➤ Millennial luxury shoppers make up the core consumer base of Alibaba Group Holding Ltd.'s Tmall Luxury Pavilion section, accounting for 45% of sales. "China today is a very very advanced luxury market. They are already quite versed in luxury and what luxury brands are," said Christina Fontana, Alibaba's head of fashion and luxury for Tmall.
➤ In 2017, Alibaba created the Alibaba Anti-Counterfeiting Alliance, which works with brands including LVMH Moët Hennessy - Louis Vuitton Société Européenne, Honda Motor Co. Ltd. and Samsung Electronics to crack down on manufacturers and distributors of counterfeit goods. "We use technology in innovative ways to help fight counterfeits," Fontana said.
➤ Alibaba is not concerned with competition from Amazon.com Inc. or Alphabet Inc.'s Google LLC, which do not have e-commerce platforms in China, despite Amazon's ambitions to launch its own luxury e-commerce play. "We don't spend a lot of time thinking about Amazon," Fontana said.
The luxury goods market is affected by issues such as the spreading coronavirus, tariffs and unrest in Hong Kong. But Christina Fontana, Alibaba's head of fashion and luxury for Tmall since April 2019, expects that more brands will join the Luxury Pavilion section of Alibaba's Tmall e-commerce platform, thanks to growing internet usage and increased spending power among Chinese consumers. More than 150 high-end brands have joined the Luxury Pavilion since its launch in August 2017, including Valentino Fashion Group SpA, Cartier SA and Chanel SA. The platform allows companies to control their online stores, create targeted campaigns and launch virtual pop-up stores to gauge interest. S&P Global Market Intelligence spoke with Fontana on Feb. 7 about Tmall's growth in the luxury arena in 2020 and beyond. Below is an edited transcript of the interview.
Alibaba will report results for the third quarter of fiscal 2020 on Feb. 13.
S&P Global Market Intelligence: Tmall's Luxury Pavilion launched in 2017 and now features more than 150 brands, including Burberry Group PLC and Valentino. How big can the brand portfolio become and do you have a target?
Christina Fontana, Tmall head of fashion and luxury
Christina Fontana: The number of brands [on Tmall's Luxury Pavilion] is limited by the number of luxury brands in the world. The way we determine which brands go into Luxury Pavilion is their perception in the Chinese market. So when we think about growth, it's not only about bringing new brands into the platform, it's also about being sure that those brands become digital champions in China. Our ecosystem is very different from the way e-commerce works in the West. When we look at Tmall and brands opening their [stores on the Luxury Pavilion] they do everything themselves. They completely control the content that they want to use, they control the merchandise and they control the pricing and promotional calendar.
You spoke at the NRF Big Show in New York about working with the San Francisco-based footwear company Allbirds Inc. Are you looking to add more niche brands to the Tmall platform?
Yes. We made a joint venture with Net-A-Porter, Compagnie Financière Richemont SA's multibrand retailer. They have a fantastic collection of smaller niche brands; it's about 130 brands that are coming on to our platform with Net-A-Porter. In order to be on Tmall and in the Luxury Pavilion, you need to have a legal entity in China. And some of our fastest-growing niche brands that we see in Europe or the United States haven't entered the China market yet.
What are some of the challenges with introducing Chinese consumers to a brand they've never heard of before?
China today is a very, very advanced luxury market. They are already quite versed in luxury and what luxury brands are. They also have homegrown brands that are ubiquitous in China because they have very large retail footprints, etc. Chinese consumers generally are younger than our Western counterparts, and they have a much higher disposable income. They really look to the quality and heritage and history of our luxury brands. This also means that brands need to be very clear about presenting a brand's history.
Many luxury brands have been skittish about warming up to e-commerce, especially given the proliferation of counterfeit goods on several platforms, including Alibaba's own Taobao. What strategies has Tmall used to reassure brands and convince them to be part of the platform?
I think there are two things. First of all, what we have built with the Luxury Pavilion is actually the way we do business with all of our platforms. Alibaba is a company that creates environments and tools that allow brands to succeed. We give them direct access to all of their data, we help brands with things like our trend center which allows them to use the aggregated data from our platform to understand where the fashion market is going, what are the trends that we see coming out of the market, what are the requests that consumers are making in terms of product, or color, or style. They can always have a direct connection with their brand. [Allbirds] considers being on Tmall the same as being direct-to-consumer because they are running their own store. They had an example that Chinese consumers were saying they didn't like the wool lining on their shoes. They got that feedback directly from their consumers on the Tmall platform, and they adjusted their products accordingly. We have created world-class tools for anti-counterfeiting, and we have created the Alibaba Anti-Counterfeiting Alliance that works directly with brands. Again, we use technology in innovative ways to help fight counterfeits.
How has the U.S.-China trade war affected your business?
All brands on Tmall and the Luxury Pavilion need to have a China legal entity. So on our platform, we are dealing with a 100% China environment, and those products don't take import duties to come into China. So it hasn't had a very big impact in that sense. Fashion and luxury seem to be quite immune in China markets because these brands are operating mostly in China and most of the brands in our Luxury Pavilion are European brands.
Amazon is reportedly planning to launch a luxury goods platform in the first half of 2020 using a concession-style model that gives brands autonomy over their digital storefronts, similar to the model Tmall uses. Do you see Amazon as a potential threat?
Tmall does business in China; Amazon does not, so I don't really think it will have any impact on us. We always think competition is good, and it drives us to be better, but honestly, what Amazon is doing, I barely even watch it because they are not present in China, and we operate in China. It's really impossible to draw parallels between the two markets because they are two completely different markets, starting from the physical infrastructure of retail in those two countries. China has one-quarter of the retail space that the United States has. China is mobile-first and always has been. There is no Google in China, so if you want to buy something, you open Tmall. Really, our ecosystem is so much more advanced than what we see in the West, that we don't spend a lot of time thinking about Amazon.
Many retailers are concerned about the new coronavirus. Is it affecting Tmall's operations?
We are obviously very worried about all of our colleagues and their families and we think about them daily, but it's too early for us to make any sort of provision or provide any insight on what's happening with the coronavirus.