US luxury retailers go online to tap Chinese market
Retailers target growing internet users in the most populous market by setting up web shops
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As Neiman Marcus Group prepares to start selling its wares in China, the United States luxury retailer is not opening stores. It is setting up shop on the web.
Neiman Marcus, Macy's and Milly, the women's clothier, are all tiptoeing into China - striking partnerships with local web entrepreneurs because opening stores there is expensive and complicated.
The moves coincide with slowing economic growth in China that has prompted shoppers to pull back. Still, Neiman Marcus was making a long-term bet on the world's most populous consumer market, chief executive Karen Katz said.
"We believe the Chinese economy, like every economy, is going to have ups and downs," Katz said. "We know that long term, the potential of the luxury consumer is tremendous. There is still quite a big opportunity there."
Even with the slowdown, online sales would triple to more than US$360 billion by 2015, Boston Consulting Group said. The number of internet users would grow to 700 million from 500 million, it said.
China's luxury market would grow by as much as 22 per cent this year, by far the fastest rate of any region, according to Bain & Co, also a consulting company.
The deals with Chinese companies mean Macy's and Neiman Marcus can learn more about Chinese shoppers' buying habits before deciding whether and how to scale up. The strategy is also cost-effective. Macy's is spending about US$15 million on its China web venture; by contrast it is lavishing US$400 million on a renovation of its New York flagship store.
"It's a very clever way of dipping their toe in the water," said Robert Burke, who runs a consulting firm. "What's driving it is the sheer numbers. The number of consumers and their appetite to spend are going to be highly attractive to retailers and brands."
In its first international foray, Neiman Marcus, owned by Warburg Pincus and TPG Capital, is developing a new namesake e-commerce website with a Hong Kong partner. It has invested US$28 million in the closely held Chinese company.
Macy's, the second-largest US department store chain, will begin selling an assortment of its moderately priced INC apparel on www.omei.com next spring. It made a US$15 million equity investment in the parent VIPStore.
Shangpin.com a website that says it sells authorised, current-season international designer and contemporary goods at full price, debuted this month. Milly and Tracy Reese, whose fashions are worn by Michelle Obama, are among 80 brands selling their goods through the site, whose Chinese name means "fashion" and "quality".
Sensing opportunity, private-equity firms are investing in Chinese e-commerce. Shangpin has attracted US$60 million in capital from international investors including Walt Disney-backed Steamboat Ventures. Warburg Pincus and KPCB China invested US$120 million in fashion e-tailer www.xiu.com last year.
These web-only ventures face several barriers. Brand recognition remained low in China, while shoppers preferred to see the actual products and were leery of receiving counterfeit goods, Burke said.
They also were reluctant to spend large sums online, said Claire Chung, a vice-president for global business development for Shangpin. The country's average online transaction size was the equivalent of US$31, she said. "We are going to have a lot of work to do to educate the consumer about Neiman Marcus," Katz said. "What is important is this message of history, heritage and authenticity because they don't know our brand."
To that end, the Neiman Marcus site will work to be a kind of personal shopping guide.
Milly chief executive Andy Oshrin said he had been reluctant to enter the Chinese market before he found the right partner in Shangpin.
The e-commerce approach was a better alternative to building the Milly brand in China himself with expensive stores and marketing, Oshrin said.
Online sales of Milly's colourful, print dresses already tended to outperform those in stores, he said.
"It was a way to enter China strategically," he said.
China has its own tastes and quirks. Shoppers preferred washable clothing because dry cleaning was less available, said Winnie Foon, a Shangpin vice-president for global merchandising.
Www.neimanmarcus.cn would offer full-price, current-season fashions specifically pitched to the Chinese luxury customer by a Shanghai-based chief merchant, Katz said.