February 25, 2014
Online and mobile shopping for luxury products has exploded in China, while smartphone penetration continues to grow at a rapid pace, according to a recent survey of 10,200 consumers in China.
KPMG has launched a new ecommerce survey of online spending in China, in partnership with Glamour Sales (An Asia-based online flash retailer of luxury brands) and Mogujie (An online marketplace platform for young female shoppers in China). The joint survey, titled – China’s Connected Consumers – analyses responses from 10,200 luxury consumers in China on their online spending patterns. It highlights the rise of online transactions, as well as the increasingly important roles of social media and mobile devices.
Amongst the key findings, 70 percent of respondents said they use their desktop everyday in order to purchase items or search for information on luxury products, while 60 percent said they use their smartphones every day for this. The survey also highlights greater confidence in online channels across all age groups, including higher transaction amounts when purchasing online. The average amount spent by respondents on their last item was RMB1,515 while 17 percent said they had last purchased an item online of at least RMB2,000. Reflecting their earning power, online shoppers in tier one cities tended to spend higher amounts when purchasing online; on average RMB1,640 versus RMB1,350 in lower tier cities.
Egidio Zarrella, Clients & Innovation Partner, KPMG China, says: “Mobile take-up is strong in China because the country has skipped out the adoption of the landline. As China’s economy has rapidly expanded over the past few years, consumers have migrated straight to mobile platforms. They don't have the legacy of traditional media channels and have leapfrogged straight to mobile. This has created the perfect storm in China – via social media, payments and take-up of other devices.”
“China is steaming ahead because consumers have 3-4 devices more than the average global consumer. It is therefore essential for online luxury brands to have a strong mobile strategy, to look at their segmentation and develop interfaces that work well for both desktops and smartphones,” he adds.
Pricing arbitrage for luxury brands is another driver for online purchases, as the digital consumer tends to be more price sensitive. However, the survey demonstrates that convenience and product accessibility are also gaining importance.
Thibault Villet, CEO & Co-Founder, Glamour Sales, says: “Due to taxes and various duties there is a price arbitrage. The gap between offline (official prices) and online parallel imports can reach 30-100 percent depending on the brands.”
The survey also notes a shift from cash on delivery to a greater use of online payment mechanisms. Banks have traditionally been slow to online payments and the opportunities. However, some are now looking to expand into the online payments space, including direct linking with consumers and interacting with them online.
Zarrella explains: “Banks now want to move up the value chain to get closer to the consumers because they see incremental benefits from doing so, as the number of consumers they target increases. They are seeing online retailers entering this space and are innovating in the online payments arena to try to get the stickiness of the consumer via broader offerings.”
Villet adds: “Five years ago, 70 percent of payments was cash on delivery, this has now swung to 70 percent online payments versus cash on delivery.”
Female online consumers are more likely to use their smartphones for online purchasing, reflecting their greater reliance on user reviews on social media platforms such as WeChat and Weibo.
The survey also finds a significant gender difference on spend. Men are more likely to spend on high-end luxury items for status reasons, however a larger number of women are buying luxury items online and their total spend is also higher.
The use of social media channels in China has exploded, with many consumers turning to celebrities, influential bloggers and also their individual online communities for directions and pointers on what to purchase. Social media plays an important role as it enables brands to interact with both existing and potential consumers. The report notes that brands therefore need to be able to fully integrate social media as part of their overall strategy in China.
In terms of challenges, 78 percent of respondents highlighted concerns about the authenticity of products bought online. Additionally, 48 percent indicated they were concerned that products they received would be dissimilar to the ones displayed online. Some respondents (51 percent) expressed concerns about product sizes, while others highlighted infrastructure and logistical issues.
Despite the opportunities on hand, some luxury brands have been slow to adopt online strategies in China, preferring to take a wait-and-see approach. Nick Debnam, Asia Pacific Chairman, Consumer Markets, KPMG China, concludes: “Online is becoming more important for brand positioning and consumers are spending more and more online. I think this is a journey and it is becoming more important to the brands.”