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Alibaba’s Mei Chen on how Tmall is helping luxury brands digitally transform for the Chinese consumer

By Rachel Douglass

7 Nov 2022

Business |Interview

Image: Alibaba, Mei Chen

Five years on from its launch, Alibaba’s Tmall Luxury Pavillion has positioned itself as a “one-stop shop” for China’s consumer, and as the segment continues to grow in the region, its impact on the global luxury industry is starting to spill out into wider markets.

The high-end e-commerce platform initially launched in 2017, just as Chinese consumers were beginning to favour online stores over physical retail when purchasing luxury or high-end products. This trend was, and still is, driven by the country’s increasingly younger shopper group, with those under 35 years old now accounting for around 60 percent of Tmall’s customer base.

From joining the company in 2015, Mei Chen, head of fashion and luxury UK, US, Nordics and Iberia, has put an emphasis on exploring opportunities that help luxury conglomerates, like Richemont and LVMH, monetise and move towards a digitally advanced business model in order to develop a strong line of communication with this consumer group. Tmall’s efforts span from top-level services to the roll out of digital-first initiatives, including its most recent unveiling of a XR-powered marketplace that allows customers to shop as a customisable avatar.

Speaking on Alibaba’s mission with Tmall, Chen said: “We wanted to leverage our technology, but at the same time, make sure we had a good connection to the right audience in China, so that brands could be comfortable offering their products in an environment that they have not been very comfortable with in the past. Back in the day, I would say 95 percent was all about offline experiences, and that’s where we saw the challenge in the market. There was no one-stop platform, but as a consumer you really want convenience.”

In a conversation with FashionUnited, Chen spoke on who China’s luxury players really are, Alibaba’s method of consumer segmentation and where the region’s high-end market could be in the coming years.

Why are younger consumers dominating the luxury market in China?

If you look at the average luxury consumer in the UK, Europe or the US, for example, they are probably somewhere between 40 to 45 years old. Their preferences, the platforms they use, and their consumer behaviour, are incredibly different to the younger generation. In China, this is even more evident. Younger consumers are very digitally advanced. More than 97 percent of our transactions are on mobile devices, for example.

They are also very socially driven. Where other e-commerce platforms are very transactional and focused on consumers simply purchasing products, Tmall looks to inspire, influence and inform consumers on the newest trends. China has the largest penetration of online consumers in the younger segment and, for a lot of them, they discover brands by looking at social media and inspiration through our platform, before going on to look at the craftsmanship and heritage.

Someone that is 25 will likely start at what I would call “entry-level luxury”, purchasing from brands that have done incredibly well in China because they know how to engage with the consumers that will have lifetime value for the brand. It’s a clever way to communicate with them. And then it’s about bringing that additional value in terms of inspiration and trends.

Do any brands particularly stick out in achieving this?

We work with more than 400 brands across the international luxury industry, 200 of which are what I could call “top luxury brands”. These include brands from the likes of Richemont Group and LVMH.

One interesting way that I have seen brands engaging in China is through live streaming, something Richemont’s Constantine has done. It sold a number of exclusive watches for over 1.3 million yuan (around 160,000 pounds) during the pandemic, when stores were closed. They did so via live streaming to high-level, VIP customers that they selected through our platform. These customers asked for an incredible amount of details. It is something unique to our users, who are used to a digital experience and are willing to pay such a price for products online, instead of seeing it in person. They are investing in the value of the brand.

Another thing we have been doing since Singles Day last year is testing digital collectibles. We have worked with six luxury brands, including Burberry, to create 4,000 digital assets to see how the feature could work as a marketing tool, rather than just a transactional tool. We realised it was actually very profitable.

We will be doing this for more brands this year because we think it’s very aligned to what consumers want. Especially in the last 24 months, this digitalisation movement and the metaverse has seen the biggest shift. It’s something that everybody wants to test and see what value it can bring to the services they offer. For example, brands can do more community building initiatives with digital collectibles.

Image: Alibaba, Nanushka's Shanghai Store

Tmall Luxury Pavillion also recently launched a metaverse-based fashion show and event. What spurred this addition on?

For our five-year anniversary, we had an awards dinner in Shanghai where a number of executives across luxury brands were shown a demo of this ‘XR Experience’. It is a mix between virtual reality (VR) and authentic reality, where consumers can immerse themselves into the products and brand histories through their mobile devices, where the metaverse essentially exists.

Initially, we launched with around six brand partners, but we will be adding more and more over time. It's important that we help the brands we work with engage with customers in new ways. So, whenever we see a good opportunity, we’ll either bring or build the technology around it, to make sure there is a direct line of communication between the brand and consumers through our platform.

Luxury has always been the ‘follower’ segment for a lot of digital-led projects, but nowadays, if you talk to any of the luxury houses, they want to be the first to jump into the market. What a lot of these brands have realised is that they can become a part of their consumers’ culture. They have understood that digitalisation can enhance their business – even more so than discount-centred initiatives. For our platform, the luxury we have built has a very sophisticated experience around it, and I think that’s what has given CEOs and brands the confidence to sell this way to younger generations.

Digitalisation has also made the consumer journey much easier, not only for consumers to acquire the brands and experiences, but for brands to also have more touch points. They no longer need to go to an offline store, they can experience the whole brand through online channels.

How does Tmall define its consumer groups?

We worked with a strategic consultancy firm in China to specifically look at the consumer segmentation on our platform. With our new White Paper, we segmented consumers to look at them in a more holistic way and determine what their preferences and behaviours are, whether they are purchasing for themselves or just gifting. We did this for brands like Burberry, which has been working with us since 2014 and still has a lot of growth to do because they don’t hold 100 percent of the luxury market in China. There is still a pocket of opportunities for them to grow in certain segments.

We wanted to separate the consumer base into six categories and provide a tool to give executives a better sense of who they are dealing with and determine where their strongest consumer was. They can see where they are doing well and where they could still grow, depending on where they want to expand strategically as a company.

Have consumers in China been impacted by the macroeconomic issues those in other parts of the world have experienced?

Luxury is quite globally agnostic to the economical challenges across the world, and the reason for that is its high-net worth. A consumer purchasing a Chanel bag is not going to care about spending over 4,000 pounds on a yearly basis, because it’s such a small proportion of their wealth. They are still going to buy the bag, even if Chanel increases the prices. I think that’s true across the world, whether you’re in the US, France or China.

I believe that we are probably the most holistic luxury platform in China at the moment. We haven’t seen any of these disruptions in this specific segment, because these luxury consumers are buying products based on heritage, craftsmanship and quality. They don’t really mind whether there is a 10 to 30 percent increase or inflation.

We have actually seen quite a lot of growth, to be honest. Not only this year, but also during covid years. During 2020 and 2021, there were a lot of opportunities for luxury brands to digitalise much faster. These houses had more than 90 percent of their stores closed throughout the pandemic, so there was time for them to leverage digital platforms to attract consumers and younger generations here in China.

How has Tmall Luxury Pavillion adapted over the course of five years and how has it influenced others?

For us, Tmall Luxury Pavillion needs to continue making sure that companies and brand owners have no barriers when doing e-commerce across the platform. We always come back to this mission, but in a more elevated way. How we first looked in 2017, we put in our best effort to appeal to luxury consumers and brands. Fast forward to today, we have introduced a number of new technologies and next level services to this offer.

Many things that a luxury consumer would want, that in other countries would require you to go to a shop, like tailoring or repair, we have brought those to our customers and elevated them alongside our platform. For us, it’s a reinvention of how luxury can be seen and how it can be consumed.

In the Western world, a lot of these consumers would be surprised at the level of service in China. I don’t think online platforms in the west are at this stage of servicing customers, but some brands are taking a lot of this into consideration. I think in the next couple of years you will probably see a lot of the things we have already seen in China come to some parts of Europe and the US.

Where will China and Tmall stand within the luxury market in the near future?

Many third-party analyses, banks and consultancies look at China to become the biggest market of luxury consumption in the next 10 years. It’s not only the Chinese market per se, but the consumer there. You have Chinese consumers that consume a huge amount of luxury in mainland China or in China geographically, but you also have a lot of consumers that are not based in China. They will make up a large part of the luxury consumption market globally.

For Tmall Luxury Pavilion, it has always been very clear to make sure we can bridge the gap between luxury, online and business. It’s about creating the next experiences for luxury brands and consumers, leveraging all the technologies and innovations and working with the consumers on building a one-stop solution for luxury service.

In the last five years, we have a goal in place to pioneer a lot of these things and we are hoping we can keep on bringing a lot of value to brands, not only in China but globally. We want to work together with luxury brands to keep them innovating and offering them solutions to connect with consumers so we can continue to build partnerships and collaborate.