Huge ongoing potential in China for online luxury sales, says OC&C

30 October 2018 5 min. read

Chinese consumers now account for up to a third or more of global luxury sales, yet, while much of the recent growth in the domestic market has been driven online, online penetration for luxury goods remains low in China compared to other segments.

According to a new report from OC&C Strategy Consultants, Chinese consumers now account for between 25 to 35 percent of global luxury fashion sales, with up to three quarters of the goods bought beyond Chinese borders. Recent price adjustments have been driving sales back to China however, and online channels are pushing toward a tenth of the local market. Still, this figure is well below the online market share for other segments and markets.

Further, nearly half of the luxury fashion brands analysed by OC&C don’t have an online purchasing option on their local websites, while those which do (apart from some notable exceptions) have only basic functions as a complementary service to primary bricks-and-mortar operations. In addition, while luxury brand products are widely available on e-commerce platforms, most are from ‘unauthorised’ supply channels with few third-party arrangements.

According to OC&C, this can be put down to a lack of trust in the burgeoning online platforms, such as that they might dilute the brand through promotions or discounts, or due to a sub-par customer experience in terms of brand assortment, online journey and services. There are further concerns that these sites cannot guarantee authenticity. Yet, OC&C contends that this continuing hesitancy on behalf of luxury producers is in effect a form of denial – especially with an evolving demographic.Luxury online sales in China compared to other markets/segmentsAs it stands, the online share of luxury retail sales in China remains surprisingly low, both compared to other international markets and other local segments. For example, luxury ecommerce penetration in the UK, US and Germany (excluding Chinese-origin purchases) as to designer apparel and footwear and luxury leather goods has reached more than 15 percent as of last year, and has grown to 12 percent in South Korea – compared to 9 percent in China.

Yet, China is no slouch when it comes to online shopping. According to a recent BCG report, a staggering 98 percent of internet users in urban China use online resources to guide their purchases in at least one category, with estimates pointing towards over $1 trillion worth of online sales in the country by next year. Here, the OC&C report shows that online sales in the local apparel and footwear segment have achieved a nearly 30 percent market share – with the general online/luxury goods divide the opposite of trends in other developed markets.

Together, the contrast in figures and local market anomalies suggest a lack of online luxury availability rather than any issues as to consumer culture or intent – also then signaling a ripe market (McKinsey projects the Chinese share of global luxury fashion sales to continue to rise to a whopping 44 percent by 2025) with growing third-party infrastructure and massive online potential. Both driving and adding to this potential is, as might be expected, the Millennial generation.Luxury online shopping in China by age group and city tierIn an attendant survey of more than 5000 Chinese luxury shoppers across gender and income, OC&C found that effectively two thirds are still only buying exclusively offline, with 36 percent now using a combination of online and offline channels. These figures however skew markedly by age demographic, with 59 percent of Generation Z luxury shoppers (those born after 1995) buying online along with 37 percent of the Gen Y bracket (born between 1980 – 1995).

Recently, KPMG predicted millennial shoppers in China would overtake their older counterparts within five years, with those surveyed expecting to spend more as their incomes grew – trends already showing in the OC&C’s survey, which found that on average Gen Y shoppers already spent more on luxury goods last year than did consumers from other brackets, thanks in a roundabout way to greater disposable income with growing housing unaffordability and a lessened focus on saving.

“Online and offline channels are no longer divided in the eyes of consumers,” says Pascal Martin, one of the report’s authors. “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.”

Martin, a partner with OC&C (and former luxury fashion executive) based in Hong Kong, concludes; “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.”