The CovBrands team in Beijing relies on e-commerce for day-to-day shopping. With clothes, office supplies, electronics, and even groceries only a click away and often delivered the same day, we almost never need to set foot in a physical store. And we are not alone. In China, e-commerce is growing quickly, generating $190 billion in sales in 2012, a 66.5 percent increase from 2011. In addition, Alibaba, which operates China’s largest e-commerce site, boasted a net income of $642 million for the quarter ending December 2012, more than double the net income during the same period in 2011.
However, online sales of premium brands have not experienced the same growth. A recent survey by KPMG noted that only 10% of Chinese consumers are very interested in purchasing luxury goods on the internet, with an additional 30% being somewhat interested. Chinese shoppers prefer to buy luxury goods from physical stores for several reasons:
- Concerns about the authenticity of branded goods purchased over the internet.
- Concerns about the safety of online payment.
- Lack of after-sales service.
In addition, around 60% of luxury spending by Chinese consumers takes place outside of China. Many Chinese consumers prefer to purchase premium branded goods while traveling overseas due to:
- Desire to purchase models or styles that are available overseas but not in China.
- Availability of duty-free shopping and avoidance of high tariffs on luxury goods imported into China.
Facing these obstacles, few foreign luxury brands have set up online stores for the Chinese market, with Coach and Armani being notable exceptions. However, owners of premium brands should still consider developing and maintaining a strong internet presence in China. Chinese consumers rely on the internet to research and learn about their favorite premium brands, and around 70% of Chinese consumers search the web for information on luxury brands at least once a month.
In sum, although premium brands cannot rely on e-commerce as a source of sales in China, they should take advantage of the internet as a powerful tool to educate and develop loyal customers.