The Chinese aren’t known for being impulsive. Dutch social psychologist Geert Hofstede’s ongoing study on cultural differences, last updated in 2010, found that China scored a sky-high 118 for long-term orientation, essentially a measure of long-term thinking based on a variety of factors like thrift and perseverance. The US, land of instant gratification, scored 29.
Yet there are signs Western short-term thinking is infiltrating Chinese culture along with Western-style consumerism. In December, a report by consulting firm McKinsey & Company found that the number of shoppers buying luxury products on impulse surged in 2012. About 37% reported buying a luxury item within a day of first considering the purchase, up from 24% in 2010.
As McKinsey notes, that makes it all the more important that luxury retailers deck out their stores and pamper their clientele to encourage them to buy that US$54,000 (RMB340,000) peacock-feathered trench coat on the spot.
But taking the trend one step further, luxury retailers should be thinking ahead to the ultimate method for impulse buying: online shopping. While the rise in Chinese impulse shopping received broad play in the media, less reported was the small but growing proportion of luxury shoppers buying online. Of the 1,000 Chinese luxury shoppers surveyed by McKinsey in 2012, 8% had made a purchase online in the past year, up from 2% in 2010.
Chinese e-commerce in general has boomed in the past decade, as luxury retailers have undoubtedly noticed. Overall, online retailers sold US$121 billion in goods in China in 2011, up 66% growth from the previous year. Sales are expected to reach US$420 billion by 2015. This trend is driven by China’s more than 500 million internet users, a huge pool of potential online shoppers. Many Chinese have embraced the greater variety allowed by shopping online through vendors like Alibaba’s Taobao, especially in lower-tier cities that many major brick-and-mortar retailers have yet to reach.
At the same time, luxury sales have exploded. China consumed 27% of global luxury goods in 2012, up from only 14% in 2008, McKinsey says. Chinese luxury purchases have grown an astonishing 27% a year on average between 2008 and 2012. Although average annual growth of the luxury market is expected to slow to 12-16% between 2012 and 2015, that rate will still far outpace the 3-5% growth rate predicted for the rest of the world.
To harness both of these growth trends, a handful of luxury retailers have opened up shop online in China. Among them, Burberry started its online store in China in 2011, while Emporio Armani partnered with Italian online retailer Yoox to create its own online store in 2010. Other luxury retailers will likely follow this formula with the top-tier creating their own online stores for China and lower-tier brands partnering with third-party companies like Yoox, said Mariana Kou, a Hong Kong-based luxury analyst at investment bank CLSA.
But luxury products don’t necessarily lend themselves to e-commerce as well as a pair of shoes or a washer-dryer might. The in-person experience of going to a luxury store and being waited on like royalty is a major attraction. In the flagship luxury stores that dot Shanghai’s busy shopping streets, elite customers might have sections of the store closed down for just them to peruse, they may be served food or drinks, and staff may babysit their children while they shop. In addition, shoppers may want to inspect the products in-person and buy direct from the store to avoid buying a fake, a greater concern in China than most markets.
Chinese consumers are, however, growing comfortable with buying online for certain luxury items, Kou said. Shoppers might consider purchasing smaller, less expensive items online while saving big-ticket purchases for the store. “Of course, if you have a tailor-made suit, you’re definitely going to want to go to the store,” she said. “But if it’s a smaller item, like wallets etc., consumers are more comfortable with ordering online.”
For now, with few luxury retailers selling online, e-commerce accounts for only a 3% sliver of luxury sales in 2012, McKinsey says. But even if a shopper can’t go online to buy the bejeweled handbag they have been eyeing in the store, maintaining a strong online presence will be essential to overall sales, Kou said.
Brands don’t necessarily need to sell anything online to influence shoppers’ buying habits. LVMH’s nowness.com, which recently launched in Chinese, promotes a lifestyle in line with the company’s products, aimed at shaping the image of its brands and encouraging readers to buy its products, even if the website doesn’t sell them.
Online comments from other shoppers may particularly influence buying decisions. With official luxury manufacturer sites only selling 4% of luxury goods online according to McKinsey, customers are often shopping on third-party vendors like Taobao that encourage users to comment on vendors and products. Brands could potentially help their online image by promoting discussion on a Facebook fan page of their creation, Kou said.
The perception that online shopping drives impulse purchases – such as that waffle maker or bocce ball set that seemed like a good idea at 2 a.m. – isn’t always true. Customers may go online before buying a product and what they see there could influence their purchasing decision. In that respect, shoppers may be more thoroughly weighing their purchase than if they had merely walked into a store. Brands, therefore, must try to control their customers’ online experience.
The luxury industry must cope with clients that are growing savvier. “A lot of the brands are now realizing that Chinese consumers are really becoming sophisticated rather quickly…it could be possible that e-commerce trend could happen really fast as well,” Kou said.
Although retailers may never totally replace brick-and-mortar stores with online versions, e-commerce will become an increasingly indispensible supplement. Whenever luxury shoppers get the impulse to buy – after reading dozens comments about a handbag online or first glimpsing it in the shop window – successful luxury brands will need to be there to meet them.
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