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Why Luxury Brands Are Choosing Alibaba over Amazon

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China presents huge growth potential

In the race to grow their online presences in response to the shift in consumer shopping trends, global luxury brands are choosing to work with Alibaba (BABA) instead of Amazon (AMZN), according to a report by the Wall Street Journal. In 2018, 26% of some of the world’s largest luxury fashion brands operated stores on Alibaba’s marketplace, up from 21% in 2017, according to the report.

More room to grow in China’s luxury goods market and Alibaba’s move to create a special marketplace dedicated to selling luxury goods are a couple of the factors drawing luxury brands to the Chinese e-commerce giant’s platforms.

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A $178 billion luxury goods market

At the moment, just 5.0% of luxury purchases are made online in China compared to ~20% in the Americas. Therefore, for luxury brands selling online, the Chinese market presents a much larger growth opportunity. China’s luxury goods market was valued at $47 billion in 2012 and is poised to grow to $178.2 billion by 2025, according to McKinsey & Company estimates.

Special luxury marketplace

To capitalize on China’s rapidly expanding luxury goods market, leading Chinese e-commerce companies Alibaba and JD.com (JD) have set up special marketplaces that only sell luxury products. Amazon doesn’t have such a marketplace. On its part, eBay (EBAY) has a program to encourage the sale of used luxury goods on its marketplace by assigning them authenticity badges.

Revenue rose 41% YoY (year-over-year) to $17.1 billion at Alibaba in the fourth quarter. JD, Amazon, and eBay recorded revenue growth of 22.4%, 20%, and 6.0% YoY, respectively, in the quarter. Revenue fell 8.0% at Groupon (GRPN) in the quarter.

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