Luxury e-commerce in China: what is the best business model?

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Why are luxury e-commerce platforms in China still struggling?

In 2020, the Covid-19 pandemic caused a surge in online luxury sales. In 2021, online sales accounted for around 26% of all luxury goods sales in China, up 56% year-on-year. according to Bain & Co. However, for luxury e-commerce platforms in China, the best business model remains elusive.

Over the past year, Secoo, China’s largest luxury e-commerce company, has seen its stock price plummet as it attempts to diversify its business model, Daily Jing reported in December. A refinancing agreement with Great World, a subsidiary of L Catterton Asia, was announced in March.

Secoo isn’t the only high-end platform having issues. In June of last year, Yoho!, a streetwear conglomerate with an e-commerce platform titled Yoho! Buy, should have faced financial difficulties, according to a report by Tencent News. Other casualties include Qudian-owned luxury e-commerce platform Wanlimu, which shuttered, as did Higo, which shut down last August.

While local luxury fashion e-commerce outlets have struggled, international players are expanding their presence in the Chinese market. In October 2021, Net-a-Porter announced further upgrades to its Chinese app and website. For its part, Sequoia Capital China, which took a minority stake in the Canadian luxury e-commerce site Ssense last June, has signaled that the platform will accelerate its presence in China.

There is a huge prize to play. But what is clear is that China’s high-end e-commerce sector is going through a major transition period.

Emergence of community e-commerce

The challenge is to identify the right business model for luxury online platforms. Should e-commerce players adopt the marketplace model, taking a share of sales through their platforms but without holding inventory themselves? Or should they buy stocks and take a buyer-led approach, like at Net-a-Porter?

The buyer-led approach presents challenges. Experts point out that China still lacks a sophisticated multi-brand retailer culture, with shoppers acting more like buying agents. Shortages of high-end products, as well as consumer concerns about authenticity, have negatively impacted the shopping experience of Chinese consumers. Excessive inventory accumulation can also create all sorts of problems.

A mixed model that combines market and purchase can represent a balanced approach that meets consumer needs. The community guides e-commerce companies such as Dealmoon, Beijing Zhidemai Tech and Mode Sens, which have positioned themselves between brands and consumers, maintaining a strong social relationship with the downstream customer community.

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