With more than 580 million active users, China has become the world’s largest e-commerce market, –driven by its sustainable growth and resilience. Despite the significant impact of the Covid-19 pandemic on various sectors, the market for small luxury goods in China proved to be relatively less affected.
The luxury e-commerce industry has experienced rapid development over the past decade leading to the establishment and improvement of numerous regulations. Although luxury consumption experienced a 1% decline in 2022 (amounting to US$1.2 billion) due to the Covid-19 pandemic, it is expected to rebound in 2023, resuming its growth trajectory.
Gen Z catalysts for the shift in China’s luxury e-commerce market
According to the former Director of Operations of Farfetch in the Greater China Region, Zhang Peng, the growing influence of Gen Z is driving a significant shift in China’s luxury e-commerce market. The rise of Gen Z, with their strong spending power, has led to a younger consumer demographic in China. This, along with the transition from offline to online shopping, has propelled the Chinese market to the forefront of luxury e-commerce growth. Furthermore, Gen Z’s emphasis on individual needs and values has further accentuated the shift towards online shopping, thereby contributing to the resilience and sustainable growth of Chinese luxury e-commerce.
Born between 1997 and 2012, Gen Z is the fastest-growing consumer group in the Asia-Pacific region, expected to account for 27% of China’s population by 2025. They prioritize individual needs when making purchasing decisions, making it crucial for brands to understand their values and beliefs.
Gen Z’s spending power has witnessed significant growth in the last few years. While a small percentage chose to decrease their spending on luxury goods, 68% of them expressed the intention to increase expenditure in 2019. According to Anson Lee, KPMG China’s Asia Pacific Managing Partner for Consumer and Retail, Gen Z will soon become the dominant consumer group in China.
Key players in China’s luxury e-commerce market
When it comes to purchasing luxury products online, 54% of people in China preferred official brand websites during 2020, followed by 43% who used Tmall Luxury Pavilion, and 40% opted for JD.com. Tmall Luxury Pavilion stands out as the top e-commerce platform, especially popular among young consumers, making it the largest luxury e-commerce platform in China. With the cumulative number of 845 million shoppers in mainland China, ranking among the most active globally, the market offers significant business opportunities. In addition, overseas websites such as Farfetch have also gained noteworthy shares in the Chinese luxury e-commerce market.
Official brand websites: an effective way to ensure authentic products
Due to the proliferation of counterfeit products, it has become increasingly important for young consumers in China to ensure the authenticity of the luxury goods they purchase. Buying from a brand’s official website provides them with a sense of security, as consumers can trust that the products are genuine and backed by the brand’s reputation. However, official websites may have limited appeal compared to popular e-commerce platforms like Tmall and JD.com, which offer a wider selection of brands. Establishing unique trust and loyalty towards a specific brand is also more challenging compared to building trust in a well-known e-commerce platform.
Tmall Luxury Pavilion’s strategy for customer loyalty
Tmall Luxury Pavillion, one of China’s leading luxury e-commerce platforms, has adopted several strategies aimed to enhance brand interactions and customer engagement. One notable initiative was the launch of a “brand loyalty score,” which rewards consumers for their engagement in a brand’s flagship store. By performing actions such as browsing products, adding items to their shopping carts, and participating in interactive games, consumers can earn brand loyalty points. These points enable customers to unlock exclusive benefits within the brand’s fan club”, where users can access brand posts, videos, and other interactive content. This not only deepens their connection with the brand but also encourages further engagement, fostering a sense of trust and familiarity.
The brand loyalty score strategy serves a dual purpose. Firstly, it aims to establish a stronger relationship between users and the brands available on Tmall Luxury Pavilion. By actively engaging with the platform and participating in brand-related activities, users develop a sense of loyalty and trust towards both the brands and the platform itself.
Secondly, as users spend more time on the platform and accumulate loyalty points, they become more familiar with Tmall Luxury Pavilion and develop a sense of value as dedicated Tmall fans. This process of interaction and recognition transforms them from attracted users to loyal customers, who not only identify themselves as Tmall fans but also willingly recommend Tmall Luxury Pavilion to others in their social circle.
Using innovative technology: improving service quality and user experience
In order to further improve customer experience, Tmall Luxury Pavilion introduced a digital assistant tailored for luxury shoppers in occasion of 520 2023, China’s internet Valentine’s Day. This digital assistant, launched on May 20, 2023, offers personalized recommendations for selecting the perfect gift on this special gift-giving occasion in China. Functioning similarly to ChatGPT, the digital assistant engages users in one-on-one conversations, drawing insights from Alibaba’s extensive data system. With access to a vast database comprising numerous luxury products from a variety of brands and merchants on the platform, the digital assistant enables customers to discover ideal gifts with ease and convenience.
Farfetch in China: expanding brand awareness and reach through social media and KOL marketing
In its pursuit of expanding brand awareness and capturing the attention of Chinese consumers, Farfetch, a leading global luxury platform, has heavily relied on Chinese social media platforms and Key Opinion Leaders (KOLs).
Farfetch strategically collaborated with WeChat, utilizing mini programs to tap into the preferences of Chinese Millennials who enjoy purchasing luxury products through Tencent’s multifunctional app. This targeted approach allowed Farfetch to align its offerings with local market behavior and cater to the specific purchasing habits and preferences of its target audience.
Farfetch collaborated with Key Opinion Leaders (KOLs) to target young consumers and tap into popular trends. In 2022, Farfetch partnered with Xiaoguo Media, a rapidly growing talk show company, and its comedians to promote its platform and key brands, coinciding with the launch of the new Discovery Channel App. Farfetch’s ambassador in China is Angelababy, a famous Chinese actress who vaunts over 105 million followers on her Weibo account. Her Weibo post with Farfetch received over 14,000 likes, making it a highly viewed and engaged post.
Another noteworthy collaboration worth mentioning is the partnership between Farfetch and influencer Peachinwind from the MCN Ruhan Culture. This collaboration capitalized on the RED platform’s popular OOTD (outfit of the day) trend, effectively boosting visibility for a collection of niche-designed clothing offered on the Farfetch platform. The collaboration garnered significant engagement and contributed to the promotion of Farfetch’s unique fashion offerings.
Navigating China’s resilient luxury e-commerce market
- China’s luxury e-commerce market has shown resilience and sustainable growth despite the impact of the Covid-19 pandemic.
- The influence of Gen Z, with their strong spending power and preference for online shopping, has driven a significant shift in the luxury e-commerce market in China.
- Tmall Luxury Pavilion is the leading e-commerce platform for luxury goods in China, with significant popularity among young consumers.
- Official brand websites provide a sense of security and authenticity for young consumers in China, although popular e-commerce platforms offer a wider brand selection.
- Farfetch, a leading global luxury platform, has expanded its brand awareness and reach in China through strategic collaborations with WeChat, leveraging social media and Key Opinion Leaders (KOLs) to tap into the preferences of Chinese Millennials.
Read our report on the rise of Chinese luxury brands
