How has COVID-19 pushed the digitalization of the luxury industry? Let’s zoom into Tmall.
According to UN chief, “Covid-19 could spur the biggest economic contraction since World War II, hitting every sector from finance to hospitality”. The stock prices of the luxury apparel industry dropped by 40% between the beginning of this year and March 24th, which is a much greater drop than the overall market.
51% percent of the top 45 fashion brands in the world sold on Tmall in 2019, up from 27% in the previous year.
Prada and other luxury brands joined T-mall and JD.come amid the COVID pandemic in March this year. Intuitively speaking, digitalization is inevitable during this special circumstance. Many experts view that this pandemic as the catalyst for the directions the industry is evolving to. In other words, this pandemic accelerates the trends predicted before it happened.
According to an industry report published by the Business of Fashion and McKinsey, the post-pandemic trends in the industry can be captured in the following five themes-survival instincts, discount mindset, digital escalation, Darwinian Shakeout, and innovation imperative. This article will explore more in-depth about the digital escalation and discount mindset in the context of Chinese market, specifically from the angle of Tmall.com, an ecommerce platform under Alibaba.
Around 4 years ago, Michael Kors called Alibaba, one of the biggest ecommerce players in China and the world, “our most dangerous and damaging adversary”. During the same period, at the leading event in the Jewelries and watch industry Baselworld, the manager of the Apparel division of Tmall tried to invite some luxury brands to sell on Tmall but the process was extremely challenging. Most luxury brand stated that they did not consider launching online stores on a third-party ecommerce platform.
However, everything evolved rapidly. Last year, Micheal Kors called Alibaba’s Luxury Pavilion, where consumers can purchase high-end brands on Tmall, “the perfect venue for us to communicate Michael Kors’ brand vision.” More fashion brands, including Gucci, Burberry, Chloe, and others put their products on the platform. Moreover, Yoox Net-A-Porter, a British luxury ecommerce company, collaborated with Alibaba on the luxury Pavilion project. Another Chinese ecommerce giant JD.com also initiated a similar strategic partnership with Farfetch. 51% percent of the top 45 fashion brands in the world sold on Tmall in 2019, up from 27% in the previous year. The sales on Luxury Pavilion on the “Tmall 618” shopping festival increased by 130% from the previous year.
The “move” to third-party ecommerce platforms in China did not slow down but even accelerated under the COVID-19 crisis. Prada, Miu Miu, Giorgio Armani, Alexander Wang, and more luxury brands announced that they would open stores on Tmall. When few people travel abroad and even shop at malls lately due to the pandemic, online channel is the preferred alternatives. Li Rixue, Secoo Chairman and Chief Executive, predicts that 30% of China’s annual luxury sales of $150 billion will be from ecommerce in 5 years, increase from 10% today.
On April 20th, Tmall welcomes “Luxury Soho”, an online luxury outlet, in parallel with the existing Luxury Pavilion channel. This move intends to capitalize on the entire luxury footprint. In contrast to the Luxury Pavilion where people shop for the latest and iconic products, Luxury Soho offers seasonal mark-downs. Under the current crisis, this channel will serve as a place to allow the market to digest the overstocked luxury products due to the lockdowns. Before the crisis, most prestigious brands were unwilling to discount their products. For instance, Burberry would destroy its unsold products so that they would not be sold at lower prices. However, this online outlet might be a great platform for luxury players to recover from the trauma caused by COVID-19. Alibaba’s launch of this channel also follows closely the anti-consumerism trend and discount mind-set identified in the report by McKinsey—when, responding to the crisis, the middle-class consumers tend to purchase mark-downed products rather than the full-price ones.
Sources:
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