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THE LUXURY MARKETS

E-COMMERCE GIANT ALIBABA BECOMING DRIVING FORCE IN CHINAā€™S LUXURY MARKET

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Despite the mounting trade war between the United States and China, Alibaba, the Chinese online e-commerce giant, continues to bet that its countrymenā€™s appetite for foreign goods is not waning. The company has just announced that it is spending $2 billion to acquire Kaola, its largest rival in the online sales of imported goods.

Kaola sells products imported into China,Ā  including clothes, consumer electronics and sports accessories. One of the three largest Chinese e-commerce sites focused on selling foreign products, its closest rival to date has been Alibabaā€™s own Tmall Global.

According to analysts, Alibabaā€™s latest acquisition will diversify Tmallā€™s business model, which involves inviting foreign brands to launch online shops on its site. Kaola, in contrast,Ā  mainly purchases a variety of goods directly from foreign merchants in bulk, and then sells them to Chinese consumers.

CHINA ACCOUNTS FOR ONE-THIRD OF GLOBAL LUXURY SPENDING

While the American market still accounts for about 44 percent of global online sales of luxury goods, Asia, led by China, is the new growth engine of high-end brands. And despite the trade war, China remains the third-largest market for U.S. goods and services, with luxury product items playingĀ  a significant role.

Chinese shoppers accounted for one-third of global spending on luxury items in 2018, and according to the consultancy McKinsey & Co., many of those sales are now being done online ā€“ about $9 billion worth in 2018, according to the companyā€™s estimates.

But it will not stop there, Chinese luxury consumption will almost double to reach about $175 billion by 2025, up from $112 billion last year.Ā 

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Tiffanyā€™s was added to Alibabaā€™s Tmall Luxury Pavilion in August 2019, joining a list of exclusive brands selling directly on the giant online platform.

Alibabaā€™s Tmall marketplace launched Luxury Pavilion in 2017, and the web platform now featuresĀ  more than 100 brands, including DKNY and Versace. The company intends doubling the number of brands by March 2020.

Scrolling mobile telephones screens, as seen by customers shopping Alibabaā€™s Tmall Luxury Pavilion.

BYPASSING BRICK AND MORTARā€™S INFRASTRUCTURE CHALLENGES

The online option is particularly attractive in a massive and growing market like China, because it helps bypass avoids the challenges and risks inherent in opening brick and mortar stores in cities outside the major population centers.Ā 

Many Chinese cities still donā€™t have infrastructure necessary for high-end luxury stores, said Fabrizio Freda, chief executive officer of Estee Lauder, in a recent media interview. ā€œIn China there are about 600 cities with millions of inhabitants where there is no physical distribution but thereā€™s interest, desire and aspiration for high-quality products,ā€ said Freda. ā€œTmall is the answer to that.ā€

With the growing popularity of online shopping, large luxury are joining with Internet companies like to offer sales and services to the clientā€™s front door. In so doing, they are hoping to appeal to younger consumers looking to buy clothes, accessories and designer jewelry. For many, the platform of choice is Alibabaā€™sĀ  Tmall Luxury Pavilion.

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This Valentineā€™s Day, despite the fact that the annual love festival is not exactly a Chinese tradition,Ā  Tmall this year added 500,000 new products from 20,000 brands from brands like Givenchy, Jo Malone, Longines, and Adidas. Tmall Luxury Pavilion included items from Versace, Marni, Giuseppe Zanotti, Coccinelle, Todā€™s and Valentino.

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