Alibaba, Could Benefit From Doubling of China Luxury Spending

Alibaba Group Holding Ltd. may be witnessing a slowdown in online transaction growth, yet it can find consolation in China shoppers boosting their budgets for luxury items.

Consumers are open to paying as much as 4,200 yuan ($661) for a single item online, according to a KPMG survey released Tuesday. That is more than double the 1,900 yuan reported in last year’s survey and may be a boon to e-commerce companies, including Alibaba and Inc., facing an economic slowdown in China.

Shoppers drawn by pricing and better deals are willing to spend more on everything from premium cosmetics and spa treatments to shoes and handbags, said Egidio Zarrella, a partner at KPMG. The survey comes as Alibaba tries to revive growth through new services and high-end labels while confronting criticism it’s a haven for counterfeits.

“Luxury items only account for a limited proportion of Alibaba’s sales as of now,” said Ray Zhao, a Shenzhen-based analyst at Guotai Junan Securities Co. “But you do see Alibaba spending a lot of effort trying to incorporate premium foreign brands onto its platform as part of its international strategy.”

Alibaba is expecting one of its most important shopping days on Nov. 11, a promotion that saw Chinese consumers spend more than 57.1 billion yuan ($9 billion) last year. The company said it wants to focus on expanding international markets and location-based services this year.

Alibaba has signed more international brands, including L’Oreal and Apple, for its e-commerce platforms. In August, it reached an agreement to bring the Macy’s Inc. online store to China.

KPMG’s survey, which didn’t name specific brands or companies, also found that almost a third of respondents bought luxury items online at full price. Cosmetics were the most popular products, followed by women’s shoes, bags and leather goods. KPMG based its report on answers from 10,150 people in China.

“Chinese consumers are willing to pay a higher price if it’s good quality,” Zarrella said in Hong Kong. “We specifically chose luxury because it gives you a good idea of where the economy is going in the high-dollar spend.”

Alibaba’s growth has been hit by a Chinese economy expanding at the slowest pace in 25 years. The company is expected to post 27 percent growth in revenue for the September quarter, according to analyst estimates, compared with average growth of 61 percent during the previous seven periods.

Twelve analysts have cut sales predictions for Alibaba in the past four weeks, according to data compiled by Bloomberg.

On Monday, the American Apparel & Footwear Association saidAlibaba’s Taobao online shopping platform should be put back on the U.S. government’s “Notorious Markets” list for failing to stop the sale of fakes.

Alibaba is willing to discuss the issue with the trade group, the Hangzhou, China-based e-commerce company said in an e-mail.

Taobao is synonymous with counterfeits and has been unwilling to make serious reform since it was removed from the list in 2012, the AAFA said in a statement.

The office of the U.S. Trade Representative compiles the annual list of “Notorious Markets” to identify counterfeit goods from jeans to car parts. The association objected to the government’s decision to remove the company from the list before its initial public offering.

Source: BloombergBusiness