China Consumer

Bad for the brand?

Burberry begins selling via Alibaba platform

Delevingne presents a creation from the Burberry Prorsum Autumn/Winter 2014 collection during London Fashion Week

Now available on Tmall

Of all the luxury labels, Burberry can lay claim to be among the first to incorporate a digital strategy. Burberry World, as Burberry’s website is called, houses its online store. But it also offers more – from livestreaming of Burberry’s latest catwalk shows to social media channels like Art of the Trench, where fans post pictures of themselves in their favourite Burberry coats.

Former chief executive Angela Ahrendts, who has since joined Apple, argued that the brand needed to keep pace with a generation that downloads images rather than tearing them out of magazines.

“I’ve seen what has happened to brands like Kodak that did not keep up with digital change,” she said. “That’s a lesson in what to avoid.”

So perhaps it’s consistent that the company, which now has 78 stores in 36 cities in China, is opening a virtual storefront on Tmall, Alibaba’s massive business-to-consumer site. Shoppers will find a full range of items from perfumes at Rmb500 ($79.94) a bottle to trench coat favourites costing more than Rmb22,000.

“The new tie-up is a first for any luxury brand and reflects a shared commitment to offering Chinese consumers the best in luxury experiences across all of Alibaba Group’s platforms,” Burberry said in a statement.

While the slowdown in the wider economy and the crackdown on lavish gifting has curtailed the luxury market’s double-digit growth in China, the new middle class still has an appetite for goods from the sector. “Tmall can help Burberry generate plenty of traffic and bring in new customers. In the long run, it can also deter the counterfeiting in designer goods that thrives online,” Lai Yang from the Beijing Institute of Business Economics told Xinhua.

Burberry’s Tmall store is a boost for Alibaba, which has been courting Western brands ahead of its initial public offering in New York. Tmall’s storefronts are more exclusive than Alibaba’s freewheeling bazaar Taobao, where anyone with a Chinese ID can set up shop (there are currently seven million vendors). For example, Burberry will have more control over the customer’s online experience. But many luxury players have shied away from online malls, fearing damage to their brands or associating them with the kind of steep price discounts that has turned Tmall’s Singles’ Day sale into China’s biggest shopping event of the year.

After the announcement, some retail analysts wondered whether this was a step too far for Burberry in widenening its distribution. Angela Kapp told CBN that the collaboration was “seriously mismatched”. “Basically the kind of ‘neighbours’ you have is very important for luxury brands,” she suggested. “From a branding point of view, this [tie-up between Tmall and Burberry] is not a very good marriage.”

“Luxury brands rely on exclusivity, so I don’t see why they would lower themselves and have a store on Tmall,” another critic believed.

Some of the other luxury labels that have experimented with storefronts on Tmall haven’t been particularly successful. For example, high-end Benefit Cosmetics closed its Tmall shop in 2012 after only a few months. It had generated high traffic, company bosses said, but they were worried that online discounting by other makeup brands was hurting the firm’s image.

Indeed, if sales in the first month at Burberry’s store are indicative, it might be a battle to win over the wealthier shoppers. Beijing Youth Daily says that the goods being purchased were the lowest-price items like perfumes and cosmetics. More costly items like trench coats and purses had no takers, the newspaper reports.

The Wall Street Journal meanwhile reported this week on what might be a better fit between the Alibaba shopping site and a multinational intent on growing its China sales. Diageo is also opening for business on Tmall in the hope of selling more of its whiskies and other spirits to Chinese consumers. Unlike in the US, liquors can be ordered online in China directly from the firms that make them and shipped nationally. Diageo’s China boss sees “enormous potential in e-commerce”, says the Journal.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.