Online channels have repeatedly proven their value to luxury brands over the past year, especially in China, where the digital ecosystem continues to evolve at a fast clip. For international brands, it is no longer a question of whether they should launch e-commerce in China, but when and how they should go about doing it.
Tmall, without a doubt, has been the key focus for brands. As the most ubiquitous e-commerce platform in China, the brands-only “mall” within Alibaba’s vast marketplace has been gradually strengthening its presence in the luxury world since its launch of Luxury Pavilion, an independent section dedicated to luxury goods. According to data recently released by Tmall, sales on Tmall Luxury Pavilion grew by 159 per cent year-on-year, in the first quarter of 2021.
Tracy Li, Vice President at Baozun – an e-commerce solutions provider that serves as a bridge between brands and Chinese platforms – spoke to Luxury Society about how brands can position their stores on Chinese e-commerce platforms, and how to fit the e-commerce business into its wider digital strategy in China.
In the past, the first channel on which luxury brands tended to launch e-commerce in China was a brand-owned DTC channel (e.g., official website or WeChat Mini Programs). But as Tmall Luxury grew in popularity with world-renowned luxury brands – big names such as Saint Laurent and Van Cleef & Arpels have all opened Tmall stores this year – brands started to prioritise the launch of an online flagship on an e-commerce marketplace instead. Boasting more than 200 luxury brands, Tmall Luxury now rivals some of the world’s top third party luxury e-commerce platforms.
According to Li, the DTC model has its limitations within China’s e-commerce environment. If brands are seeking sustainable growth online, they need to also look to other platforms besides brand-owned ones. She lists several external benefits that platforms can bring to brands. Firstly, opening up additional sales channels will likely increase growth; and secondly, the sheer volume of traffic offered by platforms will allow brands to reach new audience segments and acquire even more customer profiles. Over the years, marketplaces have been giving international luxury brands visibility and exposure in China (whether they like it or not) in the form of multi-brand retailers or grey market Daigous. Unfortunately, it is not always possible for brands to control the narrative presented by these resellers. Setting up a branded storefront, on the other hand, will give them an official voice on the platform and allow them to project the right brand image, consistently. “Third-party platforms are almost a necessity now. But brands are at different stages of their digital transformation in China, and might be going about it at a different pace. I think it’s just a matter of time,” she adds.
For brands, new audience segments reached through third-party platforms are an important asset and a challenge. There are nearly 700 million monthly active users on Taobao today, and the platform’s young, high-net-worth customer base now exceeds 100 million – which is what brands are eyeing – and is five years younger than the typical customer base on existing brand channels. This suggests that brands need to devise a different set of strategies on these channels in order to capture the attention of these younger shoppers.
In addition to operating single-brand online stores, Baozun also helps luxury multi-brand retailers to run their Tmall business – a task that is no mean feat, says Li. Being a multi-label store, the business model is rather different from typical brand flagship stores, she explains, noting that it is much harder to inspire user stickiness without a single brand identity to rally around.
Given the sheer product range, consumers can easily be fatigued and overwhelmed without guidance in the early stages of the consumer journey, says Li. This is where functions related to product selection or styling advice need to be leveraged, and catered to the target audience. That said, it is also important to strengthen experiences at the end of the consumer journey, upgrading the level of service offered to clients, so as to encourage return visits.
While multi-brand stores might be distinct from mono-brand stores in many ways, the challenges they face on Tmall at a consumer level are something that most luxury brands would find relatable to some degree. As consumers are faced with an increasing number of choices on the e-commerce marketplace, brands need to develop even more functions and services on the platform to aid them in the decision making process, capturing their interest and turning it into a sale. E-commerce marketplaces are a “people” business, Li points out. Products don’t simply sell themselves, and brands have to focus their efforts on what really matters: What consumers want.
Due to the platform’s complexity, most brands will seek local trade partners (TPs) to help them with the actual operations of their products, customer service and logistics on Tmall. Even with this partnership model, it is a journey of trial and error. Many brands tend to change partners when their stores fail to attain the traction they hope for in the market.
Then there are brands that have brought its third-party e-commerce platform operations in-house, for a variety of reasons. While this is more of an exception than the norm at this stage (running e-commerce operations in-house is a huge investment only attempted by brands with deep pockets), the question of whether it is a goal worth pursuing remains.
This, Li feels, could be the result of differences in organisational structures and operating mindsets. While most international luxury brands definitely have strong foundations in the marketing and branding aspect of the business, e-commerce might not be their strong suit – especially since it is built upon experience a great deal of understanding about the market and its innerworkings.
“E-commerce operations in China evolves every three to six months, and the platform will roll out new concepts every quarter, even. At the same time, brands need to deliver the same level of customer experience consistently, at all times,” says Li. “E-commerce operations is not only hard work, but also requires constant innovation,” she adds.
Being one of the largest e-commerce service providers in the market, Baozun has the inherent advantage when it comes to developing e-commerce offerings for brands, simply based on its accumulated experience in dealing with the ever-evolving e-commerce ecosystem. This is something that might prove to be a bit more of a challenge for international brands that have lesser visibility on how the luxury e-commerce market in China works.
Although the Chinese luxury market has been experiencing healthy growth, brands need to continue building resilience and future-proofing their businesses by constantly adapting to China’s sophisticated online commerce environment.
After a brand launches on Tmall, its first year of e-commerce growth comes directly from brand equity, says Li. In its second year, it can expect to see category growth. But by its third year, the brand would need to establish more sales scenarios, leverage Tmall’s shopping festivals (also known as its marketing IPs) such as Super Brand Day, Single’s Day or 618 and tap into other marketing tactics in order to maintain the current growth momentum.
Besides Tmall, other Chinese social platforms – such as WeChat Mini Programs and Douyin – also play important roles in a brand’s e-commerce roadmap in the local market. Li notes that it is even more crucial for brands to craft their channel strategy given today’s context, and constantly explore different channels. As social channels with e-commerce extensions, brands essentially own all the profiles and traffic on these platforms – a fact that has increasingly become the focus of many brands’ social and e-commerce strategies. Tapping into the value of private traffic, Li opines, will bring brands yet another wave of growth.
“You have to go through many, many layers and doors to get to a store within a mall. Leveraging private traffic would definitely offer more flexibility,” Li says. “Also, luxury clients tend to be stickier than those of other product categories. This is something that can be leveraged in the private traffic business. To take things a step further, imagine if each luxury group could create a platform based on private traffic at a conglomerate level – the customer value would be immense.” While there is admittedly, still a lot that can be done in terms of marketing, technology and data collection in this field, the potential is enormous.
Brands that are currently enjoying uplifts in sales on online channels are those that have cultivated an “all in” mentality, comments Li. However, resources are finite and it is unrealistic to expect brands to commit an unlimited amount of time and money solely on building up its e-commerce presence. At the end of the day, it will come down to how well brands can balance their resources – given the wide array of channels available in China – to drive sustainable growth.