Not very far-fetched state of China e-commerce

Farfetch China

Global luxury marketplace might sound a fantastic idea for China. Unlike many luxury retailers unwilling to concede the control of its brand to a third party Chinese e-commerce marketplace and would rather launch online through their stand-alone site, Farfetch operated exactly as any of China’s leading e-commerce platform such as and by “carrying” tens of thousands of brands sold from thousands of sellers around the world, and in their case boutiques.

The “far-fetched” idea

At least Farfetch’s business model is infallible on paper. For the past two and half years, they have operated two offices in Hong Kong and Shanghai with a full service team, but the sales didn’t take off as it experienced in other markets.

The reason? Jose Neves, the CEO and founder of Farfetch said: “We haven’t had a fully localized presence in the region.”

That changed in June when Farfetch accpeted an investment of $397 million from, a Chinese e-commerce marketplace and the second largest B2C retail site after Alibaba’s Tmall. What’s more important with this investment is a partnership developed between two companies. In exchange for hosting Farfetch’s network of more than 700 brands and boutiques virtually on its platform, will drive traffic and awareness to Farfetch in China and help out with regional logistics, including same-day delivery and localized payments through services like WeChat Pay, both of which excels at and Farfetch had been struggling with.

Luxury brands didn’t wait too long to play catch-up. Saint Laurent is the first brand to go live on Farfetch’s platform in China, with online inventory sourced from local Saint Laurent stores in Shanghai, Beijing and Hong Kong. It’s the latest luxury brand to develop an e-commerce presence in China: In July, Louis Vuitton and Gucci opened directly operated online stores. Last week, Alibaba’s Tmall launched a luxury-specific platform for high-end brands like Burberry and Hugo Boss that’s restricted to high-spenders.

No go-around

With the global luxury market slowing to a projected annual 2-4% througn 2020, luxury brands turn their attention to China, where the e-commerce industry is worth a staggering $785 billion. The counterfeit and grey markets are rampant on Alibaba and, which makes them a turnoff for luxury brands. But breaking into the local market without selling on one of these marketplaces has proved repeatedly unsuccessful.

In the past, a vast majority of luxury purchases were made abroad: While Chinese shoppers account for one-third of all luxury goods purchases, only 7% of those purchases are made at home, according to Bain & Co.’s global luxury market report for 2017. Typically, those purchases are made on trips or through daigou, a commerce channel where personal shoppers buy goods abroad and then bring them back to clients, avoiding China’s 30 to 40% markups on luxury goods.

With recent crackdown in China on the diagou market to limit unauthorized sales and increase domestic purchases, Chinese luxury customers are spending more in China on luxury goods than they have in the past, a trend Bain & Co. expects will increase.

It’s no surprise that Farfetch, the most searched online luxury site in the world, couldn’t crack e-commerce there on its own. “The key point is that it is very complicated to run e-commerce in China,” said Neves. “Few brands are able to do it. Saint Laurent had no online presence before in China, and very few work directly in the market.” Neves cited multiple factors working against foreign brands: local payments, user interfaces and customer behavior all have regional nuances that outsiders struggle to adapt to.

As a result, Farfetch had to set up a separate system for developing and distributing online advertisements in the country, as materials and strategies that work elsewhere won’t work — like, for instance, a social media campaign on Facebook and Instagram, which are banned in China. It will also open a WeChat store, the social platform with 900 million active users that offers a direct selling option for brands.

Established platforms like Alibaba and, which count 550 million and 226 million active customers respectively, are the law of the e-commerce land. They know how to market to Chinese customers, they know how they shop (mostly on their mobile phones), and they have adapted to customer expectations around delivery and service.

Chinese online shoppers are very savvy and normally lack the patience of their western counterparts who are quite used to one-week delivery. An epitome of efficient logistic and delivery, can make three deliveries a day for some of the products sold on its platform. With the help of, Farfetch now offers a white-glove delivery service that’s guaranteed for the same day. In October, it will roll out its 90-minute guarantee delivery to Shanghai, Beijing and Hong Kong. This level of service, combined with the trusted Farfetch marketplace that carries only authentic international brands, has the promise to lure in luxury brands.

All about control

For the sake of control, some luxury brands are taking on the challenge of opening up a directly owned and operated e-commerce store: Louis Vuitton and Gucci plan to own all of their online operations in China, including marketing, shipping and delivery, and payments. Brand-owned sites protects them issues like control over positioning, description, pricing and listings. Brands that enjoy strong brand image and wish to maintain that are going to be wary of selling on platforms where there’s a lack of control.

However, they all understand the need to work with the local system one way or another. For example, they all incorporated Alipay and WeChat pay. For the brands, staying independent maintain control, but logistically, they have to hit high customer standards. Chinese consumers expect fast delivery and their luxury experience is as much defined by superior customer service as a luxury brand name. It’s important for luxury brands to meet customer expectations and provide top-level user experience.

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