Gadfly

Louis Vuitton Can Do It. You Can't

It takes a very big name to succeed without Alibaba and JD.com
From
Andrey Rudakov/Bloomberg

Louis Vuitton is the latest luxury name to go it alone in China's expanding e-commerce market in a bet consumers will value relationships with the seller of monogrammed handbags over local internet giants like JD.com and Alibaba.

The online catalog will include leather goods, shoes, watches and jewelry from the unit of LVMH Moet Hennessy Louis Vuitton SE. This follows similar moves by Kering SA's Gucci and Coach Inc., which last year shuttered its shop on Alibaba Group Holding Ltd.'s TMall in a wager it could fare better on its own.

E-commerce and luxury goods are both huge in China. According to Euromonitor International, online sales now make up almost one-fifth of all retail spending in China, where consumers like the convenience of browsing on a phone, settling via mobile payments and getting goods delivered quickly.

China is also set to overtake the U.S. as the world's largest luxury-goods market in the next four years, according to Euromonitor. Despite a government push to curtail conspicuous consumption, the country is home to more billionaires than anywhere except the U.S., and China's growing middle class aspires to show off a level of affluence that was out of reach just a decade ago.

Yet, online sales of luxury goods still lag the overall market.

E-commerce makes up less than 10 percent of luxury-goods sales in China, according to Euromonitor, because many iconic brands have been reluctant to sell online. Despite efforts by Alibaba and JD.com to sway both makers and consumers, the likes of LVMH and Chanel were worried about the risk of knockoffs and the impact on exclusive products of online ubiquity. 

By creating their own websites, LVMH and Gucci hope to exert greater control over how their goods are sold. Consumers can get a premium experience, including white-glove delivery, VIP access, and in-store pickup, along with convenience.

This also means the brands will have to compete head-on with Alibaba and JD.com, which essentially created e-commerce in China and trained a generation of shoppers to not even bother with store fronts. Those titans are now going after the luxury market: JD recently plunked down $397 million for a stake in Farfetch, a luxury online retailer, and will handle local delivery for the London company.

In striking out on their own, the fashion brands will lose access to the massive traffic that flows to Alibaba and JD's properties, as well as the internet companies' sprawling delivery and logistics operations.

That might work for such storied names as LVMH or Gucci, but don't expect the model to be universal.

Just as very few brands can get away with giant logos plastered all over bags and shoes, not many should expect to win a contest with Alibaba and JD.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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