in China fail to offer Chinese-language options.

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