China's online luxury brand outlet stores take hold
China is expected to surpass Japan to become the world's second-largest market for luxury goods in 2011, and luxury outlet shopping is a growing part of the trend. Every Shanghai fashionista worth his or her salt has a black belt in outlet shopping.
Although the majority of the physical outlet stores in Shanghai are located in the outskirts of the city, a handful of Chinese online outlets has emerged in recent years to satisfy local consumer’s craving for a luxury fix -- at discount. The demand for sites like these continues to grow as China is set to overtake Japan as the number two luxury goods market in the world by the end of 2011.
No shame when it comes to outlet shopping
Online luxury outlet shops have been around for a long time overseas, but they're a relatively new phenomena in China.
“The products [found on Chinese online luxury outlet stores] are all genuine branded goods,” says Shanghai resident Lu Ting, an early patrons of online outlet stores. “They may not be the latest designs, but their quality is guaranteed, which is rare in China. Although they do have less variety compared with Taobao.com.”
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In Shanghai, Glamour Sales and iHush are the two most prominent online discount luxury retailers.
Although there aren’t many brands currently on offer, the website’s content and design are all well done and most of the products are 30 to 80 percent off retail prices.
Most of the brands on the iHush are high-end international labels, a main attraction for Chinese consumers.
Brands like Nine West, Esprit, Adidas, Sisley and Lee have all circulated across the site at up to 50 percent off. With major Western brands, the response on iHush has been so overwhelming that usually only a few people are able to place orders.
Besides these two sites, Chinese-language online outlet stores such as VIP Shop and VIP Temai are starting to muscle in on this profitable market.
The advantages of online outlet shopping
Compared to traditional online stores, online outlet retailers have a slightly more complicated profit model. They act as agents for popular brands, helping them to clear their inventory in return for a small commission.
By helping business owners save on the human and material cost of investing in a physical store, online outlet malls are able to transfer these savings to customers in the form of bigger discounts.
The traditional methods of offering discounts and holding seasonal sales have a limited impact in China. They gradually become less effective in attracting customers over time.— Xie Jin, deputy director of operations for G-star
The added boost to the business owner’s overall profits from the online sales are a formidable advantage that other retailers cannot easily match.
Most importantly, luxury brands are often hesitant to loudly advertise discounts on their products in China because they fear it may damage their brand image in what is often a new and competitive market.
However, the limited-time promotion feature as well as the members-only discount scheme offered by online luxury outlet malls still retain an image of exclusivity, so many international brands are seeing this as back-end to reach the growing Chinese consumer market.
“No matter how famous your brand is, you'll have to face the inevitable problem of overstocking,” says Xie Jin, deputy director of operations for G-star, an premium online shopping site. “The accumulation of products in your inventory will have a large effect on your current cash flow.”
“The traditional methods of offering discounts and holding seasonal sales have a limited impact in China,” Xie continues. “They gradually become less effective in attracting customers over time.”
The limited-time promotion is what sets Chinese outlet sites apart from traditional physical outlet stores, Xie explains.
iHush, for example, releases about four new promotions every afternoon, which keeps many customers glued to their computer screens, repeatedly clicking the “Refresh” button.
“The limited-time promotions get me excited, and keep me coming back to the site because I'm afraid I’ll miss out on a good deal,” says Melody You, another regular patron of online outlet stores. “The joy of scoring luxury goods at a fraction of the price is definitely worth the effort.”
Gaining a foothold in China
In China's highly competitive e-commerce market, how do online luxury outlet stores survive?
Generally speaking, online luxury outlet malls employ the traditional business to consumer model. They mainly sell branded goods and use luxury as their key selling point -- a projected US$17 billion industry in China this year.
The brand recognition of these luxury products helps to pull in customers, while customers can shop in peace knowing that they are buying genuine goods. This is an advantage that Taobao retailers, plagued with the reputation of peddling shanzhai products, will find hard to compete against.
“The problem with online multi-label stores is that they often carry too many products and seem really messy," says iHush’s customers relations manager Chen Mengyuan.
"Those based on a consumer-to-consumer model have lower product integrity as they may use unreliable or even illegal import methods and distribution channels," continues Chen. "But online stores who obtain their goods directly from the brand itself are more trustworthy, especially when it comes to the authenticity of the goods,”
“Furthermore, customers who visit online outlet stores are more intent on buying something, so we have a high rate of browses that translate into actual revenue-generating purchases,” Chen adds, when asked about customers’ interest in online outlet stores.
In China’s messy e-commerce battleground, it's perhaps still too early to judge if online outlet stores can actually become profitable, but for now it seems to be a trend that looks to stay. Even the major Chinese online commerce sites have taken notice and set up their own outlet shopping websites: Taobao now has its Taolets Mall, Fanke has its V+ store and MSN has its MSN shop.
The only thing we can be sure of is: the Chinese online luxury outlet retail market looks set to be a showdown worth watching.
