Bridging the trust gap - the end of the luxury e-commerce dilemma in China
2018年10月29日 | 新闻稿- Though pure online luxury shoppers are very few (only 1%), 36% of luxury shoppers already buy luxury products across both offline and online channels - close to 60% for Gen Z.
- Price and promotions are not the key drivers for purchasing luxury products online.
Rather than price, convenience and assortment are the key reasons for luxury shoppers to buy online - interestingly different generations mean different things when referring to assortment. - Gen X are keen on breadth of offerings (brands and products), meanwhile Gen Z are more focused on newness and latest trend products, looking for unique personality and design.
- Presence on the right platform is crucial as it influences consumers’ perception of brand's "luxuriousness" – Luxury brands’ brand.com sites in China are highly trusted by customers but the service level they offer is lagging behind third party platforms.
- The most advanced among luxury brands are “bridging the trust gap” and starting to deploy their e-Commerce presence through multiple online channels, including their own brand.com and third-party platforms.
23 October 2018 - Asia - “Bridging the trust gap - The end of the luxury e-commerce dilemma in China” aims to offer luxury brands insights into Chinese consumers’ preference on luxury brand spending, in particular the online channels, and offer tips to brands on how to win and thrive in this growing but competitive market.
According to the survey, online luxury shoppers are growing across all generations but represent a higher share of younger age groups, with more Gen Z respondents (born after 1995) (59%) saying that they are shopping online, compared to Millennials (born between 1980 and 1995) (37%) and Gen X (born between 1960 and 1980) (26%). However Gen X respondents indicated that they are keen to shop more often online in the future. Online shopping penetration is also higher among luxury customers in Tier 3 (58%) and Tier 2 (39%) cities compared to Tier 1 cities (29%), where brick and mortar presence of luxury brands is limited and in-store experience not as compelling.
“After a three-year slowdown in 2013-2015, the China luxury market is back on a solid growth trajectory. This recovery has largely been driven by the strength of domestic consumption, stimulated by favorable government policies and adjustments made by most brands to bring China prices closer to European and US prices. Chinese customers account for 25% to 35% of global luxury sales and most of it (65% to 75%) is happening outside of China. However, shrinking price gaps between China and the rest of the world have been driving Chinese purchases back to China and most of this growth has been happening online. Online sales now represent 9% of China luxury fashion and accessories sales. But online penetration is still low compared to other product categories in China. Most surprisingly, the share of online sales in luxury fashion and accessories is lower in China than in other developed markets, whereas it is usually the opposite,” said Pascal Martin, Partner, OC&C Strategy Consultants.
Generation Z consumers emerging as the big spenders
The survey finds over half of Chinese Gen Z luxury shoppers spent more than RMB50,000 last year, compared to only 32% for Millennials and 34% for Gen X (Figure 1). 66% of Gen Z respondents agreed that “Price is not my main consideration, finding items I like is most important” whereas the percentage agreeing with the same statement was 48% for Gen X and Millennials.
“Gen Z consumers are more inclined to spend on luxury goods than older generations for several reasons: they are often still living with their parents because they have little hope of buying their own apartment when property is so unaffordable. And because they’re not motivated to save, they have more disposable income. They also have a different work ethic and set of values to their parents – they are more open to enjoying life,” said Veronica Wang, Associate Partner, OC&C Strategy Consultants.
With regards to “assortment”, there are differences between the generations: Gen Z shoppers are looking for the latest in-season products while older customers are prefer a wider choice of stock keep units (SKUs), Gen Z also attach greater value to “character”, “personality” and “unique design”, as evidenced by their enthusiasm for independent designer brands like Off-White, Vetements, and Supreme. Instead of getting what “everybody else already has”, they want to buy the latest in-season products as a unique statement of their personality.
More choices and convenience as key factors for online luxury purchases
The survey also shows that better choice (more brands, more products, more exclusive offerings) (30%) was indicated as the key factor to drive online luxury purchases, a very different set of factors if compared with those expressed in favor of offline shopping, which were centered around authenticity (35%) and services (26%) (Figure 2).
“Convenience” (29%) is also an important dimension for customers shopping for luxury brands online. Before or during transaction, being able to talk to a representative and having flexible payment options such as Alipay are key services expected from online platforms. In addition, after-sales services such as a flexible return policy and product maintenance are also important to facilitate a smooth shopping experience.
“The implication is that the online and offline experiences remain complementary and “require each other” to fulfill all customer needs on different occasions. Therefore their coexistence is likely to last and prosper. The strategic decision for brands is to figure out the right balance between online and offline presence and to be clear on each one’s role and purpose,” commented Martin.
When it comes to choosing which online platform to shop on, “guarantee of authenticity” came up as the number one selection criteria. Customers want to be reassured about the origin of products and “product traceability” emerged as a pre-requisite to win online. In addition, consumers are also expecting detailed product information such as product description, size / fit instructions – the more the better, so that they can get a better idea of what they are purchasing.
Choosing the right platform to engage your customers
Among third-party players in China, domestic platforms enjoy higher conversion, led by E-commerce platforms Tmall and JD (c.20% for both), followed by Kaola.com, Little Red Book, Ymatou, and Secoo.
Although not generating as much transaction as the domestic platforms yet, overseas specialists including Shopbop, Net-a-Porter and Farfetch are better rated in terms of overall customer satisfaction, driven by their consistently better performance along Key Buying Factors such as “authenticity” and “extensive assortment” (Figure 3). Overseas specialists appear to have stronger credibility and curation ability, while local e-commerce giants are more established especially in terms of infrastructure.
Among domestic platforms, Secoo.com and Toplife are the best rated with the former highly recognized for product authenticity, while the latter scores high in convenience and experience related factors (Figure 4).
Creating multi-touchpoints for customer engagement
Brands’ e-commerce platforms are not only important for commercial transactions, but also critical to building brand awareness. When asked what the most important touch points are to learn about luxury trends and luxury brands, and to get product information, online shoppers responded that they rely on a variety of online channels, including official websites and social media sites (40%), generalist platforms (36%), consumer reviews from social media (33%), online forums and magazines (30%), more than on the visit of offline stores (23%) (Figure 5).
“More brands can be present through multiple platforms and touchpoints, not only through their own brand.com website but also through third-party websites. This increases their chances to influence customers’ discovery and purchasing journey,” said Wang. “Brand websites and social media accounts were mentioned as the top sources of inspiration and research. Over the past few years, many brands have started to engage in collaborations with Wechat to connect with their customers and to attract new ones among younger generations. However, most of these collaborations are still experimental, consisting of events and pop-up stores with limited assortment for limited periods of time.”
“As consumers become more demanding and retail technologies continue to develop, retail models are evolving from traditional channel silos to multi-touch point journeys. This is particularly true in China, where digital channels and social media play an increasingly important role, concluded Martin. “Online and offline channels are no longer divided in the eyes of consumers. They aspire to a personalized shopping experience that is convenient and seamless across touch points.For luxury companies, e-commerce can no longer be about setting up an “e-commerce department” separate from other existing channels. Instead, it should aim at linking online and offline channels to create a seamless integrated multi-touch point journey. The shift to an omni-channel business model is necessary and inevitable.”
For further information please contact Pascal Martin, Partner.