The sale of luxury goods in China is rising like a speeding rocket. And so is Internet shopping. But the funny thing is that they’re not rising together. The big brands have few online shops here in China, and the online shops that used to specialize in the big brands have either gone out of business, or switched to selling something cheaper. Our reporter Cai Jue has the story. By some estimates, China bought nearly half of world’s total luxury goods in 2013. And in the same year, China surpassed the U.S as the world’s largest digital retail market. However, only 3% of luxury items sold in China are sold on the Internet, that’s only one fourth of the figure in the U.S.
Many web sites which claimed to be selling premier products four years ago have, nowadays, gone bankrupt or shifted to selling local products at discounted prices. The biggest reason is the perception in China that online sales are for discounted products, where shoppers go looking for a bargain, and so the luxury brands themselves are reluctant to collaborate with the web sites.
“All these brands take 20, 30, 100 years to build their brand names, their core value, to build the story surrounding the brands. Because lots of brands are doing very good job offline, so it’s really additional risk for them to go to the online business.” Said Zhuo Xingyue, Senior Vice President of Shanghai Newmargin Ventures.
At the end of 2010 the Chinese B2C websites Amazon China and Dangdang were both shown to have been selling counterfeit Armani watches. This year Amazon China closed a third-party online store after state media reported that it was selling fake cosmetics. Events like this discourage Chinese shoppers from fully trusting even the big web sites, much less the smaller players. When the local web sites try to cut prices by selling out-of-season items, it makes users even more suspicious. Even if the customers ARE attracted to bargains like this, it turns out that the cut-price luxury sites still have problems.
“Promotional costs are the biggest spending for those websites. That’s because the major consumers for online luxury shopping are new white-collar workers. They want to buy a purse, but at the same time don’t want to spend a lot of money. And it will be a while before they shop again. So the promotional costs are very high. A website needs to spend a lot in order to attract a new customer, but it may takes a year or two for them to buy again. This is something that also impedes the development of luxury websites.” Said Lu Zhenwang, CEO of Wanqing Consulting.
When it costs you more to bring in a customer than the customer spends with you, there’s only one way to go — down, and that’s the way many of China’s luxury web sites have, in fact, gone.