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The ultra-competitive Chinese market has proven too much of a challenge for another Western business. Luxury e-tailer Yoox Net-a-Porter (YNAP) is pulling out of China and closing Feng Mao, its joint venture with Alibaba, owner Richemont said on 14 June.
A spokesperson for Richemont said the decision to withdraw has come in the context of a global plan aimed at focusing investment and resources on its more profitable geographies.
YNAP entered China in 2013 and created a joint venture, Feng Mao, through Richemont in 2018 with Alibaba Group to sell to Chinese consumers via Tmall Luxury Pavillion.
In theory, the partnership should have made the business sustainable from that point, says Lucrezia Seu, founder of Shanghai-based marketing agency Plush.Consulting. However, a variety of issues, ranging from fierce competition to a challenging global macroeconomic picture, have plagued the multi-brand retailer. “It entered an already saturated market with major luxury brands already having a very dense presence both through their official online stores as well as offline players such as SKP and Reel,” Seu explains.
In December 2023, Richemont’s plans to offload YNAP via the sale of a majority 47.5 per cent stake to Farfetch collapsed when the full extent of Farfetch’s financial difficulties was exposed and the company was saved from bankruptcy by South Korea’s Coupang. Richemont may still be hoping to offload YNAP elsewhere, experts say.
YNAP’s joint Chinese venture has faced difficulties competing in an e-commerce landscape that ramped up fast during the pandemic, and in the years that followed, struggled as China’s shoppers repatriated their spending. Although China is still on track to overtake the US as the world’s biggest luxury market, its luxury consumers have proven to be far from straightforward, not least in the post-pandemic period. While Hermès, Chanel and Miu Miu have continued to thrive, most Western brands are reporting sluggish consumer spend in China.
The failure of YNAP China highlights the issues facing luxury e-commerce more widely. Coupang has announced a 30 per cent cut of the workforce at Farfetch since it rescued the business last December. The collapse of Matchesfashion in March delivered a heavy dose of gloom across the sector.
Meanwhile, Feng Mao is winding down in China and intends to settle all outstanding debts and treat employees fairly, according to an industry source. But YNAP’s Chinese dream is well and truly over.
Chinese consumers have money, but expect concierge service
Nishtha Mehta, a change facilitator at Collabcentral Consulting in Shanghai, says the weakness of Chinese consumers may simplify the issue. China’s household savings rate is one of the highest in the world at 31 per cent, compared to 13 per cent in the EU and 3.9 per cent in the US, according to 2023 figures. In short, the Chinese have a lack of disposable income to spend.
Mehta believes it is important to notice precisely where and why spending has weakened and where it has gained traction. “Domestic clothing and cosmetics spending has lowered, yet the spending shifting to other sectors like food services, travel and automobiles suggests that people’s appetite is moving away from discretionary spending on ‘things’ to more collective ‘experiences’,” she says.
Should YNAP have paid greater attention to extra services? Pablo Mauron, managing director of Chinese digital agency DLG, urges retailers and brands to focus on delivering added value in the Chinese market. Some multi-brand players, such as YNAP, have failed to give consumers sufficient reason to visit online, he says. Luxury consumers in China expect customised services like personal styling guidance, advice with product selection, super-fast and convenient delivery, round-the-clock sales associate availability and a flexible returns policy. For all its broader problems, Farfetch appears to have fared better in China by investing heavily in added services for key opinion leaders and more broader VIPs.
The marketing of product by YNAP in China was also aesthetically weak, says Lucrezia Seu. In addition, she highlights a limited product mix, lacking in unique opportunities. “Against this backdrop it seems that NAP was unable to offer the same level of convenience and this resulted in many customers voicing their dissatisfaction on social media,” she says. “Unfortunately, NAP was unable to match the level of concierge service that has become totally customary for most luxury consumers in China.”
While it’s a well-established brand in the West, YNAP suffered from low visibility in China. Marketplaces and apps such as Tmall, WeChat and Douyin ultimately have the trust of local shoppers. “These marketplaces are deeply established in the lives of consumers — forever,” says Mauron. “They have developed and sustained this relationship for years. They own the consumer profiles. Entering the marketplace thinking you can be better at fostering a relationship [is] incredibly ambitious,” he suggests.
On Tmall, YNAP customers could access the store either by searching by name on the Taobao or Tmall interface, or they could be directed there via a search for a brand name stocked by YNAP. The more a customer shopped or visited YNAP, the higher up in the search YNAP would appear. Seu points out the obvious weakness of this approach in a market where the name did not register strongly with the average luxury consumer. “Consumers in China are always spoiled with a multitude of choices in terms of sales channels and platforms,” says Seu. “Only the most popular and well-received ones manage to survive.”
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