Chinese e-tailer Xiu.com had rather unlikely beginnings. The luxury e-commerce site was launched during the height of the global economic crisis of 2008 by entrepreneur George Ji Wenhong and private equity investor Huang Jin. Rather than go boom and bust during the recession, this online luxury goods retailer stuck on. It has now become a key player in China’s growing luxury goods sector. It is interesting to know that during the initial years, the owners of Xiu.com thought it unnecessary to spend extensively on advertising. According to Ji, Huang was opposed to the huge sums spent on advertising by Xiu.com‘s rival companies. He felt that advertising could not significantly boost sales, especially over the short term. Thus, until spring 2011, Xiu.com’s only promotion was by word of mouth.
Rather than spend on ads, Ji and Huang channeled part of the $15.5 million funds that they raised to employ a savvy team of buyers who would operate at the world’s luxury hubs, including New York and Paris. Apart from Net-a-Porter, most major luxury fashion sites lack a China presence. This pushes up shipping costs, and thereby, the price of luxury goods. With Xiu.com, Ji and Huang sought to fill this void. They would gather products from international luxury brands and sell them in China – no need for expensive physical retail outlets.
Xiu.com should soon find itself in the right place at the right time. According to the May Luxury-Goods Worldwide Market Study Spring 2011 Update compiled by management consultants Bain & Co., China is poised to become the third largest luxury goods market within the next five years. As that happens, Xiu.com will be looking at becoming the Chinese version of a Macys.com or a NeimanMarcus.com.
By the end of 2011, luxury goods sales in China are expected to soar to $16.5 billion, up from $13 billion in 2010. However, contrary to the popular impression, Internet sales are only a minor part of this luxury growth story. Most Chinese luxury buyers purchase luxury goods abroad to avoid the high tariffs on Chinese soil. According to Sam Mulligan, director of DDMA Market Research & Consulting in Shanghai, luxury online retailers in China will have to find the right price range even as they promise international quality and authenticity.
These factors may have encouraged Xiu.com to go from exclusively selling luxury goods to offer mid-range apparel and accessories, plus more Chinese brands. This is a bid to hook the price-sensitive Chinese customer, who, as Ji puts it, “won’t necessarily buy the most expensive products, but they’ll buy the most fashionable ones.” A refurbished Xiu.com has separate pages categorized by product type and brand, in addition to a sales page.
Compared to rival online luxury goods retailers that largely stock off-season ware, Xiu.com stocks 20,000 units of in-season products. With 2,000 brands on offer (40 percent of these are foreign brands), the site offers new luxury goods on a monthly basis. Plus, the online retailer has managed to get exclusive sales rights in China for a number of foreign brands. In the meanwhile, the site has finally gone the advertisement route, snapping up young actor Yang Mi as the brand ambassador. The first set of ads cost $1 million. For the next round, Xiu.com will be pumping in $3 million.
Via: Bloomberg
