“The luxury industry has been notoriously slow to adapt to the internet,” says Michael Zakkour, founder of consultancy 5 New Digital and author of New Retail: Born in China Going Global. “It is China that has dragged it, kicking and screaming, into the digital space.” If a cardinal rule has been shattered, then that rule obviously existed for good reasons. Zakkour points to the strongly traditional nature of the business to explain why luxury goods makers avoided selling online for so long.

“A good many of these brands have been around for between 50 and 250 years and made a lot of money out of well-established practices,” he says. “They’re doing well. They don’t understand e-commerce. Who are you or I to tell them they should change?”

The “five senses” experience of sampling merchandise in a bricks-and-mortar store has always been at the heart of luxury. And until recently, online marketplaces were strongly tied to rampant counterfeiting in China.

Independent analyst Sindy Liu talks about the very nature of luxury itself. “Luxury is about exclusivity; being difficult to come by. And you don’t go to customers; they come to you,” she says. “That’s the opposite of hawking your wares openly online.”

Luxury brands have long regarded the democratising nature of the internet as a threat to their integrity. On Amazon, for example, consumers might be putting a Louis Vuitton handbag in the same shopping trolley as dog food and toilet paper. So why the big change in China?

First and foremost, the average age of luxury consumers in the world’s largest luxury market is, remarkably, 20 or 25 years younger than in the West. “Young people are the big driver of sales now,” Liu says. “In China, they were already digital before they discovered luxury.”

Then there is the highly developed state of Chinese e-tailing. Online shopping last year was three times the volume of that in the US, amounting to well over half the global total. Luxury brands do not go to customers out of principle. But it might make sense to move a bit when all of their most important customers are in the same space.

“Online is where young Chinese experience life these days,” Zakkour says. “It’s where they research, write about and exchange ideas on products. And ultimately, it’s where they buy them.” Faced with their universe’s shifting centre of gravity, it was perhaps inevitable that luxury brands would be pulled in. Burberry was an early pioneer, opening its own site for online shopping in China in 2014. Globally, the British brand has deployed the luxury industry’s most aggressive digital strategy. It subsequently became the first luxury brand to open its own flagship store on Alibaba’s Tmall. (Alibaba owns the South China Morning Post.) Most recently, in November 2019, it announced an exclusive partnership with Tencent to develop social media retail in China, kicking off with an experimental “social retail store” in Shenzhen.

Following Burberry’s lead, another British retailer, Net-a-Porter, opened a site for China; the online equivalent of a department store offering different luxury brands under one roof. Yet, operating independently, it enjoyed only limited success in its early stage, compared to its performance in Europe and America. As a comparatively new operator, its resources were also limited.

It was not until 2017, when Alibaba and JD.com set up their own platforms dedicated to selling luxury goods – Luxury Pavilion and Toplife, respectively – that the ball really started rolling. In simple terms, China’s two largest internet retailers committed themselves to banishing counterfeiters. According to its own report, Alibaba shut down 240,000 online stores suspected of selling fake products. It also helped catch counterfeiters in offline cases worth about 4.3 billion yuan (HK$4.8 billion), providing tips about fake products to public security bureaus across China, with 1,606 suspects being detained. Alibaba declared that, as the world’s largest retail platform, it was committed to the anti-counterfeit battle and protecting intellectual property rights.

Alibaba and JD.com then set out to build the online equivalents of Paris’ Champs-Élysées or London’s Bond Street: exclusive “walled garden” shopping areas, sealed off from common people buying everyday products.

The look and feel of the two online luxury malls is markedly different from the mass shopping sites Tmall and JD.com. Brands can set up shop only by invitation. Customers only see the entrances to the luxury malls when they land on the regular shopping sites if they are deemed to be high spenders.

Luxury Pavilion and Toplife both assign a dedicated development team to brands agreeing to open a shop with them, to ensure a richer, superior customer experience. This means 24-hour, one-on-one customer service and customised fashion consulting. Logistics, tracking and quality inspection are better, with Toplife, for example, offering a “white glove” delivery service. Brands selling on the luxury malls are given more customer data than those on the regular shopping sites.

Given the two e-commerce giants’ impressive capabilities – from customer data mining to dedicated logistics to electronic payment and credit – big luxury brands see partnership with them as preferable to going it alone, with only a few still holding out.

Independent luxury malls have also been drawn in. Net-a-Porter, for example, folded itself into Luxury Pavilion in October. In February 2019, Toplife agreed to merge with the Chinese arm of the global luxury e-tailer Farfetch.

As they settle into the two new online malls, luxury brands have also developed marketing techniques to maintain their exclusivity. Their policy of never discounting, for example, has been upheld, even when they take part in Alibaba’s discount-driven Singles’ Day shopping festival, although it has sometimes been compromised for the “mass luxury” segment of cosmetics.

Rather than cheapen themselves, both metaphorically and literally, their special offers take the form of limited-edition products and special packaging. Flagship products – such as the Birkin bag from Hermès, or ready-to-wear from Chanel – are kept offline altogether.

Of course, mistakes have been made during the process of working out how to do luxury e-commerce. Zakkour reckons many brands tried, and failed, to avoid working with the big marketplaces.

“They wanted to make their own domains work and do it on their own terms,” he says. “But they quickly found out that the cost of customer acquisition was too high and they couldn’t generate the traffic.”

Localised limited editions have also gone too far and ended up alienating Chinese customers. For example, many rooster-themed products for the 2017 Lunar New Year were seen as patronising.

According to luxury marketing expert professor Michel Phan, Dior’s spring 2018 collection, shown in Shanghai and characterised by all-red outfits, was a simplistic and offensive take on Chinese culture.

Two years after the big online marketplaces launched their luxury malls, the 2019 Singles’ Day festival was seen by many as Chinese luxury e-commerce’s coming out party, with 295 brands taking part. Louis Vuitton, Versace, Dior, Valentino and Burberry were among the houses offering special edition products while Tmall live-streamed fashion shows. Chanel launched a flagship store with exclusive products on a specially revamped Luxury Pavilion, just a few years after announcing it would never engage in e-commerce.

“So many brands have done a similar about-face,” says Ashley Dudarenok, founder of social media consultancy Alarice International. “They’ve gone from shunning e-commerce to realising that, in China, being disconnected from the new retail is a death sentence.”

Following the triumph of luxury e-commerce in China, how quickly will other countries follow suit? At the China Market Research Group, founder Shaun Rein says many brands operating in China resent Alibaba’s power. For operations elsewhere, he reckons that they should make haste before a name like Amazon starts calling the shots.

“A lot of our clients refused our advice to go ahead with e-commerce in China five or 10 years ago because they felt it would cheapen their brands,” he says. “Now they realise they missed the opportunity to do things like host their own shows, do live-streaming and work with key opinion leaders on their own. They don’t get to manage the interface and relationship with their customers, because Alibaba is doing it for them.”

Rein acknowledges that e-commerce in the US lags China by perhaps a decade. The developed world, he says, is playing catch up.

At the Emlyon Business School, Michel Phan points out that China’s strong e-commerce “ecosystems” just do not exist in the US and Europe. The infrastructure developed by Alibaba, JD.com and Tencent includes highly efficient mobile payment and high-speed delivery systems. “In China these days, you buy anything and everything online. But in Europe, luxury e-commerce is only for people who don’t have access to a store; a fringe thing,” he says. “The experience and service of a store is still all-important.”

Phan and Rein agree that the generational difference between the luxury consuming demographics of China and the West is the main reason it may take the latter a decade or more to reach where China is now. China’s economy grew strongly in the decade after the 2008 global financial crisis, and therefore its millennials did not suffer the financial setback their counterparts in the West endured.

It seems that the remarkable rise of luxury e-commerce in the world’s oldest country has been created by the appetite for luxury of its youth.

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