Luxury brands play for new alliances in e-commerce

6 years ago - Published in Lifestyle

Just ten months after going public in New York, luxury e-commerce platform Secoo announced a $175 million investment from LVMH-backed fund L Catterton Asia and JD.com. The move is significant in that one of the world’s largest consumer-focused private equity funds is teaming up with one of China’s largest e-commerce platform.

And yet Secoo’s deal with JD.com represents a dilemma that all luxury goods players in the industry are facing at the moment: As the market trends towards younger, tech-savvy millennial shoppers, luxury players need increasingly more resources to meet their demands for a premium luxury shopping experience, both offline and online. This means that smaller players like Secoo, Farfetch, and individual luxury brands will increasingly gravitate towards the likes of JD.com and Alibaba, which have the resources to help them build out their capabilities.

It is expected that millennials will account for 50% of the global personal luxury market by 2024, with 40% of the total luxury market to be occupied by Chinese shoppers, according to Boston Consulting Group. But the Chinese millennial shopper is demanding. They are tech-savvy, social shoppers, meaning that luxury players have to adopt an omnichannel approach to provide a positive customer experience both online and offline.

Luxury brands, which historically have focused on offline retail expansion, cannot afford to neglect their online channels anymore, because social media Is becoming an increasingly important part of the shopping experience.

For online players like Secoo, they face a very different dilemma. In actuality, it is very difficult to get luxury consumers to buy online—at full price. There are a lot of concerns about authenticity, and, for expensive items, some consumers still want to be able to try them out in real life.

Secoo knows that, so it is striving to provide a strong offline experience. It partners with brands such as Versace to offer in-store pick-up for items ordered online. Secoo also provides lifestyle services, with its “experience stores” offering yoga clubs, gyms, photo studios, and bars. Secoo has also partnered with Wyndham Hotel Group and Country Garden to offer exclusive VIP rooms for customers, in which luxury items are placed on display for customers to purchase.

But providing a strong offline experience is operations-heavy and expensive, making a player like Secoo highly subject to inventory risk. Secoo procures a mix of in-season and out-of-season products from distributors around the world, and so faces enormous pressure to clear inventory. Providing fast, efficient logistics services that are on par with the quality of luxury products is also difficult.

JD.com has separate, luxury-dedicated warehouses all around the country to store goods, and also provides luxury-dedicated delivery services. While JD.com may not be the go-to platform for luxury at the moment, it is fanatically devoted to creating the best customer experience, and its in-house logistics infrastructure and services make it a suitable partner for Secoo, who has to meet the needs of its increasingly young customers.