Start an Online Luxury Business in China

Searching for wealthy customers beyond China’s urban areas, luxury-goods makers are opening shop in a new location: the Chinese Internet.

China is the world’s second-largest market for luxury brands when counting purchases by Chinese consumers world-wide and is set to overtake Japan for No. 1 in a few years, according to consulting firm Bain & Co. Chinese sales of luxury products surged 20% to €9.2 billion ($12.1 billion) last year.

The decision by high-end brands to sell their handbags and clothing directly to Chinese shoppers via the Internet marks an attempt to push deeper into a nation with consumers eager to mark their new wealth by buying flashy labels.

Luxury goods have been available for several years on the Chinese Web. But that generally has been through middlemen who offer an array of brands, many of them out-of-season, rather than directly from the labels. Western sites are available to Chinese shoppers only to a limited degree, in part because not all company sites offer shipping to China. Also, steep Chinese import duties discourage buying from vendors’ overseas sites.

And Chinese shoppers have embraced the Internet. E-commerce sales in China jumped to 134.2 billion Yuan ($20.1 billion) in the third quarter, doubling from a year earlier, according to research firm Analysys International.

But many luxury brands are reluctant to sell through general retail websites for fear of poor quality control and consumer support. The labels also worry they will erode brand value by selling in an environment where consumers typically go to find deep discounts. China’s largest e-commerce site by number of transactions, Alibaba Group’s, says it drew $30 billion in transactions last year, largely by undercutting brick-and-mortar retailers on prices.

The opportunities e-commerce presents in China are too great to ignore. An estimated 80% of online shoppers are less than 45 years old, compared with 30% in the U.S., according to Forrester Research.