The luxury brand business is up and running again in China thanks to a little help from the country’s largest e-commerce company, Alibaba.
Luxury brands in China in recent years have taken a significant hit, Forbes reported, in large part to a dwindling economy. The economic slump disproportionally hit the wealthy harder, taking down luxury brand sales with them. That’s where Alibaba’s Tmall came in. To keep profits going when times got tough, retailers needed to look online. This is especially key because a large portion of China’s wealthy (47 percent) said they were planning to leave within five years, Forbes reported.
“Digital could be ‘the next China’ for the luxury industry” Businessweek’s Andrew Roberts wrote. And that’s exactly what Alibaba wants in its home country.
“In 2013, 67 percent of luxury products bought by Chinese citizens were acquired outside the People’s Republic. To capture sales that would otherwise be made in foreign stores, the brands are heading to Tmall,” Forbes reported. “The brands also need Alibaba’s platform to give them more control over the merchandising of their products in China.”
According to Forbes, just in 2014 alone, brands like Burberry, Calvin Klein and Hugo Boss set up shop on Tmall. And that trend should continue this year. Online discounters like Xiu.com have drastically cut into the business of traditional retailers so more are looking to Tmall to sell its products since it can open up an online shop without dipping as much into profits.
“Whether the brands like it or not, discounters will force them to go online and lower prices. So the industry will probably have to follow Burberry, which is so committed to Tmall and its own site that it is opening a warehouse to service online sales in China,” Forbes said.