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When JD.com announced last week it was making a nearly US$400-million investment in British luxury platform Farfetch, it put itself in the fast lane for its growth as a luxury e-tail player. But it also gained another valuable resource in its competition against China’s e-commerce leader, Alibaba, and its online shopping platform, Tmall.
There’s a reason JD.com has its sights set high: according to a new insight report by digital intelligence firm L2, the luxury segment remains one part of e-commerce that still offers huge market potential, as many international brands have yet to fully take advantage of China’s online shopping boom.
L2’s report shows that out of the 87 luxury brands they benchmark, only 24 percent have an official presence on Tmall so far in 2017 – a rise of just 1% compared to last year. On JD.com, only 10% of high-end brands have an official presence.
Luxury brands everywhere have been slow to adopt e-commerce, but this trepidation has been especially strong in China
Luxury brands everywhere have been slow to adopt e-commerce, but this trepidation has been especially strong in China. Online retail giants like Alibaba and JD.com are mass-market shopping platforms and thus don’t offer the environment that e-tailers specializing in luxury would. Both companies do offer luxury brand channels but are still having to work hard to build up their reputation with international brands.
According to L2’s “Insight Report China: Alibaba,” much of this work for Alibaba has centered around cracking down on counterfeit sellers and communicating this progress to international brands, but like JD.com, it has also meant a series of investments in both companies and models that have luxury retail at their forefront.
In 2015, Alibaba invested in Mei.com, a local flash sales site that had established relationships with more than 280 luxury designers, and together they created a luxury channel that broadcasts fashion shows highlighting looks from Mei.com brands and inspiring consumers to buy what they see on Tmall. More recently, Alibaba enhanced its luxury portfolio with an investment in Intime, a mainland China department store chain. Through Intime’s store on the Tmall platform, Tmall hosts a variety of luxury brands, including Burberry, Gucci, and Michael Kors.
“We see the way Alibaba is trying to work around this obstacle where brands won’t open official stores on Tmall, so they’re going through other retailers to get these products on the site,” says Liz Flora, editor of Asia-Pacific research at L2. “With the Intime investment, they’re also able to leverage the omnichannel retail model where they’ll be integrating the online platform with the offline store.”
L2 cites a recent instance where Alibaba technology helped create a conceptual fashion boutique in Intime called Jihood, that gave brick and mortar shoppers a virtual experience. At Jihood, shoppers could scan radio-frequency identification (RFID) tags on an item of clothing in a “magic mirror” that digitally displays the product information. The adoption of the omnichannel model in China goes both ways — at its three-story Shanghai flagship, Burberry is carrying out a similar digital and audiovisual experience, according to a recent report by management consulting firm Oliver Wyman.
Alibaba’s Intime investment is part of its “new retail” model, a strategy that, aside from its benefits for mass-market retail, holds great promise for the luxury sector, where brands can benefit from augmenting online retail with a comprehensive range of digital, offline and in-store experiences.
Flora says, “It’s a way of attracting luxury brands and retailers to the site and show that even though it’s a cross-sector mass market retailer, it can bring new value to the luxury market.”
This article originally appeared on Jing Daily.