White paper_EN_final1207 - Deloitte

CHINA LUXURY E-COMMERCE WHITEBOOK

2017

W W W.SECOO.COM

CONTENTS

01

CHAPTER 1


01-28

Development Trend of Luxury E-commerce Industry 1.1 Development Situation of Luxury Market. 1.2 Rapid Develpment of Luxury E-commerce 1.3 Driving Factors of Luxury E-commerce

02

CHAPTER 2

29-54

Portrait and Preferences of Luxury Network Consumers

2.1 Introduction to Data Sources 2.2 Portrait of Luxury E-commerce Core Consumers 2.3 Luxury Network Consumption Motivation 2.4 Luxury Consumption Preference

03

CHAPTER 3

55-78

Challenges to and Reflections on Luxury E-commerce

3.1 Seleting a Suitable Business Model 3.2 Creating Unique E-commerce Experience 3.3 E-commerce is Not "Another New Channel" a Reform in Omni-channel Business Model is Urgent

04

CONCLUSION

79-80

01


CHAPTER 1

Development Trend of Luxury E-commerce Industry Worldwide luxury market has seen obvious fluctuation due to economic growth and strategy changes. As the global economy continues to recover, the luxury market also welcomes an overall recovery and constant moderate growth. Chinese market, after a three-year economic downturn and a series of economic shocks, has begun to revitalize in 2016. Hopefully, china luxury market could maintain a stable growth trend under the big picture of medium-to-high-speed economy development. In addition, the influence of the development of global digitalization on the luxury market is becoming more obvious. Although the traditional sales channel still serves as the major distribution way of luxury, the year 2016 has witnessed a double-digit growth of online sales channel while the growth of traditional channel was only 2% in the corresponding period. In china, the growth of online channel is also prominent with its penetration gradually deepened. The rise of new generation of consumers, the deepening of the digitalization of retail business and the constant increase of luxury e-commerce users will help to continue the trend.

01

02


CHAPTER 1

1.1 Development Situation of Luxury Market

01

Development Trend Analysis of Worldwide Luxury Market

Figure 1 Worldwide Luxury Sales and Growth Rate (2011-2021)

9.00%

500 450 400 350

450

7.19%

361

389 370 368 370 377

402 416

425 439

7.00% 6.00% 5.00%

300

Luxury consumption begins to pick up and it can hopefully maintain stable growth in future. After an obvious fluctuation, the worldwide luxury market has started to grow stably. In the overall context of fragile recovery of global economy, the growth speed in worldwide luxury market started to slow down since 2011, and negative increase occurred in 2013; while in 2014 and 2015, there was recovery lasting through 2016. Throughout the year of 2016, the actual overall scale of worldwide luxury market has increased by 3.32%, over $389.2 billion. Influenced by the recovery of global economy, the worldwide luxury consumption is expected to step into a stable development stage in next five years with about 3% increase rate.

250 200

3.32% 2.48%

50 0

3.56%

3.36%

3.21%

1.39%

150 100

8.00%

2.51%

2.44%

3.00% 2.00% 1.00%

0.49%

0.00%

-2.48% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Sales of Worldwide Luxury ($, 1 billion)

4.00%

-1.00%

Growth rate

Source: Euromonitor International

03

04


CHAPTER 1


Figure 2 Percentage Countries Taking up in Worldwide Luxury Market (2016)

The United States

The luxury sales in China and the United States hold a lead.

In terms of sales scale, China and the United States are the two largest luxury markets, with their total sales accounting for over 40%. In 2016, the luxury sales of the United States took up 22% of global sales; China market, with its percentage of 21%, ranked second only to it. In the past five years, owing to the strong economic recovery, the luxury sales of the United States have remained a continual high growth trend, and in the period between 2011-2016, the country has become the luxury market with largest increase amount worldwide, with absolute increase of $12 billion; Japan ranked second with that of $7.2 billion. But during the same period, China luxury market performance has been regarded as one of the worst due to economic slowdown, exchange rate fluctuations and strategy changes, which resulted in negative sales growth and to some extent contributed to the United States’ becoming the largest luxury market.

23% 2% 2% 3% 4%

China

22%

Japan France England Italy

21%

5% 5%

Germany Korea Hong Kong

6%

Canada

9%

Other Countries


Figure 3 Worldwide Luxury Sales Growth ($1 billion) (2011-2016)

The United States

0

2

Japan Korea England Canada France India Germany uae Taiwan

2.01 1.80 1.59

4 3.34

6

8

7.20

10

12 12.00

14

1.59 1.33

1.24 1.20


05

06


CHAPTER 1


03

China Luxury Market Status

Figure 5 Percentage of China Different Luxury Categories Sales (2016)

Luxury consumption recovery may lead to stable growth in future.

Wine

In 2016, with overall sales reaching up to RMB 498.3 billion, China luxury sales ranked second only to the United States, taking up 21% of global sales. China luxury market has started to recover since the slowdown from 2013 to 2015, and its luxury sales have increased by 8.4% compared to the last year. It is prospected that hopefully China luxury market can step into a mild and stable growth stage afterwards with home income increase, luxury brands’ adjustment of its price spreads in domestic and overseas markets, and the waning impact of strategy changes.

Apparels and footwear (ready-to-wear) Leather products Clock & watch Jewellery Cosmetics/personal care products Glasses Portable devices (electronic products) Stationary

Figure 4 China Luxury Market Sales and Growth Rate: 2011-2021 Source: Euromonitor International

Large scale of wine consumption and quick growth of cosmetics consumption

China luxury sales (RMB 1 billion)

Growth rate


07

Seen from the aspect of proportion of different luxury categories, luxury wine are in the absolute dominant place, closely followed by apparel and footwear. In 2016, the percentage wine luxury accounting for overall China luxury sales soared to 76%, apparel and footwear 7%, leather products 6%, ranking the third place.

08


CHAPTER 1


Figure 7 China Luxury Consumption Percentage: Abroad VS Domestic

From the growth status from 2011 to 2016, it can be concluded that during the period, the consumption of cosmetics/personal care products has increased, while that of stationary and clocks & watch declined. Considering that the compound average growth rate of China luxury consumption has been -2%, the 9% annual growth in fields of cosmetics/personal care luxury was quite conspicuous, followed closely by 6% and 5% respectively in jewellery and apparel & footwear. In addition, the consumption of leather products, glasses and portable devices has increased by 3%. Among all luxury categories that experienced sales decline, stationary and clock & watch has been in the bottom with 5% of annual fall; the wine luxury sales began to recover significantly in 2016 again from its compound average growth rate of -3%.

Abroad consumption

Domestic consumption

Source: Fortune Character Institute Figure 6 Compound Annual Growth Rate of Different Luxury Categories (2011-2016)

Clock & watch

Stationary

Wine

Overall luxury market

Portable devices (electronic products)

Glasses

Leather products

Apparels and footwear (ready-to-wear)

Jewellery

Cosmetics/personal care products


09

Consumption abroad has high share and the growth speed starts to slowdown.

Seen from the proportion of consumption amount, in the past five years, the transaction of China luxury mainly took place in abroad, with only about 25% of domestic consumption. The growth speed of consumption abroad has been higher than that of domestic consumption till 2015, while the trend began to reverse in 2016 when there was an increase of the proportion of domestic consumption as a result. It is believed that this trend reversion is mainly a result of price adjustment of luxury worldwide, RMB devaluation and relevant taxation strategy, all of which have led to recovery of domestic luxury consumption stimulated by substitution consumption. Data from the Fortune Character Institute has shown that compared to 2011, the China luxury price spread of in 2017 has declined obviously. At the policy level, relevant government policies have stimulated the increase of domestic luxury consumption. Taking import duty as an example, in 2015 and 2016, the government has published several policies to reduce the import duty of apparels, cosmetics and daily necessities, which have to some extent contributed to the increase of luxury consumption.

10


CHAPTER 1


Figure 8 Average Price Spreads between China Luxury and Worldwide Luxury (2011-2017)

2011 average price spreads

Perfumes

Make-ups

Skin-care products

2017 average price spreads

Apparels

Footwear

Luggage

Jewellery

Watches

Source: Fortune Character Institute

Table 1 Adjustment Policies of Import and Export Duties

Time

Policies

June 2015

Reduce the import duty rate of some apparels, footwear, skin-care products and other daily necessities, as well as the import duty of business suits, roughcast house decoration products, bottines, sneakers, diapers, skin-care products, etc.

January 2016

Enlarge the duty reduction scope of daily necessities, and reduce import duty by taxing with temporary rate for commodities with high duty rate yet high-demand like luggage, apparels, scarves, rugs, vacuum cup, sun glasses and so on.

September 2016

The Ministry of Finance issued Notice on Consumption Tax of Cosmetics Import and Export, which stated that the cosmetics consumption taxation object has been adjusted to “top-grade cosmetics”, and reduced the duty rate from 30% to 15%.

Source: Public Information Consolidation

11

12


CHAPTER 1

1.2 Rapid Development of Luxury E-commerce

Figure 9 Percentage of Different Sales Channels in Worldwide Luxury Consumption

2016 sales percentage

01

Development trend of worldwide luxury e-commerce

Growth rate

Offline

Online


There is a lack of growth in traditional channels, but a rapid growth in online sales.

The luxury industry is faced with various challenges. In terms of sales channel, the traditional retail is still in domination, yet with a lack of power. In 2016, the percentage of effective luxury sales through traditional offline channels reached 91%, with only 2% year-on-year growth. Despite that the percentage of the online sales was low as 9%, its 12% of growth rate was quite worth noticing. In terms of market segment, during the period of 2011-2016, the online sales of the United States have come to $10.5 billion, being in the first place. At the same time, benefiting from the rapid development of the overall e-commerce industry, online channels for China luxury have developed with great leaps, ranking second only to the United States. Luxury brands begin to speed up constructing their sales channels and the consumption trend starts to change, which will lead to deeper penetration of online luxury sales.

13

Figure 10 Online Luxury Sales ($1 billion) Korea The United States China

England

Japan

Germany


14


CHAPTER 1


Figure 12 Proportion Distribution of Different Channel Sales of Different Categories (2016) Offline purchase

Traditional channels still take predominance with rapid growth of online sales.

Portable devices (electronic products)

Stationary

Jewellery

Clocks & watches

Cosmetics/personal care products

Leatherproducts

Online

Glasses

Offline

Apparels and footwear (ready-to-wear)

Figure 11 Percentage (Prediction) of Different Sales Channels in China Luxury Consumption (2011-2021)

Wine

With traditional sales channels still being the mainstream, its share continues to decline. In 2016, the offline sales accounted for 91.1%, with 1% of year-on-year decrease. From 2012 to 2016, the share of offline luxury sales has declined constantly while the online penetration has begun to increase. Despite of its small share at present, the rapid growth of online luxury sales cannot be ignored. Influenced by consumer habits change and omni-channel construction of luxury brands, online sales will hold bigger and bigger share that is predicted to reach 13% in 2021.

Online purchase



15

Seen from the aspect of category segment, consumers of different categories of luxury prefer different purchase channels. For example, online purchase of wind takes up 10%, ranking highest, followed by 9% of apparels and glasses, 8% of leather products, cosmetics and personal care products, being in the third place. While online purchase of some other categories only occupies smaller percentage. According to statistics, the online purchase of luxury portable devices (electronics) is near to zero, and that of luxury stationary, jewellery, and clock & watch is less than 5%.

16


CHAPTER 1


Continual Promotion of Omni-channel Strategy

Secoo Business Data Analysis

Taking Secoo Group, the leading luxury vertical e-commerce as an example (here Gross Merchandise Volume (GMV) is applied instead of business revenue): rapid growth of business scale and stronger earning capacity.

Secoo provides consumers with an integrated offline and online omni-channel for luxury purchase, including Secoo websites, mobile APP and offline experience center. The online platform is established for consumers to enjoy convenient services of selecting products, placing orders and finishing payment. And the offline experience center serves as a complimentary channel that provides high-quality consumer and membership service and experience. Viewing from the channel performance, online selling still acts as the major sales channel for Secoo platform. From 2015 to the first half of 2017, the proportion of the online GMV is over 70% in the whole-platform business revenue. Figure 15 Secoo Business Revenue: Online VS Offline

Figure 13 Secoo GMV Scale and Growth Rate (2012-2016)

2012 488 RMB 1 million

2013 806

2014 1,657

2015 2,572

2016 3,470

Offline

Online

Source: Secoo

According to Frost & Sullivan Report, based on GMV data, Secoo has grown into Asia’s largest online luxury transaction platform in 2016. The period from 2012 to 2016 has witnessed a multiplied GMV increase from RMB 488 million in 2012 to RMB 3, 470 million in 2016. In the past five years, Secoo transaction volume has continually remained higher growth rate, which reflects the growth trend of overall luxury e-commerce industry.

First half of 2017

Source: Secoo

17

18


CHAPTER 1

1.3 Driving Factors of Luxury E-commerce

01

New-generation consumers promote the online consumption growth.

Figure 17 Percentage of Different Channels for Luxury Purchase

Offline purchase

China’s buyers of luxury tend to beome younger. According to the statistics of World Luxury Association, the average age of China’s luxury buyers is now 25 years old, 10 years younger than that in the past, which will definitely affect the structure of luxury market participants. It is predicted that this trend will continue in the future. Data from Euromonitor has shown that in 2015, the millennial generation and generation Z consumers own 34% of total social income, which may increase to 50% in 2025 as forecast. Till then, new generation consumers, represented by millennial generation and generation Z consumers, will own half of the total income, and become the major consumer group of China luxury market in 10 years. Figure 16 Percentage of Social Wealth Generation Z

Millennial generation

Generation X

Baby boomers

Source: Euromonitor International Notes: Generation Z (born after 1995), millennial generation (born from 1985-1995), Generation X (born between the middle of the 1960s and the end of the 1970s) (35-54 years old), baby boomers (born between 1946 and 1964).

19

Online purchase

Source: Deloitte Luxury Multi-country Survey for 2017 Global Powers of Luxury Goods Notes: Generation Z (born after 1995), millennial generation (born from 1985-1995), Generation X (born between the middle of the 1960s and the end of the 1970s) (35-54 years old), baby boomers (born between 1946 and 1964). ）

For new generation consumers as net users, online shopping is the major method to purchase stuff since their birth. According to Deloitte Luxury Multi-country Survey for 2017 Global Powers of Luxury Goods, 42% of millennial generation consumers tend to purchase luxury online, higher than Generation X (34%) and baby boomers (28%), which has reflected that new generation consumers have higher-degree of acceptability and usage of online channels when it comes to luxury purchase and that online channels are becoming more and more important for luxury consumption. For luxury brands, how to adapt to the new consuming habits of new generation consumers will become a big challenge, and omni-channel strategy will become more and more important.

20


CHAPTER 1


Meanwhile, emerging digital media have become important channels for Chinese new generation consumers to acquire luxury related information. Emerging digital media account for as high as 75.6% in all the channels from which the Chinese new generation consumers acquire fashion information, while the traditional media only take up 24.4%. Specifically, among all the digital media from which consumers get fashion information, brand websites occupy 18.3%, being in the first place and followed by vertical fashion websites of 16.4% and social media of 15%. Among traditional media, fashion magazines, being the major channel, take up 17.6%, and friends and families 6.8%. The dependence degree of new generation consumer on digital media will surely be an influencing factor of the choice of consuming channel. Figure 18 Percentage of Channels from which Chinese New Generation Consumers Get Fashion Information

Others Friends/families

Catwalk videos

Catwalk videos

Brand websites Brand websites

Fashion magazines

Fashion websites Social media Celebrities Weibo/blog

Weibo/blog

Fashion magazines Fashion websites

Celebrities

Friends/families Others

Social media

Source: Deloitte luxury report bling it on

21

02

The digitalization of retail industry supports the development of luxury e-commerce.

China’s unique digital environment and deepening of digitalization have imposed far-reaching impact on many aspects of retail industry. Statistics have shown that in the past several years, there have been significant and rapid increase in the usage amount of mobile network, third-party mobile payment and logistics and that the percentage of e-retailing in overall retail channels has hit the global highest level. On the whole, at present 57% retail business in China’s retail market have been affected by digitalization, and in this kind of trend, the digital ability of retail business will become the defining factor to determine if a company will successfully develop or not. Although the offline channel still serves as the major sales channels of China luxury market, luxury e-commerce has started to develop steadily owing to the constant development of digitalization status of retail industry in recent years. Influenced by China’s unique digital environment, more and more luxury brands start to realize the importance of developing digital channels in China market.

22


CHAPTER 1


Figure 20 Interaction with Digital Carriers in Different Consumption States

Figure 19 China’s Unique Digital Environment

15.5% percentage of e-retailing in overall retail channels

Highest worldwide (global average of 8.6%) Source: UN

Half of consumers’ time took up by major Internet company products 48% 12%

42% 8%

17%

18%

19%

16%

PC

Mobile

Alibaba Baidu Tencent

Mobile Internet Market Scale Unit: RMB 100 million 38.2% 10844.7

2016 Q1

12977.6

2016 Q2

14124.1 14823.3 14989.3

2016 Q4

2016 Q3

2017 Q1

57% of the retail sales are under digital influence

Offline Only

30 %

13 %

Digital Influence

57 %

E-retailing

Purchase stage

27

RMB TRILLION Year-on-year growth

95% 2016 Q2

2017 Q2

Third-party mobile payment Transaction scale

10X

Logistics demand of e-commerce

53% of consumers use search engine 38% of consumers get product information via social media

Browsing/searching Selecting/verifying

Purchasing

55% of consumers search and study through third-party website for product comparison

50% of consumers get product recommendation from friends and families via social media

50% of consumers get product recommendation from friends and families via social media

54% of consumers tend to browse its official website before going to offline stores

49% of consumers read product comments online

49% of consumers read product comments online

36% of consumers get feedback via social websites

Returns/service 48% of consumers hope to make requests of returns and refund through smart phones, desk top computers or portable computers

41% of consumers purchase online and choose home delivery and picking up in stores

2016

The number of packages delivered

Source: Deloitte Cross Digital Divide

2006

1 Billion

30 Billion

Source: Deloitte China Digitalization, Enfodesk and iResearch

A survey conducted by Deloitte about consumer behavior has manifested that 85% of consumer requests are influenced by digital carriers to varying degrees. Before purchase taking place, many factors could affect consumers’ purchase behaviors like website information, social media and user comments; after purchasing, about half of consumers hope to get continual after-sale service through online channels. In can be concluded that digitalization has penetrated into every aspect of consumer requests, and that omni-channel has become one of the important enterprise development paths.

23

Generating demand

In such kind of digital environment, luxury brands have carried out various trials of online sales. According to L2 report, till May 2017, only 9% of fashion brands have not opened online sales channel, 57% decrease compared to last year. The number of luxury brands running direct sale e-commerce and WeChat e-commerce has increased significantly from 2014 to 2017. As of May 2017, 40% of fashion brands and 38% luxury watch & jewellery brands have developed direct sale e-commerce, increasing by 20% and 24% respectively compared to that of 2014; at the same time, luxury brands are also attempting to use WeChat, an one-to-one ecological system, to sell some small-lot products, and in fact, 6% of fashion brands and 14% of watch & jewellery brands are now operating WeChat shops.

24


CHAPTER 1


Figure 21 Online Channel Usage of Luxury Fashion Brands

Direct 直营品牌网站 sales brand websites

电商平台 E-commerce 电商平台 platform

Seen from the current development status, despite that luxury brands have carried out all kinds of online sales attempts, the Internet influence has not yet transformed into the actual increase of product sales. Therefore, luxury brands need to adopt more diverse and innovative methods to build connection with consumers, and hopefully, luxury e-commerce will welcome new round of development opportunities.

WeChat 微信店铺 Shops

Figure 23 Social Media Usage Source: L2

Figure 22 Online Channel Usage of Luxury Watch & Jewellery

Direct sales brand websites 直营品牌网站

E-commerce 电商平台platform

WeChat Shops 微信店铺

Source: L2

In the field of marketing, luxury brands begin to use more and more digital channels and methods. Wechat and Weibo have become the social media mostly applied when luxury brands carry out digital marketing. The L2 research has shown that in 2017, almost all the brands studied have conducted marketing via WeChat and Weibo. At the same time, luxury brands are now starting to focus on more popular short videos and stream media platform.

25

Direct sales brand websites 直营品牌网站

电商平台 E-commerce platform

微信店铺 WeChat Shops

Source: L2

26

CHAPTER 1


03

Thanks to e-commerce channels, luxury brands are now accessible for more consumers.

Although traditional sales channel still serves as the major channel for luxury sales, the development of luxury e-commerce has also provided an opportunity for many luxury brands especially some niche brands to connect and interact with more consumers. In terms of store development and extension, luxury brands are always relatively careful, and they tend to open and run their stores in first-tier and some important second-tier cities, which results in a lack of effective method to build connection with consumers who are not covered. Meanwhile, luxury brands are making adjustments to existing stores to better improve their value and reduce costs. The investigation result of Bernstein, an investment research firm, has shown that from July 2016 to July 2017, 36 luxury brands have closed 62 offline stores.


Because of geography limitations and store adjustment, some luxury brands tend to choose e-commerce channel to get to more consumers. According to Secoo’s business data, in the fiscal year of 2016, Secoo provided products and service for 300 thousand consumers covering 379 cities and helped luxury brands to access more consumers in different regions. In terms of the total number of consumers from different cities, the top 30 are still first and major second-tier cities that have access to traditional luxury sales channel, but those from other 349 cities account for nearly 38%. Therefore, for those luxury brands that want to realize more sales increase, the purchase power in places apart from first and second-tier cities is also of great importance. Figure 24 Percentage of Total Consumers in Different Cities

Top 30 cities with large number of consumers Other 349 cities

Source: Secoo

27

28

02


CHAPTER 2

Chapter Two Portrait and Preferences of Luxury Network Consumers As luxury e-commerce development tendency gradually becomes explicit, more and more luxury brands have started to consider entering or have entered the trend of electronic development. However, who on earth are core luxury consumers on the Internet? Why do they choose online purchase? What are their consumption preferences? Numerous branded enterprises desire to figure out the answers to these questions when formulating e-commerce strategies.

29

30

CHAPTER 2

2.1 Introduction To Data Sources


Introduction to Data Sources

Real Luxury Consumption Data Over the past 9 years, accumulating on Secoo website, app and from its international off-line experience centers in Beijing, Shanghai, Qingdao, Chengdu, Hong Kong, Milan and Malaysia, Secoo has 15 million registered users, which is the largest and most powerful luxury consumer data in the industry. Data Diversity Apart from traditional luxury products like bags and watches, Secoo expands its categories to cover all the luxury lifestyle products and experiences, such as luxury cars, private jets, artworks and luxury hotels. There is span and relevance between diverse categories. Advanced Data Management Technology Secoo manages consumer behavior data the moment the users open the app to when they finish the payment. The data management system includes data collection, data analysis, data warehouse, non-structured data management, distributed computing, stream computing, as well as user profiling and machine learning.

In Depth Docking of Secoo and Tencent In order to gain an accurate understanding of Secoo’s 15 million users’ Internet behavior except from Secoo app, Secoo collaborates with Tencent, which has the most users on the Internet in China, by docking Secoo users’ IDFA to Tencent database. Thus It makes consumer path be clear at a glance. Abundant Cross-platform Data Tencent provides media, social network, entertainment, Internet and mobile phone value-added services and operate online advertising services. This whitebook is benefited from the Secoo’s user behavior data of Tencent’s multiple platforms at different devices and time frames. Scientific 6 Key Labeling Systems Tencent’s DMP profiling technology categorizes users on 6 labeling systems, namely essential characteristics, social network behavior, media interest, app using behavior, business interest and entertainment preference, to present crowd characteristics of Secoo’s 15 million users in depth.

31

32

CHAPTER 2

2.1 Introduction To Data Sources


Research Methodology

The whitebook makes an all-dimension analysis of the real time full data of Secoo’s users from 2014-2016 to achieve theaccurate profiles of them. The docking to Tencent’s big data makes it possible to analyze Secoo’s user behavior chain,including 4 brand exposur eelements, platform redirect element and 5 e-commerce conversions elements. Note:This white book is made in October,2017.A year in thiswhitebook in dicates the period from the previous October to September of the year.For example,the year 2016 means October 2015 to September 2016.In addition,all the Secoo’s data is from online data of Secoo Mall.

33

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CHAPTER 2

2.2 Portrait Of Luxury E-commerce Core Consumers

Age: Post-90s main force being already 27 years old

The millennia generation has become luxury consumption main force in China, and younger consumers are joining them. Even though their total amount of wealth is much smaller than their parents’, they have more disposable income and are more willing to spend money. They are no longer concentrated in core cities, but distributed in various key cities and their surroundings on the broad land of China. They mainly pay attention to cars, education, sports and finance in daily life, and are particularly fond of sports and outbound travels. They are concerned of immigration/overseas studies and education. Graph 1 Age composition of luxury network consumers

The millennia generation has become luxury consumption main force in China, and younger consumers are joining them. Even though their total amount of wealth is much smaller than their parents’, they have more disposable income and are more willing to spend money. They are no longer concentrated in core cities, but distributed in various key cities and their surroundings on the broad land of China. They mainly pay attention to cars, education, sports and finance in daily life, and are particularly fond of sports and outbound travels. They are concerned of immigration/overseas studies and education. TGI index: Unless specially stated, TGI index herein refers to the ratio of target groups’ corresponding behaviors and Tencent market users’ and reflects the difference between target groups’ performance regarding a certain behavior characteristic and overall level. Generally, when TGI exceeds 100, we consider that target groups’ characteristics are notable. The higher the value, the stronger the target groups’ characteristics are.

35

Age composition of luxury consumer groups 100% 4%

100% 5%

100% 4%

1 17

1-17 years old

13%

15%

15%

18 24

18-24 years old

28%

29%

25 30

25-30 years old

21%

21%

31 35

31-35 years old

16%

15%

15%

36

36-40 years old

15%

14%

14%

2%

2%

2%

201510-201609

201610-201709

201510-201709

28%

22%

40

41 50 51

41-50 years old Above 51 years old

Source: secoo.com, Tencent Social Ads

36


CHAPTER 2


Graph 3 Comparison of purchase behaviors per city level City levels luxury consumer groups

Other Cities

54%

36%

Core cities

45%

27%

Key Cities

44%

26%

Core cities: Beijing, Shanghai, Guangzhou Key cities: Shenzhen, Chengdu, Wuhan, Dalian, Shenyang, Tianjin, Hangzhou, Ningbo, Nanjing, Chongqing, Changsha, Wuxi, Qingdao, Suzhou

Source: secoo.com, Tencent Social Ads Graph 2 Luxury network consumers’ city levels

Region: Frequent and numerous purchases in non-core regions

Judging from the number of consumers, core cities and key cities still occupy nearly 50%. In particular, the number of luxury purchasers in core cities has a percentage much higher than the average level compared with total urban population. Judging from province, Sichuan has extraordinary performance. In terms of purchasing power, purchase in core cities tends to be stable and rational, while medium and small-sized cities in non-core regions demonstrate strong momentum. Judging from purchase frequency and repurchasing rate, top 20 cities are all non-core/key cities, whose average annual consumption frequency exceeds core cities by 40%, and whose percentage of re-purchasers and three-time-and-above consumers among total purchasers outperforms core and key cities.

37

Comparison of purchase behaviors per city level Beijing City

22%

Other Cities 52%

Core cities Key Cities 26%

10.7%

Guangdong Province

9.0%

Sichuan Province

8.8%

Shanghai City

8.5%

Jiangsu Province Zhejiang Province

7.8%

5.8%

Core cities: Beijing, Shanghai, Guangzhou Key cities: Shenzhen, Chengdu, Wuhan, Dalian, Shenyang, Tianjin, Hangzhou, Ningbo, Nanjing, Chongqing, Changsha, Wuxi, Qingdao, Suzhou


38


CHAPTER 2


Graph 5 Education background composition of luxury network consumers

Education background composition of luxury consumer groups Doctor,1% Postgraduate 6%

Identity: highly educated, men, married

Luxury consumer groups are mainly highly educated people, of whom 67% have a bachelor’s degree, slightly increasing over the last year. Judging from gender, men occupy 51%, slightly higher than women, and this has something to do with highly educated men’s numerous high-end business needs. Luxury consumers feature married groups and mother & infant groups.

Junior high school and below, 22%

Senior high school ,10% Undergraduate,60% Junior high school and below Senior high school

Gender composition of luxury network consumers

Junior high school and below

Undergraduate

Postgraduate

Doctor

Source: secoo.com, Tencent Social Ads Graph 6 Marital status of luxury network consumers

TGI-115 Marriage status of luxury users

Single groups

51%

49%

Married groups

Infants and mothers

Graph 4 Gender composition of luxury network consumers Source: secoo.com, Tencent Social Ads

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CHAPTER 2


Hobbies: extreme sports, tourism immigration, overseas education

Luxury consumer groups pay much attention to overseas studies and education information and are highly interested in health sports, finance and cars. Compared with previous years, attention to travel and education remains high, and based on the data of this year, enthusiasm for extreme sports, immigration and overseas studies has run particularly high. Over 60% of the luxury consumer groups use high-end mobile phone brands, and a half of them are fans of Apple. Luxury consumers have downloaded APPs concerning health, communication, office and financial management in their mobile phones, and use online tickets, constellation and food APPs more in WeChat. They prefer cultural articles and antique as well as blues, Latin and jazz genres. Luxury consumers’ pursuit of life quality can thus be seen. Luxury consumer groups are more interested in education, sports, finance and cars. In terms of sports, compared with previous years, minority extreme sports and aquatic sports have increased over 50% compared with gym bodybuilding. They pay special attention to immigration/overseas studies and language education programs. Graph 7 Business interest preference of luxury network consumers Cars Finance

Education

51% of the luxury consumer groups use high-end mobile phone brands, and one third of them are fans of Apple. Huawei mobile phone, a domestic brand, ranks the second place.

Graph 8 Equipment brands used by luxury network consumers Preference for equipment brands Huawei 16% Others 49%

Apple

Apple 37%

Others

Huawei


There are more APPs concerning travel, health, communication, office and wealth management in the mobile phones of luxury consumers. The highly popular online games and mobile phone games are not yet the apple in their eyes.

Sports

Graph 9 Mobile phone APP interests of luxury network consumers

Games Job hunting and recruitment Animation and novels

Business interest preference of luxury network consumers

Travel

Preference for mobile phone APPs Sports

Business service

Aquatic sports

Immigration |overseas studies

Extreme sports

Marketing PR

Communication

Health Office

Education Language training

Wealth management

Online games

Tools

Role play

Running and cycling

Ball games Sports equipment Bodybuilding


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Luxury consumers particularly prefer online ticket, constellation and food service as far as WeChat APPs are concerned. Graph 10 WeChat APP preference of luxury network consumers Preference for WeChat APPs

In terms of leisure and entertainment, luxury consumers pay more attention to cultural articles, antique, TV plays and cultural art compared with common people. Last year, they demonstrated reduced enthusiasm for comedy and variety shows and increased enthusiasm for TV plays and cultural art. In terms of music, they prefer classic European and American tracks from the 1970s to the 1990s, and are particularly keen on blues, Latin and Jazz genres.

Food

Constellation

Online tickets

Graph 12 Entertainment and leisure preference of luxury network consumers Leisure and entertainment (TGI index)


Luxury consumers prefer to travel in Europe and Asia. UAE, Italy, France and Germany are their main tourist destinations. Graph 11 Outbound travel preference of luxury network consumers Preference for outbound travels

Leisure and entertainment Cultural articles and antique

157

Culture and art

156 147

Books and magazines

146

KTV

144

constellation & jokes Variety show

UAE

Italy

France Germany Singapore Japan

Latin

1990s

199

Blues

147 178

128

2005-2009

109

2000-2004

110

2010-2014

105

2015

101

126

Jazz

159

Country

159

115 100

World music

144

Portugal


43

188

1980s

Animation

Entertainment and gossips

Music genre

248 1970s

TV play

Movie

Track era


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2.3 Luxury Network Consumption Motivation

Graph 14 Luxury purchase modes Luxury purchase modes How would you like to purchase your favorite luxuries?

(Sample size =240, sample size average age: 20-30 years old) Purchase online, take delivery from offline outlets

Others

11.3% 0.4%

Out of the purposes of pleasing themselves, following the trends set by their favorite fashion icons, and dressing up on party and memorial-day occasions, the millennia generation has brilliantly stepped on the stage of luxury consumption. Besides quality, their biggest reason for purchasing luxuries is to “be nice to themselves”. Compared with their parents, this generation is more self-centered and perceives luxuries horizontally rather than looking up to them. They care about how luxuries can better serve them so as to lead a wonderful life.

Purchase online, delivery home/company 24.3%

64.0% Offline physical stores

Graph 13 Luxury purchase motivation

Luxury brands / enterprises have higher moral standards Luxury purchase motivation What is the main reason for why you purchase luxuries? (Sample size = 240, sample size average age: 20-30 years old)

Graph 15 Luxury online purchase reasons

I want to be nice to myself

17.8%

Luxuries have high quality

17.8%

I desire the latest version

14.9%

It makes me look good

8932 people answering Coverage in my region:10.12%

11.6%

Luxury has a long duration

9.7%

I want to amaze my friends/family members/colleagues Influenced by celebrities

What do you value the most when you choose to purchase luxuries online? (Single choice)

15.6%

It makes me feel cool

Luxury brands / enterprises have higher moral standards

Source: Deloitte luxury report Bling it on

Flexible time:17.24%

Various categories:36.89%

5.4% 4.4% 2.7%

Convenient order placement:35.75%

Source: Deloitte luxury report Bling it on Source: secoo.com

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2.3 Luxury Network Consumption Motivation

Graph 16 Future tendency of luxury online purchase

No, because:

Will you increase online consumption (including times and amount) in the future?） 8932 people answering

Yes:

Hence, the young generation is more accustomed to pursuing the latest trends online. Under roughly 35% circumstances, they will choose to purchase luxuries online nowadays, and nearly everybody will increase online purchase times or amount in the future. Why not? Online shopping features abundant categories, convenience, flexible time and coverage of regions without physical stores. The majority of these consumers will still go to physical stores to purchase, but interestingly, they go to physical stores not to enjoy shopping experience but mainly to actually touch and feel products. On most occasions, consumers have done relevant work online before going to offline outlets. They are there merely to gain what cannot be achieved online. In other words, for consumers, online and offline channels are not opposite but rather two links for them to realize the complete shopping process. On the other hand, it also reflects that physical stores of luxury brands are not attractive enough for young people. In an effort to seize this consumer group, brands are supposed to consider how to create perfect shopping experience integrating online and offline.

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Source: secoo.com Graph 17 Reasons for purchasing luxuries in physical stores Motivation for consumption in physical stores What is the main reason for why you like to purchase luxuries in physical stores? (Sample size = 240, sample size average age: 20-30 years old)

I can touch/feel products

25.0%

I can try on/use products

21.3%

It is easier to compare products/styles

15.9%

Browsing is more convenient

14.0%

Suggestions/help by professional salesclerks

14.0%

Richer products/more sufficient stock compared with online channels Enjoy shopping experiences

7.8%

2.0%


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2.4 Luxury Consumption Preference

Graph 18 Luxury customization demands Customized demands Are you willing to pay extra fees for customized luxuries?(Sample size = 240, sample size average age: 20-30 years old)

No

20.9% The minority represents the masses

40.6% As trendy culture is gradually subdivided, more and more consumers begin to follow minority brands. For one thing, professionalization of fashion trends is reflected; for another, consumers’ unique individualized demands are met. For example, as Hip-Hop culture gradually emerges from underground to aboveground, more and more young people have come to know the trendy brand of Supreme and become fans thereof. Their pursuit of personalized products will promote prosperous development of minority brands in more vertical sectors. Moreover, personalized custom-made products live up to most luxury consumers’expectations, even though extra expenses should be paid.

49

Maybe

Absolutely

38.5%


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Graph 19 Luxury purchase decision-making factors Which factor do you care the most when making decisions on luxury consumption?(Single choice)） 8932 people answering Price 26.04% Consumption experiences 11.31%

Professional KOLs

The young-generation consumers consider comprehensive factors when making decisions. For them, that products merely being unique is hardly satisfactory. Instead, value maximization is a long-term pursuit, and a comprehensive matching of style, quality, price and shopping are important deciding factors of purchase. In terms of decision-making influence, as advocators of fashion trends, branded enterprise have absolute decision-making influence. Particularly in China, most consumers will search information released by brands’ official websites or flagship stores. Secondly, interpretation of luxury trends by celebrities and KOLs has also powerfully driven consumers’ purchasing desire. What is worth mentioning, along with the development of minority trends, influence of stars and celebrities on luxuries in the past has been reduced to 4.4%, while KOLs’ influence has substantially increased. KOLs have been subdivided as well, and KOLs highly professional in a certain field have emerged, e.g., talents specializing in Hip-Hop culture, cocktail culture and history. These people or groups may not be that famous and could even be unknown to anybody outside the circle. However, by virtue of their profound professional knowledge and accurate control of trends, they have gained attention from and recognition by more and more young people who advocate minority culture.

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Style 35.17%

Quality 27.49%

Source: secoo.com Graph 20 Luxury purchase decision-making influencers Decision-making influencers Which of the followings has the greatest influence on your luxury purchase decision-making?(Sample size = 240, sample size average age: 20-30 years old)

Friends you admire

19.2% Branded enterprises

44.8%

Your favorite celebrities/influencers 36.0%


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Graph 22 Luxury characteristics concerned Characteristics of luxuries Compared with common commodities, what are the main characteristics of luxuries that attract

Multi-brand loyalty

you? (Sample size = 240, sample size average age: 20-30 years old)

Generally speaking, this consumer group is loyal to brands. Nearly 60% of them will constantly purchase a few brands, and about 35% of them will select from many brands. Chinese market is becoming increasingly mature, and consumers will have more and more brand choices. For brands, challenges are increasing, and it is an unchanged long-term topic as to how to improve consumers’ loyalty. Excellent quality and unique products are main reasons for consumers to constantly advocate a brand. On the other hand, this generation of young people pays more attention to social responsibility, and brands’ social sustainability and moral standards are also factors valued by consumers. Consumption of luxuries is not limited to exquisite products but also embodiment of consumers’ personality and pursuit. Brands need to create sustainable life concepts and good images of feeding back to the society, thus developing long-term connection with consumers.

31.4%

High-quality products

26.4%

Unique products

10.9%

Stories behind

8.8%

6.7%

Precious tradition/reputation Celebrity endorsement

6.3%

I can relate to

4.2%

Interesting

2.5%

Inspiring

1.7%

Popular in Friends Circle

Source: Deloitte luxury report Bling it on Graph 23 Attention to sustainability

Graph 21 Luxury brand loyalty Brand loyalty Which of the descriptions is the most correct when you purchase luxuries? (Sample size = 240, sample size average age: 20-30 years old)

Are you concerned about a brand’s sustainability and moral standard before purchasing products? (Sample size = 240, sample size average age: 20-30 years old)

Rarely

I only consider one brand I like I merely buy what I like, regardless of brands

Attention to sustainability

Never

8.0% 0.4%

6.7% 6.7%

51.9%

I mainly consider a few favorite brands

Always 38.5%

53.1% Sometimes

I will consider many brands I like 34.7%


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CHAPTER 3

Chapter Three Challenges to and Reflections on Luxury E-commerce

Along with the continuous advancement of consumers becoming younger and younger as well as business digitization, luxury brands appealing to e-commerce has become the tendency. Before 2016, digital marketing of brands had been thoroughly carried out, and there had been many remarkable luxury digital marketing cases. However, only a few brands had tried digital sale, i.e. e-commerce, and they did not go deep. Since 2016, more and more luxury brands have started to explore luxury e-commerce, trying to connect digital marketing and sales, so as to form a closed loop with higher conversion rate, and notably improve transformation depth and width. However, making a general survey of the e-commerce process of numerous luxury brands, there is not yet any recognized successful case. Most luxury brands are at the attempting and exploring stage. We have observed that after jumping out of traditional advantageous sectors, luxury brands face enormous challenges far exceeding their expectations. Challenges confronting luxury brands mainly fall into the following three aspects:

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Challenges confronting luxury brands mainly fall into the following three aspects: Challenge III: e-commerce is not “another new channel”; a reform in omni-channel business model is urgent Challenge I: selecting a suitable commercial platform Compared with the routinized offline channels, online channels are a brand-new field for luxury brands. Moreover, e-commerce development in Chinese market has long since led European and American market. Therefore, multinational companies can copy limited experience from foreign markets. How should a brand choose from integrated e-commerce platforms, vertical e-commerce platforms, social platforms and brand self-built websites? How about the operation difficulty and input-output ratio of different platforms and modes? How to cooperate with brand offline channels and maintain the price system between different channels? Is the platform image consistent with luxury brands? How to eliminate fake commodities? Does an enterprise need to consider different modes or even composite modes in different periods and under different circumstances? These are all urgent problems to be solved by luxury enterprises.

Along with the upgrade in consumer demands and continual development of retail technologies, retail modes in the world, especially in China, have started to gradually develop from traditional channel-based purchase mode to scenario-based purchase mode. Consumers no longer distinctly differentiate online and offline channels. What they need are convenient, smooth and individualized shopping experiences, i.e. “seeing whatever they think about, and getting whatever they see”. Hence, for luxury enterprises, e-commerce is not simply adding an “e-commerce channel department” to the original channels but involves the entire digital marketing, sale and offline linkage. It needs a reform in omni-channel business model. Luxury enterprises need to consider how to get rid of separated channel-based business model and internal management, and cultivate truly customer-centered omni-channel high-end experience as well as supporting efficient operation schemes.

Challenge II: creating unique e-commerce experience Luxuries pay attention to customer experience, and particularly pursue perfection in details. Consumption paths and key influence points of online luxuries are notably different from those of offline outlets. Perfection in terms of consumption experience has new extension under the drive of digital wave. Besides products online presentation manner, it is all the more embodied in the transmission and interaction of customized information based on consumer in-depth analysis. Luxury e-commerce requires more than perfect visual impressions. Compared with accurate marketing of mass consumer products, it needs to focus on customized exclusive service, which conforms to Internet aborigines’ self-centered digital experience.

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3.1 Challenge I: Selecting a Suitable Business Model

Graph 1 Interpreting modes of luxuries getting involved in e-commerce market

Mode introduction e-commerce platform

Entering large integrated platforms, setting up direct-sale stores

Self-built website

Social platform

Mode introduction

Entering vertical e-commerce platforms and cooperation in variety of ways

Entering social platforms that manage users through brand names and output a variety of services.

Establishing the official website of the brand domain name

Advantages Quickly establishment on the mature platform based on its template Relatively low investment with direct access to ready-made templates

In the unique Chinese digital context, network retail has become a significant part of retail market. Given the continual high growth rate, network retail has penetrated deeper and deeper year after year. Meanwhile, digital marketing has become an important mode and means for branded enterprises for marketing and user operation in China. Regarding the core issue of how should branded enterprises make online layout combining their own conditions, this Report summarizes representative models in Chinese market. Different models have their respective characteristics, and luxury brands are supposed to make systematic layout based on their own strategic directions, brand needs and brand characteristics.

Be able to benefit from the technical and resource advantages of the platform, with the help of more digital means

Be able to quickly develop customized solutions by working with professionals in the luxury business industry Relatively low investment, with access to various resources high-end image of the platform Directly facing the luxury users and potential users to achieve higher conversion rate, and the user boasting a higher acceptance of the full price products.

Huge active users in the mainstream social platforms Be able to achieve a variety of functions, including online sales, marketing, customer relationship management etc.. Simple mode construction of WeChat public account and micro-stores and relatively low threshold.

The ability to maintain high consistency and flexibility of brand image Be able to achieve a variety of functions, including online sales, marketing, customer relationship management etc.. Full control of content and platform Ownership of all resources, including user data, etc.

Precautions • Customer experience and content are limited by the platform itself • Rising platform costs • The public platform may have an impact on the brand image • The platform users are mostly price sensitive users in need of discounts and promotions • The counterfeit problem of other sellers on the platform • Starting relatively late, it takes a certain amount of time to accumulate user resources and word of mouth, and forms a benign business model • The profession degree of each vertical platform is uneven, and the brand needs to be indignant. • The role of social platform is more of customer operation than e-commerce • In order to better serve consumers , WeChat can serve as a diversion tool rather than a final solution. • Requiring large-scale investment in the early period and ongoing investment in the later period with high investment risk • High demands for multifaceted resource mobilization and integration, and higher demands for internal management and operation • There is a need to continuously nurture users and accumulate traffic

Source: Deloitte Analysis

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Vertical platforms are highly accurate and meet individual requirements. Due to specialization in category and team, vertical platforms are more professional in terms of luxury category operation. Luxury brands can better interact with platforms and trigger chemical reactions, so as to pertinently promote products and marketing among luxury users of the platforms. Vertical platforms excel in efficiency and professionalism, and have better control over fake commodity problems. Meanwhile, luxury users having gathered on the platforms can better accept full-price products. Hence, such platforms can better meet luxury brands’ demands in terms of price and image. Since vertical platforms have a short development history in China, it takes time to build flow and word-of-mouth.

Graph 2 Comparing characteristics of different e-commerce models (schematic)

High

Integrated platforms feature large flow and have resource strength. Integrated platforms feature various categories and high flow. A brand can utilize mature modules to rapidly establish its exclusive online store. Through cooperation with platforms, flow guidance and sale can be realized. Meanwhile, platforms have powerful technical resources and data resources and can empower the brand. But it is noteworthy that as mass platforms, flow conversion rate may not be high. Users tend to be price-sensitive and appeal to discount promotions. Professionalism and elimination of fake commodities may not be guaranteed either. Hence, demands of branded enterprises for maintaining specific brand image and path or their high requirements cannot be met.

Self-built website

Channel efficiency

Interpretations of different models are listed in the above graph. Upon analysis of different e-commerce business development models, the following conclusions can be made:

Self-built platforms require high input and feature the most powerful resource control. Self-built platform is a model requiring great early-stage input and continual later-stage input. Not only various front-end functions need to be improved, but back-end functions need to be pertinently complemented, so as to develop an efficient operation system. In addition to one-off high input at an early stage, continual input afterwards is required for flow guidance and operation purposes, in an effort to expand the scale of the platform. As a model with the highest input featuring the most difficult operation, this model enables a brand to control resources in the best way. The brand can totally control all flow-related information, fully independently design content, category and service, and unify and refine brand image and customer service. This model suits mature and large-scale luxury brands or groups. Meanwhile, the brand is expected to make long-term plans for continually developing e-commerce channel on a strategic level and accept unmatched input-output in a medium or short period.

Mode introduction

e-commerce platform

Social platform

Brand control level

高 Source: Deloitte Analysis

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Making a general survey of practical operations in the market, we have noticed that some famous luxury brands have chosen to build self-owned platforms with high investment. In spite of the good store sales volume, platform construction and continual operation input far exceeds offline store construction and operation costs. High costs come from early-stage high input under global unified development on the one hand, and from considerable continual input during later-stage operation on the other, e.g. high flow guidance cost. However, under this model, the brands manage to maintain high autonomy and resource control, and are thus able to meet consumer demands by rapidly responding thereto. From the perspective of long-term development, despite the high costs, this model is more sustainable. In addition, in order to explore business models and expand coverage more efficiently, some brands have adopted the diversification strategy during e-commerce business development and attempted the four models. They have attracted great flow relying on a series of innovation projects on integrated platforms, while reaching direct users and potential consumers of luxuries through vertical platforms, thus rapidly established online sales channels. In the meantime, social platforms have become important media. Marketing on social platforms can cover a much greater number of audiences. Flow guidance to brands’ official websites in the forms of brand account and public account help to achieve user conversion and continuous service.

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Creating Unique E-commerce Experience For luxuries, e-commerce is an all-new channel and features young customer groups, consumption process and operation models notably different from those of offline outlets. For luxury brands which focus on each and every practical detail at the storefront, creating unique e-commerce experiences means customized products, service and shopping experiences through exclusive e-commerce channels. As such, brands need to develop customized marketing schemes and efficient operation models, further develop the market and customer groups by virtue of e-commerce channels, and balance tonality and positioning characteristic of luxury brands. Targeting young customer groups. As described in Chapter Two, mainstream luxury purchasers on the Internet are not the same with those at offline outlets. If luxury brands desire to seek new business growth points, it is a highly efficient means to expand to young customer groups through e-commerce channels. Rapidly developing e-commerce provides luxury brands with a large platform for rapid brand development and sinking, while offering more experiencing opportunities to consumers. The challenge is that compared with previous consumption groups, demands of this generation of consumers have changed significantly. Brands need to consider how to break away from images built based on offline channel customer groups, so as to be favored by young people on the Internet, e.g. younger brand images and product designs, trendy store design and innovative business models. In this process, some brands have started to explore transformations, e.g. employing post-90s spokespersons, so as to rapidly shorten their distance with young consumers. Meanwhile, some brands use such methods as new media, celebrity marketing and content marketing which appeal to young people to expand network influence of brands and products.

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3.2 Challenge II: Creating Unique E-commerce Experience

Creating real-time sales closed loop. In the past, when offline outlets dominated, luxury brands annually launched trendy new products of new season offline. Information was communicated through mass media channels and featured certain lagging. Products were passed down from show places to offline stores and then uploaded to e-commerce channels, with e-commerce being at the end of information flow and commodity flow. Nowadays, such a practice can apparently no longer meet Internet users’ increasingly picky demands. We have observed that some brands have started to try different playing methods. For example, they live-broadcast fashion shows through the network, and enable products reservation within the shortest possible time through e-commerce channels by virtue of advanced digital technologies. Such shopping experiences are incomparable by traditional models. Combining the Quick Flashing concept favored by young people, some brands have even cultivated online Quick Flashing stores to launch latest products with time limit and volume limit, thus gaining abundant returns and efficiently exploring e-commerce in a cutting-edge manner.

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Digit-based customized marketing. In an era dominated by offline physical stores, data were limited to information of purchasing customers, and salespersons understood customers’ personal hobbies based on these data, unable to handle and analyze more comprehensively and profoundly. Along with the rapid development of digital technologies, related work centering on data has been subversively changed. Unlike offline stores which can only record information of purchasing guests, e-commerce’s tracking of consumer information starts from the consumer idea generation stage. User behaviors include searching, browsing and converting besides purchasing, which has led to brand needs of deeply digging and analyzing data. Such needs are supported by powerful high-end consumer data warehouse, in-depth algorithm model and an accurate operation system. As accurate marketing based on digital analysis is gradually promoted, some brands which started early have achieved initial success, with their sales volume notably increasing in the same period compared with traditional modes. Actually, if technologies are used properly, customized marketing will bring about more benefits to enterprises than just sales growth. In the past, luxury enterprises relied on products, brands, culture and service for success. Nowadays, digital ability will also become an important factor for enterprises to win consumers.

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3.2 Challenge II: Creating Unique E-commerce Experience

Highlighting noble experiences. Even though the entire luxury industry has demonstrated the tendency of entry lux and popularization, the value positioning stressed by luxuries and mass commodities still have essential differences. Besides the pursuit of perfect product quality, luxury still needs to highlight personalized noble shopping experiences. How to realize these previous strengths of luxury brands at traditional offline outlets is the topic to be jointly considered by brands and platforms. The prosperous development of e-commerce business is to a large extent owed to price competition. It is gradually developing towards value seeking, but considering the special tonality of luxuries, it is particularly important to create exclusive noble experiences. Active explorations have appeared in the market. For instance, some vertical e-commerce enterprises have started to provide “butler service” targeting luxuries, providing each purchaser with one-to-one online purchase consultation and off-platform WeChat butler service. True-man service is provided behind the screen resembling offline outlet service, so that consumers can experience dignity at all time. Certainly, provision of Internet service has better support than offline outlets, i.e. massive data and insight into consumer demands. Through big data analysis and prediction of consumer demands, and combining professional individualized service, luxury e-commerce can totally create unique experiences not inferior to offline outlets.

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Efficient e-commerce operation. For luxury brands, e-commerce operation is a totally new area, and experience accumulated in the past from offline channels development cannot meet online channel operation requirements. This operation system involves complicated marketing process, including outlet display, website navigation, accurate marketing, product picture design and SEO, all matters requiring professional skills and years of industrial experience. Enterprises which are good at creating high-end products are not equipped with these abilities. Hence, each original operation department of the brands is confronted with a new topic. In order to explore the said channels as soon as possible, many enterprises have chosen to cooperate with third-party operation enterprises, accompanied by corresponding troubles though. For one thing, most third-party enterprises have varied professionalism degrees, and may not meet brand requirements particularly in terms of creating luxuries. For another, the majority of third-party enterprises generally act as the agent of several brands concurrently, giving insufficient resources or care to a single brand. Therefore, luxury brands need to prudently choose cooperators and develop a suitable management and cooperation mode, utilizing third-party institutions while controlling channel operation. Meanwhile, even though there are not many composite talents who have e-commerce and luxury professional knowledge at the same time, it is the long-term mission of brand HR to explore and cultivate these talents.

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3.3 Challenge III: E-commerce is Not “Another New Channel”; a Reform in Omni-channel Business Model is Urgent

Consumer-centered

As the e-commerce development tendency gradually becomes explicit, a lot of luxury enterprises desire to give it a try but have too many concerns, largely because of their worries about how to deal with the relationship between online and offline channels. For example, will e-commerce development damage the original luxury brand image? Do online products have to be consistent with offline products? How to set online pricing mechanism so as to reduce impact on offline products? The source of these concerns is that most enterprises still organize and manage business with the traditional channel-based ideas, as a result of which conflicts between channels outperform synergy. Rethinking from the consumer-centered perspective breaking away from the original thinking mode, these problems will be readily solved Being consumer-centered is a familiar slogan in the business sector, and many enterprise have always endeavored towards this direction. However, few enterprises have actually practiced it. Enterprises tended to add the consideration of consumer demands at the center of enterprise and products. Surely, besides corporate concepts, it is largely restricted by data accessibility and backward commercial technology development. Driven by the development of various new retail technologies nowadays, being consumer-centered has gained new connotations. Consumers no longer pursue channel-based split experiences but rather convenient and integrated scenario-based experiences. The purchase of luxuries in the future can happen in any daily scenario, e.g. when consumers participate in banquets, watch live broadcasts of shows, browse contents on social platforms and play games. Branded enterprises are expected to formulate internally highly integrated end-to-end omni-channel experience schemes so as to effectively convert each potential consumption business opportunity.

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Graph 3 Consumer-centered scenario-based shopping (schematic)

Physical store E-commerce platform

Social platform

Entertainment place

Consumer

Network / mobile games

Banquet / Wedding

Live show

…


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As rich digital information is accurately conveyed to consumers, e-commerce has risen accordingly and rapidly developed. However, going to an offline outlet to purchase products is still the favorite form of consumers. Online and offline are actually two different sales scenarios of the same brand. Branded enterprises should always provide consumers with the convenience of getting whatever they see, so that consumers have access to online consumption, offline dispatch and offline service, or offline experiences and online purchase. Enterprises should focus on how to successfully cultivate customer loyalty rather than sales volume in a certain single channel. Consumers’ diversified shopping demands are to be satisfied through different types of retail channels and service. It is necessary for branded enterprises to intervene in multi-format retail channels through self-development and cooperation so as to maintain competitiveness. Graph 4 Consumers omni-channel purchasing experience (schematic)

Omni-channel purchase

Offline shopping

Consumers entering offline stores

Omni-channel delivery

Omni-channel after-sale services

Consumers take the goods from the offline store

Pay the bill

Customers get services from the offline store

Consumers find their favorite products (through the omni-channel platform)

Online shopping

Delivery to designated place

After-sale services

Delivery service Consumers browsing the web

Customers get services from the network Delivered to the store and consumers pick up by themselves


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Breaking through channel barriers Under the new retail modes, boundaries between channels have been blurred. It is urgent for traditional enterprises to change thinking modes, break through internal traditional channel-based operation management and performance assessment modes, and realize cross-channel fusion. Under traditional retail management modes, enterprises divide business into different channels for management and operation, establish relatively independent business teams, configure corresponding marketing and supply chain resources, and set respective performance assessment indicators to evaluate performance of sales teams in different channels. Most branded enterprises fail to break through this traditional channel management thinking when implementing omni-channel retail, but rather allocate sales income to online or offline channels based on consumer final purchase and payment nodes. The constraint of traditional KPI indicators and the development of omni-channel retail incentive have become the largest barriers for enterprises to realize omni-channel transformation. In reality, under new retail modes, the boundaries between online and offline have become very vague. Consumers are constantly active in online and offline scenarios. Enterprises need to change concepts, research consumers’ locations and consumption time, and try to interact with consumers in more scenarios, so as to cover the whole consumption process from demands to purchase and then to change and refund, thus improving flow and conversion rate. Hence, continually operating online and offline separately does not have much meaning to consumers nowadays, and it is very important to integrate internal management resources and management system having been split based on channels.

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Formulating end-to-end schemes Graph 5 Comparison between traditional channel management and omni-channel management (schematic)

Traditional Channel Management Retail Era

Consumer phase

Demand

Search

compare

purchase

Receiving

Return

Online sales

As such, we advise that once an enterprise truly wants to create omni-channel experiences, it needs to consider designing systematic end-to-end schemes, including ideas unification at the strategic level, business and synchronization at the operation level.

Offline sales

Omni-channel Management In The New Retail Era

Consumer Demand phase

Search

compare

purchase

Receiving

Return

Online scene

Offline scene

Source: Deloitte Report Transformation of traditional retailer in the era of New Retail

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Many enterprises have started to try omni-channel construction. The general practice is to cut in from a certain point, e.g. the earliest O2O, purchasing online and delivering offline. At the trial stage, such practice is feasible, but similar practices are deficient in that an enterprise has only integrated partial links, with the remaining links continually separated. For example, back-end omni-channel delivery ability is in place, but front-end channels haven’t reached a business consensus. Due to the lack in cross-channel coordination function, internal implementation is difficult.

Omni-channel strategy. An enterprise has to firstly formulate reasonable omni-channel strategies. Firstly, the management has to reach a consensus regarding future development goals and strategic initiatives, so as to effectively guide future sales and operation activities. Secondly, cross-channel resource integration and allocation must be addressed. On organization and performance assessment level, the enterprise also needs to consider cross-channel management and setting of implementation functions, while designing matching assessment indicators. Integrated business schemes. At the business level, emphasis should be laid on how to synchronize so as to achieve omni-channel interest maximization rather than simply pursuing channel benefit and growth maximization. For example, promotion of marketing schemes appeals to multi-channel interaction, thus optimizing investment returns using online coverage and communication speed. In terms of sales, it is advisable to get through online and offline CRM systems, so that online and offline can complement each other and mutually guide flow.

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CHAPTER 3



Integrated and flexible supply chain. Undoubtedly, enterprise supply chain must be able to concurrently serve multiple channels in the future, so supply chain optimization requires overall thinking and layout. More importantly, end users increasingly make scenario-based consumptions and their purchase needs may be triggered at any time in any scenario, which is a new challenge to enterprises’ traditional demand prediction and planning. Meanwhile, supply chain flexibility is particularly important. As such, how to cooperate with diversified third-party enterprises and formulate responsive and flexible supply chain schemes is a topic to be continually explored by enterprises. Such omni-channel schemes mean transformation of existing business strategies, upgrade of current information system, realizing real-time data information transmission on and off the lineand in-depth digging, and improvement in terminal service platform. Turning salespersons into intelligent service personnel, and omni-channel transparency and deployment of goods require advanced retail technology-driven digital solutions, thus confronting luxury management and implementation teams with higher requirements and all-new challenges.

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To sum up, e-commerce development of the luxury industry has become inevitable. Luxury enterprises can expand current consumer groups and obtain new growth points through e-commerce development. However, in order to win young network consumers, cover more cities and realize omni-channel win-win, luxury enterprises cannot merely add an “e-commerce department” but should acquire new vision, schemes and talents based on traditional competitiveness, and re-plan omni-channel mode in a reforming way.

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04


CONCLUSION

Before you know it, we have stepped into the end of the year, when the White Paper is ready for us again. Compared with last year’s paper published 52 weeks ago, the industry and user data have experienced rapid change, and we have been aware that we are now in the front line of luxury industry’s one-hundred year development history. Last year, we still lingered on the discussions about what luxury e-commerce is and what attitude we should hold towards it; today, we have started to participate in the business and explore the way to welcome and embrace the new trend. As the leading enterprise within this emerging industry, Secoo sticks to our original intention and cooperates with more forward-looking and insightful partners to publish a book every year covering basic data, change and guidance for players in such a period of rapid reform. This year, with both the help of our old friend Tencent as always and the support of new partner Deloitte that performs study well into the field of luxury, 2017 China Luxury Network Consumption White Paper has been successfully completed. This year, the consumers in China luxury market or their mentality have become younger in average age. The millennial generation (born from 1985 to 1995), and Generation Z consumers (born after 1995) will become the major wealth owners in 30 years.As net users, they tend to depend more on digital technology throughout the whole consumption process from purchase decision and after-sales service. Besides, their taste and recognition of luxury is quite different from ours.Instead of those best-known luxury brands, they prefer niche brands unknown to the majority; and they tend to pay much attention to “feelings” one product gives them, which means “what I buy reflects my taste and my personality”; moreover, luxury begins to have broader meaning - for example, an extreme water sport event on a small island across the Pacific Ocean makes them thrilled like never before, and they are likely to

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regard this kind of activity as their enviable “luxury”.Obviously, the all-pervasive digital technology and information can be applied to get information about these activities and realize self-recognition. According to the change of consumers’ core needs, how should these companies that have already participated in the luxury industry take advantage of the improvement of digital capability to seize the opportunity and gain market? Three challenges should be tacked properly: 1. Selecting suitable business platform. Digitalization has overturned the categorization of traditional retail business and the single and vertical dealer system.How to evaluate the efficiency of different e-commerce platforms and select one proper platform or platform portfolio according to unique positioning and basis has become hard nut for us to crack.2. Avoiding homogeneity and providing distinctive e-commerce experience. Consumers’ needs are becoming diversified and personalized. How can we provide them with customized consumption experience has become the problem we need to solve.3. Designing end-to-end omni-channel solutions.Consumers don’t really care whether it is online or offline shopping because what matters to them is whether they can enjoy seamless consumption with omni-channel, full and closed-loop supply chain. In order to make these changes better and deeply understood by China’s luxury brands and famous media at home and abroad, this year, on the publishing ceremony, besides white paper itself, we have also invited 100 influential millennial generation “Secoo users” to demonstrate their era and share their life attitude. What we want to record is not just the luxury industry, but also a vivid chronicle of the constant evolution of China’s high-end consumers.

China Luxury E-Commerce Whitebook Editors of 2017 Edition November, 2017, Beijing

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寺库集团 SECOO GROUP 全球高端服务平台

Global Intergrated Luxury Platform

北京/上海/青岛/成都/香港/米兰/马来西亚

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