Luxury brands are rethinking their ecommerce strategies in China. Companies selling high-end goods once shunned online sales channels there, concerned that their brands might be damaged by the heavy discounts routinely offered by retailers and the rampant availability of counterfeit items.
As a result, these brands’ retail strategies have relied heavily on the use of brick-and-mortar locations in the country, where pricing and high-end customer service can be carefully controlled.
But that sentiment is changing as luxury firms become increasingly set on tapping into China’s massive—and growing—ecommerce sector. eMarketer forecasts expect China’s retail ecommerce sales to total $1.13 trillion this year, and climb to $2.66 trillion by 2021, when they will account for an impressive 40.8% of all retail sales in the country.
China will be responsible for generating an increasing share of worldwide spending in the sector over the coming years, with consultancy McKinsey & Company estimating it will jump from 32% in 2016, to 44% by 2025. By then, the company estimates luxury goods spending in China will total RMB2.7 trillion ($406.4 billion).
China has become even more important to luxury brands because worldwide demand for luxury items has been lackluster in recent years. In a recent report on Chinese luxury goods, McKinsey noted that global consumption of luxury goods hit a low in 2016 not seen since 2009.
Perhaps in response, these companies have been ramping up ad spending in China. Data from Zenith shows that ad spending focused on the category will total $2.04 billion this year. More money is projected to be spent on out-of-home ads than any other format this year, but Deloitte projects that digital media ads will draw more spending than any other type of media in 2018.
Luxury brands are now making some serious online inroads in the Middle Kingdom. In July, Louis Vuitton launched an official online store in China to sell its line of high-end handbags, shoes and other products. Consumers are able to complete transactions using popular payment methods local to the country, such as Alipay and WeChat Pay.
The same month, luxury goods purveyor Gucci also launched its own direct-to-consumer online store dedicated serving customers in China.