Smart Money Goes Luxury Shopping Online

on April 11 2011 | in Digital Lifestyle Trends | by | with 3 Comments

onlineshop2

Venture capitalists are banking on China’s cravings for luxury goods and have been funding online luxury goods purveyors to capitalize on this highly desirable market.

Investors are betting that China’s new shoppers will spend time at virtual malls as much – if not more – than actual ones given new purchasing power arising from higher wages in coastal cities and more industrialization in the interior regions.

The list of venture capitalists making investment continues to grow:

  • Kleiner Perkins Caufield & Byers China recently announced a $20 million investment in the Shenzhen-based luxury online store, Xiu.com.
  • Sequoia Capital invested $10 million in the group-buying cosmetics seller, Jumei.com.
  • GSR Ventures and DT Capital were part of a new round of funding of at least $25 million for online clothing retailer, Moonbasa. GSR Ventures led a $20 million round of financing for the company last June.

Even though e-commerce has been growing at an astounding rate of 60% a year for the past several years in China, its penetration rate is still only one-third, according to Yuval Atsmon, partner at McKinsey & Co. Shanghai.

“People are getting more confident shopping online and people are attracted to the convenience and selection that they don’t have in second- and third-tier cities,” said Atsmon.

One demographic group embracing both the Internet and shopping that’s particularly attractive for online retailers is China’s new upper middle class, who make between 100,000 yuan (about $15,000) to 200,000 yuan a year.

“That population was negligible, now it’s about 10 million households,” said Atsmon. “By 2015 it will be 76 million households.”

Atsmon thinks there is sustainable momentum driving the e-commerce growth in China. So it’s no surprise that the smart money has arrived in force.

 

[wsj]
photo credit: xiu.com

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3 Responses to Smart Money Goes Luxury Shopping Online

  1. Sarah says:

    hello!

    I love this blog. So great and every brand should read it. This isn’t really relevant to the article (though really interesting; I didn’t know that many American VC firms were investing in Chinese companies, but makes complete sense because any investor who hasn’t is a moron).

    Anyway, I just wanted to ask if luxury consumers in China are still concerned with the big brand names (only because the companies have been so pushy, not because the Chinese are concerned solely with logo lol. hope i’m not being rude!) or starting to slowly venture away? I’m just curious because I feel like the big luxury brands have really pushed their brand and products on such a grand scale that it might have antagonized some consumers (because their approach is so darn aggressive, obvious, and they are all doing it the same way) to want to buy luxury more from chinese designers or maybe even smaller independent brands in the West? Do you think such brands right now have a chance against LV, Chanel, etc in the Chinese market? Thanks!

    • Red Luxury says:

      @sarah Thanks for the comments.

      Luxury consumers in China comprise of those who are much more sophisticated and many who are less so – generally the new rich or those in areas with little exposure to foreign brands. The sophisticated luxury consumers have more developed taste and therefore, prefer more understated luxury. They are generally not big on conspicuous logos. We’ve discussed this in various articles including http://red-luxury.com/2010/11/29/new-chinese-luxury-shopper-forgoing-mega-labels/

      On the other hand, there are many consumers who are still essentially “blank slate” ready to be “educated” on luxury brands, who can afford luxury goods. They are the ones who prize logos and are very status conscious. These consumers are being heavily pursued by luxury brands because of the first-mover advantage – to establish brand recognition and preference. Unfortunately, smaller companies and home-grown brands don’t have the same marketing muscles. But as the taste of the wealthy evolves and matures, they will prize exclusive luxury, not just mass luxury and independent brands can do extremely well in that environment.

  2. glenn says:

    Hi, nice article.

    More power to your site.:}

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