Luxury online shopping booms in China

China's luxury craze has opened up a new battlefield online.

The need to shift luxury goods shopping online has become more urgent as the Chinese government’s crackdown on extravagance and gift-giving has reeled in the luxury goods industry, according to a study by consultancy KPMG.

KPMG conducted a survey of 10,200 online shoppers in China, and found that the average amount spent by the respondents on their last online luxury or high-end purchase was RMB 1,397, with one in six spending more than RMB 2,000. The survey did not define luxury or high-end goods, but left it to the online shoppers themselves to interpret.

Nearly three-quarters of the respondents said they like online shopping because it is more affordable, 55% like online shopping because it saves time, and 47% said they can guarantee that they can buy genuine European and American brands online.

KPMG said in a report that Chinese consumers' online shopping spending exceeded that of Americans for the first time last year, and it is expected that by 2015, the size of China's online shopping market will reach US$540 billion, accounting for 7.5% of China's total retail transactions.

Cosmetics are the most popular online products. 53% of respondents said they have bought cosmetics online. Women's shoes and women's clothing ranked second and third respectively. Nick Debnam, head of retail and consumer products for Asia Pacific at KPMG China, said that cosmetics have a large online shopping business in cities without direct sales stores. He said that Chinese consumers are more connected to each other on social networks than Westerners and are more inclined to seek fashion and shopping advice from friends or blogs.

KPMG researchers said most online luxury goods transactions take place on third-party websites, such as Alibaba's Tmall and Taobao. One reason is that Western luxury brands have been slow to sell directly to Chinese consumers online, fearing that selling online would damage their brand image and that customers would not be able to experience the full brand experience without visiting physical stores. Some brands are also deterred from opening official sales websites because of the high investment required to build a logistics network.

Companies such as Gucci have entered China's online luxury shopping market by teaming up with existing Web-based companies such as Italy's Yoox SpA, which in 2010 became the first foreign company to launch online luxury shopping in China.

In 2012, Neiman Marcus Group Inc. announced a partnership with Chinese flash sales site Glamour Sales Holdings and said it planned to build warehouses across China to make its products available to consumers in remote areas. But last year, Neiman said it would scale back the plan and instead ship directly from the U.S., mainly due to the overall poor market conditions for luxury goods.

But KPMG consultants say the online shopping market is too big for brands to ignore for long. One reason, Dai Lixing said, is that selling online can help lesser-known brands introduce their products to Chinese consumers, who are increasingly seeking niche products, especially those that haven't yet gained widespread popularity.

He expects more Western brands to set up e-commerce platforms in the next two years. He said brands are reluctant, but consumers are keen to shop online.

Jason Chow

via: wsj