Chinese E-commerce for the Luxury Market
In the last few decades, we got used to receive “boom” news from the giant of the east in almost every possible business area. Now the luxury goods market has matured, it might be the right time for the boom of the luxury e-commerce!
In correspondence with the economic growth in China during the last 10 years, millions of people have joined the upper-middle class segment. Upper-middle and middle class have created a new social hierarchy and according to this social change “luxury goods” of all kinds started to flow to mainland China.
As in all societies, luxury goods were a way to showoff. However after Chinese customers got used to their new way of life with consumption goods of all types and with a great variety never experienced before, the requirement for the level of quality and level of luxury started to diverse according to the sub-middle class levels of the society and this invoked countless opportunities for investors.
Chinese customers just began to be attracted and get used to luxury goods about 30 years ago. According to the research that World Luxury Association conducted, China is the world’s largest luxury goods market with 27 percent of the population by at the end of 2012 and an estimated increase to 35 percent by 2015. While China has 27 percent country’s share of luxury market, Europe’s share is only 18 per cent while the US share rests at 14 percent. (WLA)
According to the consulting firm McKinsey & Company luxury goods market all around the world, was equal to almost 100 billion US dollars at the end of 2008. Close to a 14 percent of this consumption was made by Chinese consumers. However during 2012 worldwide luxury goods market has grow to 150 billion US dollars and here comes the astonishing number; 27 percent of this consumption was made by Chinese consumers. At the same research McKinsey estimated that by 2015 total luxury good consumption will increase to 175 billion dollar and 34 percent of this consumption will be done by Chinese consumers.
New rich class of Chinese consumers associate luxury with success, in other words they see themselves as superior to the rest of the society when they are equipped with them. As China has seen a wide variety of changes in the last one or two decades, new generation tend to become more and more different from the gigantic, old and traditional Chinese society. Since these young upper-mid class consumers are highly integrated to the modern life and modern society, they are highly friendly to use web based systems and they do not hesitate to buy online goods and services online.
Young population, according to Hurun report, the average Chinese millionaire is 39 years old, 15 years younger tan average millionaire in the USA and there are 960.000 of them. The biggest share of e-commerce customers are between 20-40 ages. With respect to that China has a young and powerful potential for new age luxury goods and e-commerce market. As young and hard working new Chinese class would like to follow worldwide fashion and purchase luxury goods they can easily be established as a support base for the new e-commerce companies.
According to the Boston Consulting Group China will be the world’s largest online retail market by 2015 and sales expected to hit 360 billion dolar which is currently in sharp incline with value generated about 212 billion dollar. The Chinese online retail market has almost 200 million online consumers and by 2015 it is expected that Chinese consumers will spend 1000 dollar per year for online shopping.
These headways show that there are many possible opportunities for retail e-commerce platforms in China. In China many flagship stores prefer to locate in first-tier Chinese cities which are Shanghai, Beijing, Guangzhou, and Shenzhen and also in Hong Kong. However China is a huge country with a potential of 200 different cities which might be added to the luxury goods market which are deserted in terms of stores. On this point, E-commerce platforms has an advantage in terms of reaching to the customers that are located in more rural areas of China and if the supply problem is solved, even higher numbers than expected can be added to the luxury goods market.
The e-commerce retail has another advantage in terms of product accessibility. As we have discussed above, certain level of maturation in the Chinese luxury goods market has been reached the requirement for different levels of quality and luxury has evolved. As an example, Chinese consumers have a type of “romantic” perception on Parisian boutique brands or “handmade artesian” Italian brands and they would like to have access to them without going there by themselves. Since these brands are respectively smaller than mainstream brands, they lack the distribution channel opportunities or internationalization experience that huge firms have already developed.
Brand identity, Chinese Market has strong brand awareness of top luxury European based companies. However on quality base there are many well-established companies on the same level with most known luxury brands. E-commerce platforms are golden resources to increase brand identity and awareness for all fashion companies.
According to a McKinsey study , some 95 percent of Chinese Internet users are registered on a social media platform. (China is world’s most active social media population as well). While 91 percent of Chinese survey participants responded that they visited a social media platform in previous six months this number is just 76 percent in the U.S. Same study also shows that social media has a big influence on consumption behavior for Chinese consumers more than anywhere else in the world. Chinese consumers would like to purchase products if these were mentioned on social media sites or recommended by friends or other social platforms. If e-commerce platforms can structure their strategy successfully in social media in terms of marketing and advertisement, it is highly likely that they can improve their success rates in terms of sales and brand identity.
To sum up, there is a huge opportunity for any type of company that might establish an e-commerce platform in the mainland China. For such a growing market which will probably lead and manipulate the structural organization of e-commerce platforms in the next few years, it might be very unfortunate for any brand that is left outside alone.