Mei Chen, Head of Fashion and Luxury for UK, North America, Nordics and Iberia for Alibaba Group, explains the evolution of the luxury consumer market in China and how technology is deepening brand connections.
More than 200 luxury brands took part in this year’s 11.11 Global Shopping Festival. During the Festival’s sales period, up to 80 million consumers visited the Tmall Luxury Pavilion, with 70% of them coming from lower-tier cities (tier-three cities or below). The demand for luxury products remains strong, with China set to become the world’s largest luxury market by 2025 after Chinese spending in the sector doubled from 2019 to 2021.
Why is China such a significant market for luxury brands?
Wealth is increasing among Chinese people, particularly in its emerging middle-class population and research suggests that 400 million additional Chinese will have the means to purchase personal luxury goods in the next 20 years. Purchasing luxury goods is seen as a symbol of success, social prestige and accumulated wealth, and consumers are increasingly looking to illustrate their prosperity as they view luxury items as ‘investment purchases.’
Embracing digital innovation is key to success
The China consumer market is also known for its innovative retail experiences. Consumers are receptive to engaging with brands across new, digital mediums – from livestreaming to 1:1 virtual consultations – giving wide scope for brands to ‘test-drive’ new and interesting methods of interacting with their target audiences.
With digital shopping a way for global luxury brands to stitch themselves into growth markets, it is fast becoming an integral part of luxury brands’ marketing strategy. Moving beyond the digital being just a sales channel, it is hugely important in raising consumer awareness, enhancing brand equity, engaging existing and recruiting new consumers.
More broadly, the pandemic has been a significant factor for the acceleration of the luxury market’s digitalisation in China: e-commerce luxury sales have risen over 150% by the end of 2020, with online penetration almost doubling to 23%.
To stay ahead, it’s important that luxury brands consider how best to integrate the online and offline shopping experience given that consumers now expect and demand a unified process. We call this the rise of ‘phygital’ experiences and have seen this on our own B2C platform Tmall, with 20% to 30% of online orders fulfilled by physical stores, either by consumers picking up their purchases at the stores or the stores shipping them to consumers’ homes.
At Alibaba, we support luxury brands by upgrading their digital offering and omnichannel experience through our own bespoke online platform, Tmall Luxury Pavilion. Launched in 2017, it came at a time when most luxury brands were unsure about venturing into the digital ecommerce space and focused mostly on traditional brick and mortar stores. Working with over 200 of the world’s premium brands such as Cartier, Gucci, Vacheron Constantin, Burberry, Emporio Armani and Prada, and the first platform in China that carries products from the five major luxury groups, LVMH, Kering, Chanel, Hermès and Richemont, Tmall Luxury Pavilion is now a powerhouse for luxury innovation. It provides a flexible interface for brands to customise their stores and experiment with new shopping experiences from product personalisation and livestreaming to AR and 3D technologies.
For example, at this year’s 11.11 Global Shopping Festival, Tmall Luxury Pavilion was influential in helping brands to tap into the latest metaverse technology trends, and we created a truly immersive retail experience by launching our very own luxury virtual influencer – ‘Timo’. We also rolled out our first-ever digital art gallery in the metaverse, collaborating with brands such as Burberry, Balmain, Longines, Coach, La Perla and Emporio Armani. As well as this, during 11.11 virtual influencer Ling presented a collection of digital artworks given to consumers with select purchases.
Gen Z and millennials are discovering heritage brands through new platforms
Tmall Luxury has noted most significant growth among Gen Z and millennial profiles in online consumer volume and purchasing power, and it is clear these younger generations are rapidly taking over the domestic online luxury market. This is because they are the driving force behind digital acceleration across the sector and have increased willingness to spend.
To illustrate this, between 2019 and 2021, Gen Z consumers on Tmall Luxury increased by a staggering 153%.
As digitally native consumers, luxury brands should take note that younger generations are more likely to get their shopping inspiration from social media platforms, on which they can get insights into the lifestyles of celebrities, communities, or key opinion leaders. These consumers are more likely to make trendy and fashionable purchases from new collections as they aspire to copy on-trend influencers.
However, tapping into this consumer mindset is just as beneficial for heritage brands as new, younger audiences are keen to purchase classic luxury products.
When it comes to the luxury consumer, we recently identified six distinct consumer profiles on Tmall Luxury Pavilion, such as the Chic Elite to Trend Follower and Digital Pioneer. These deep insights are a tool for brands to enhance their online strategy.
The role of Alibaba’s 11.11 Global Shopping Festival
11.11 is not just about sales. It is the perfect opportunity for luxury brands to harness advanced technologies such as AR, livestreaming and 3D experiences, to engage their customers and further strengthen their brand.
With this year’s theme having focused on brand loyalty the Festival was another opportunity for retailers to engage with Alibaba’s premium, ecosystem-wide loyalty membership program to attract, engage and retain customers. Through the Tmall Luxury Pavilion, luxury brands could employ the latest innovative technologies to engage with new consumer audiences – such as Gen Z and millennials – in the China market during the Festival.
Ways in which brands innovated their offering during the Festival this year included: Swiss watchmaker Chopard setting up a virtual store to mirror one of its brick-and-mortar boutiques, along with its pop-up tool to livestream a jewellery and watch show hosted by its flagship store; both Cartier and Vacheron Constantin took to 3D technology for detailed product viewing online, and brands such as IWC Schaffhausen and Maison Margiela invited shoppers to virtually try on their products during the festival using AR tech.
11.11 was undoubtedly an explosion of creativity and innovation from our wide array of international luxury brands. By applying digital learnings from working with Tmall Luxury Pavilion, brands were able to use the Festival to test out new innovations and learn what worked well. Above all, it was an opportunity to connect with a broad customer audience to create long term sustainable growth in the China market.
