US Neiman Marcus goes e-commerce to China

US Neiman Marcus goes e-commerce to China

It is an unusual step by the exclusive and ultimate luxury American retailer Neiman Marcus Group to establish itself in China not physically by investing in stores but via e-commerce

For the purpose to implant Dallas based Neiman Marcus Group in China the company is investing USD 28 million in a stake with Chinese fashion website Glamour Sales Holding Ltd and is marking additionally  its first international e-commerce venture.

China’s affluent households (over USD 34000 yearly income) accounted 2010 only for two million of 228 million urban households according to a study by international active consultancy McKinsey but this group will grow by 2020 to six million of 328 million Chinese households. In 2010 affluent income in advanced Chinese 13 cities and 15 % of the urban population shows that in these categories the affluent consumers represented 5 % and in 2020 they will grow to 16 %. Therefore the move with the least risk of Neiman Marcus might be the right decision to cater to these prospect customers and according to their age group they spend around 13 to 14 % on apparel. There are also new developing cities (80 cities and 26 % of urban population) that will offer new opportunities representing 2 % of affluent consumers in 2010 and 7% in 2020 and Emerging cities (369 and 45% of urban population) will increase from one percent to four percent. Total Chinese luxury sales in 2011 amounted to around USD 40 billion (+33%) according to Boston Consulting Group and will expand by 2020 to USD 101 billion according to estimates by CLSA Asia-Pacific Markets.

No wonder that the exclusive luxury department stores of Neiman Marcus want to be part of this promising market. Especially young affluent Chinese consumers are using the e-commerce channel in growing numbers. Total sales in online retailing in China increased in 2011 by 68 % to CNY 770 billion (around USD 122 billion). And there is an additional premium online sales tend to offer higher margins than normal retail sales due to less overhead costs. In 2011 China’s online volume accounted only for 3 % (1 %) of Chinese luxury sales. For comparison in the USA this segment accounts for 12 % and in 2011 the luxury market volume was USD 45 billion.

For the time being Chinese luxury buyers prefer stationary stores to learn about the products, feel them and after acquisition to show them leaving the store. For online luxury goods customers have to pay the full price so far but they are opting for this distribution channel of Glamour Sales because of sometimes flash sales of discounted goods. Neiman Marcus wants – for the time being – demand full price and the brand name firstly will have to be made known to the Chinese affluent domestic customers. The Chinese travellers to the USA however know the brand and will make mouth propaganda at home to their friends.

In fact, the first foreign company to launch luxury sales online in China was the Italian based Yook SpA and took some precautionary measures: RFID radio frequency identification tags to track the delivery and ensure that the real goods are not swapped against fakes en route. Along with the goods go a shopping bag of the brand and reusable, durable gift box made of sturdy cardboard with a magnetic clasp in order that the customer can display the items bought. In March also British online luxury retailer Net-a-Porter selling for instance brands such as Alexander McQueen and Jimmy Choo launched its online channel in China. There are also two other Chinese sites Wooha and offering luxury online goods.

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