China’s Luxury Boom Moves to the Web

China’s luxury boom is going online.

As the overall sector struggles amid a government crackdown on ostentatious spending and gift-giving, the urge to splurge online is growing strong, according to a study by consulting firm KPMG.

KPMG found in a survey of 10,200 online consumers in China that the respondents spent an average of 1,397 yuan (US$229) on their most recent purchase of a “luxury or premium” item, with one in six saying they spent more than 2,000 yuan on that purchase. The researchers didn’t define “luxury or premium,” letting survey respondents interpret the label themselves.

Almost three-quarters of survey respondents said they preferred to shop online because they could land a better deal, while 55% said they preferred it because it’s less time-consuming. Another 47% said it guarantees authentic American or European origin of goods.

Chinese consumers outspent American shoppers online last year for the first time, and by 2015, the country’s online shopping market is projected to reach $540 billion, or 7.5% of all retail transactions in the country, the consulting firm said in its report.

Cosmetics were the most popular items bought online, with 53% of respondents saying they bought products in that category. Women’s shoes and women’s clothes ranked second and third.

“Cosmetics do a lot of business with customers in cities [where] they don’t have stores,” said Nick Debnam, Asia-Pacific chairman of consumer markets at KPMG China. He added that Chinese consumers are more connected to social networks than Western buyers, and more likely to seek fashion and buying advice from friends or blogs.

Most of the luxury purchases are made on third-party sites like Alibaba-owned Tmall and Taobao. That’s partly because Western luxury brands have been slow to sell directly to consumers online in China, fearing that it will debase their label and that customers won’t get the full brand experience if they’re not in a physical store, the KPMG researchers said. Brands have also said cited the high investment costs of building a logistics network for delivery as a deterrent to opening online sales portals.

Some companies, like Gucci, have entered China’s online luxury market by teaming up with existing Web-based companies such as Italy’s Yoox SpAYOOX.MI -0.32%, which in 2010 was the first foreign company to launch luxury sales online in China.

Neiman Marcus Group Inc. announced in 2012 a partnership with Glamour Sales Holdings, a Chinese site that operates flash sales, and said it planned to build warehouses across China so it could reach even buyers in the country’s hinterland. But last year, Neiman said it would scale back those plans and instead ship its goods directly from the U.S., citing the broader pullback in the luxury market as the primary reason.
Still, KPMG consultants say the online marketplace is one that is just too big for brands to ignore for long. For one, Mr. Debnam said, selling online could help smaller, lesser-known brands introduce their products to Chinese consumers who are increasingly searching for “niche products, particularly for brands that are not widely distributed.”

He predicts that more Western brands will build platforms for e-commerce within the next two years. “The brands are reluctant, but the consumers are embracing online.”