Will a Chinese E-commerce Giant Capture the $1.3T Luxury Economy?

Google+ Pinterest LinkedIn Tumblr +

China is expected to generate 46% of global luxury spending by 2025 — a market that is currently worth $1.3T. But in a country where almost 85% of luxury shops are in major cities while 75% of the population lives in rural areas, a large proportion of luxury purchases are done online, through JD.com or Alibaba. As JD.com prepares for a U.S. market entry in partnership with Google, NewtonX conducted a survey of the luxury economy, both in China and in the U.S., to forecast JD’s competition with Amazon, and consumer sentiment differences between China and the U.S. on e-commerce for the luxury economy.

The survey, conducted with former executives at Amazon.com, JD.com, and Alibaba, as well as with 500 consumers in the U.S. and 500 consumers in China, yielded, among other findings, the following conclusions:

  1. Chinese consumers trust ecommerce for luxury purchases more than U.S. consumers do
  2. Consumers in both countries value experiences for luxury purchases — and while JD.com gives customers this experience, Amazon and US ecommerce brands do not
  3. Consumers under 40 years old are projected to account for over 50% of luxury spending by 2025, according to analysts at the ecommerce giants

How JD.com turned e-commerce into a luxury experience

Over the past decade, China has developed a growing upper middle class — a group that tends to be both new to money and 5 to 10 years younger than the U.S.’s upper middle class. Consequently, this class tends to be increasingly status conscious, but without the legacy customs that plague U.S. commerce — the new middle class didn’t grow up with their parents shopping at Saks. Because of this, buyers are more likely to purchase luxury items online or even over the phone.

Jd.com offers two services that heighten the likelihood of making luxury purchases online: the first, is its unusual authenticity guaranteed policy. Unlike Amazon, which notoriously keeps fakes on its platform, JD.com 100% guarantees that every product on its platform is the genuine product. This a particularly compelling feature of the platform in China, where fake luxury knockoffs abound.

The second service that JD.com offers is white glove delivery. Buyers of extremely expensive items (think: a $20,000 watch or a $700 digital camera) can have their purchase delivered by a handsome man under the age of 35 wearing a suit and, of course, white gloves. The service adds an element of experience to the transaction — not unlike sipping champagne while shopping in the YSL store. Many buyers will have expensive items sent to their offices as a status symbol to flaunt in front of coworkers.

In contrast, American luxury retail is still mostly in-person. Even if consumers buy luxury items from a distributor, such as Nordstrom, they are more likely to buy it in person than to order online. This only increases with price: the more expensive an item is, the lower the likelihood of an American consumer ordering it online.  But as millennials age and become the dominant market for luxury retail, this may shift.

Younger Generations Will Account for over 50% of Luxury Market Growth by 2025 — And They Love Online Shopping

Access to luxury items is not as stratified by city vs. rural location in the U.S. as it is in China. However, even millennials in major cities prefer to shop online. JD’s move into the U.S. is likely to encourage Americans to purchase luxury items on the platform, with its no-fakes guarantee and its white glove services.

China and the U.S. are the biggest markets for luxury retail: currently China accounts for 30% of all luxury goods sales, while the U.S. accounts for 23%. If both markets transition purchasing from brick and mortar to online, then the luxury market as a whole will undergo a seismic shift — and ecommerce providers will compete to offer premium delivery services and no-fakes guarantees. JD’s transition into the U.S. will likely spur Amazon and other e-commerce providers to match the Chinese e-commerce giant’s offerings.



About Author

Germain Chastel is the CEO and Founder of NewtonX.

Comments are closed.