Luxury brands go online in China

07 December 2010

BEIJING: An increasing number of luxury brands are rolling out online retail services in China, as they seek to tap in to the rising demand for high-end goods.

The Chinese internet population is now estimated to have surpassed 420m people, and research firm Forrester has reported that 80% of this audience is under 45 years old.

Emporio Armani, which boasts a portfolio spanning apparel and perfume, recently unveiled a digital store in the country.

"In view of the increasing enthusiasm for online shopping and the growing importance of the Chinese market, I have decided to open an Emporio Armani online store in China," Giorgio Armani said in a statement.

"We have identified a significant group of fashion consumers who will certainly appreciate this new approach to shopping, one that becomes more popular every day."

John Hooks, the Armani Group's deputy chairman, added it is "impossible to exaggerate the importance of China for us, as for everyone, and e-commerce is about reaching out to that."

He also argued such an initiative should help Armani engage a "younger, computer-savvy, affluent consumer."

Yoox, an Italian e-commerce specialist within the fashion sector, partnered with Armani on this scheme.

"This is a strategic move that will open up luxury to the entire nation," said Federico Marchetti, Yoox's chief executive.

According to Marchetti, the organisation could soon undertake similar projects for three or four more clients from its roster of 23 companies, a selection including Dolce & Gabbana and Valentino.

While many Chinese luxury buyers enjoy the experience of buying in stores, Yoox provides features like next-day delivery, online and telephone sales support and technology that tracks orders from warehouse to recipient.

"We think we can create a place where the internet will mean beauty and extravagance, not just discount," said Marchetti.

Burberry and Gucci are among the other companies which have outlined plans to target the internet market in China.

Given that Taobao, the nation's leading e-commerce site, regularly sells products at a heavy markdown, changing established habits might be a key objective.

Moreover, a poll of 1,100 luxury consumers in China, Hong Kong and Taiwan by Albatros Global Solutions and Ruder Finn found 75% looked to the web for lower prices, and 69% preferred shopping when they chose.

Equally, 64% prioritised the greater convenience, 57% like to see user-generated reviews and 47% cited the wider availability of promotions and deals.

"The web offers major opportunities but also comes with big risks for this sector. Many have been reluctant to rush in," said Yuval Atsmon, associate principal at McKinsey.

Dr Pierre Xiao Lu, assistant professor of marketing at Fudan University, further suggested such a strategy may not have enough reach.

"The wealthiest Chinese rarely use the internet; they don't have time," he said. "Luxury brands usually can only reach young consumers via online channels."

Instead, Lu believes premium goods manufacturers stand to benefit from expanding into smaller cities, which will ultimately house more potential buyers than first-tier urban hubs like Shanghai and Beijing.

"Hangzhou is classified as a second tier city, but it is first tier for luxury brands because it is home to so many wealthy Zhejiang entrepreneurs," he stated.

Data sourced from Wall Street Journal, People's Daily, Financial Times; additional content by Warc staff