Now that China’s luxury market is back in growth mode after two years of decline, the industry is getting serious about its investment in e-commerce as top mega-brands end their avoidance of online sales and Chinese e-tailers fight to attract high-end labels.
E-commerce giant Alibaba saw two major luxury developments this week, announcing the launch of a new “Luxury Pavilion” platform on Wednesday and an anti-counterfeiting joint task force with luxury conglomerate Kering on Thursday.
According to L2’s Digital IQ Index: Luxury China, Tmall has struggled to attract high-end brands due to its mass-market image and concerns over counterfeits. Only 20% of luxury fashion brands were present on the platform in May.
The invite-only Luxury Pavilion aims to alleviate high-end brands’ reluctance to appear on Tmall next to ads for discounts and cheap household goods. Sleekly designed, the platform exclusively features luxury brands, including Burberry, Maserati, Hugo Boss, Guerlain, Zenith, and La Mer. Part of Alibaba’s “New Retail” scheme, it will utilize machine learning to make the platform visible only to high-spending shoppers, including those who have purchased expensive products in the past or members of the e-tailer’s VIP APASS program who spend at least $15,000 a year.
Meanwhile, Alibaba’s agreement with Kering marked major progress in the struggle to convince brands it’s fighting counterfeits. For the joint task force, the two companies will work together to identify and take down counterfeiters using Alibaba technology, as well as work with law enforcement. In addition to joining the joint task force, Kering dismissed a lawsuit against the company that it had filed in 2015 accusing Alibaba of conspiring with counterfeit sellers. This follows in the steps of LVMH, which joined Alibaba’s separate newly launched “Big Data Anticounterfeiting Alliance” in January and is slowly warming up to Tmall sales.
Alibaba’s actions come soon after its main B2C rival JD.com scored a major luxury win with its Farfetch deal announced in June, which will see JD.com delivering all Farfetch packages in China via its new white-glove delivery service. This has already attracted Kering brand Saint Laurent to partner with Farfetch in China, where it plans to offer same-day delivery in major cities.
In addition to e-tailers, brands are also warming to DTC luxury e-commerce in China. Kering’s mega-label Gucci launched China e-commerce in early July, and was followed less than two weeks later by LVMH’s Louis Vuitton. Previously, only 40% of fashion brands had offered online sales in China as of May, according to L2 data.
This flurry of development comes after China’s domestic luxury market achieved an estimated growth rate of 4% in 2016, following two years of decline due to the country’s anti-corruption campaign and higher prices in China that drove Chinese luxury spending abroad. As the government has encouraged a “repatriation” of luxury spending through tariff adjustments and a crackdown on smuggling, brands are catching on that e-commerce is the next frontier for growth in a crucial market.