Alibaba, Tencent Benefit From Luxury-Goods Boom

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Luxury sales in China are expected to increase between 6% and 8% this year, presenting a big opportunity for ecommerce giant Alibaba Group and rival Tencent.

Thanks in part to increasing discretionary spending on the part of Chinese consumers, easy access to credit and a weaker yuan​, luxury sales have been picking up all year long. That growth is expected to continue with Bain Capital predicting a 6% to 8% increase in China this year, reported The Wall Street Journal.

Meanwhile according to a new report from wealth-tracking researcher Hurun Report and advertising media planning company MEC, millionaires in China are projected to spend $58 billion in high-end gifts by 2020, purchasing everything from expensive watches to upscale overseas trips. That would mark a 30% increase from this year with the wealthy spending their money to impress their families and business associates. The report, “China’s High Net Worth Individuals Gifting White Paper 2017,” also found the well-heeled are spending money on gifts for themselves. Luxury goods top the list, with the survey showing 60% of respondents said they are more likely than in the past to gift a upscale good. (See also: Global Luxury Retail Earnings to Double This Year: Moody’s.)

The Role of Mobile Phones

While many consumers in the U.S. tend to purchase their high-end goods in stores or from a personal computer, a lot of the sales transactions in China are coming via mobile phones. With luxury brands wary of selling their goods online in China due to the onslaught of counterfeits, they are turning to mobile to maintain control of their products and the Chinese tech companies are responding. Take WeChat, the widely popular messaging app and social media platform in China operated by Tencent. According to the WSJ, the platform lets brands send messages directly to users, with consumers able to purchase goods from their websites without having to leave the app.

Meanwhile, Alibaba, the largest ecommerce player in China, has been taking an aggressive stance against fake goods on its websites. In March, Alibaba Chairman Jack Ma called on Chinese government officials to clamp down on counterfeit goods that are hurting its reputation, asking that counterfeiters face the same punishment as drunk drivers. (See also: Alibaba: Ma Wants Tough Action on Counterfeits.)

No. 2 ecommerce player recently poured $397 million into Farfetch, a U.K. online marketplace for high-end goods. The WSJ speculated that Alibaba could make a further push into luxury goods by purchasing a web platform focused on that area as well.

By Donna Fuscaldo Courtesy Investopedia

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