Printable version

*Last May, LVMH signed a deal with Alibaba, cementing the luxury group’s omnichannel, data and digital capabilities. Through this agreement, LVMH will access Alibaba’s technology and investments, especially in AI capabilities, allowing luxury brands to be more accurate and personalised than ever. This is not unexpected: LVMH and Alibaba had already partnered in cloud data management for five years before changing gears. In addition, Alibaba is considered as a “global partner” by LVMH in a context where data is key to properly addressing Chinese customers’ needs, wherever they are in the world.

This is why the IADS interviewed Nicolas Cano, Fashion and Luxury Business Development Director at Tmall Luxury, a division of Alibaba, to understand more about the Alibaba ecosystem, how it completes LVMH’s expertise in the region, and what the luxury behemoth gets from this deal. He has over 15 years of international expertise in the luxury sector. He started his career at L’Oréal in the Luxury Division as a Product Manager before joining LVMH in 2005. He worked at Dior Homme, Christian Lacroix as Commercial Development Manager for Europe, and then EMEA. In 2010, Nicolas joined the Chalhoub Group to develop the Chanel franchise network in the Middle East. In 2016, he took over the General Management of the Symphony Group, the Alabbar Group's retail branch, deploying an omnichannel strategy and opening exclusive concept stores in the extension of the Dubai Mall. Since May 2018, Nicolas Cano has held the Fashion & Luxury Business Development Director position at Alibaba Group. He leads the e-commerce distribution of major Houses on Alibaba’s B2C platform, Tmall & Tmall Luxury Pavilion. Nicolas graduated from the L’Ecole Superieure de Commerce de Nantes (AUDENCIA).*

Introduction: Alibaba is a very unique business model in the world e-commerce landscape

Alibaba Group perfectly embodies China’s digital landscape, built over 20 years of customer needs’ observation and adaptation. It can be considered as the leading ecosystem on the market now, but not only: it is among the only ones in the world providing a true 360° approach to customers.

To achieve this level of expertise, the group is structured into 6 business units and a transversal set of companies:

• The International Digital Commerce Group, created in 2023, regroups all international e-commerce platforms, from Aliexpress and Alibaba.com (worldwide) to more localized entities, such as Lazada (S.E. Asia), Trendyol (Turkey), or Miravia (Spain).
• The Taobao Tmall business group includes Taobao (a C2C platform created in 2003 with 892m Monthly Average Users, MAU) and Tmall (a B2C platform created in 2008 with 877m MAU), two the larger platforms which both represent a different facet of China’s e-commerce reality.
• Two business units are dedicated to services to individuals (home delivery, localised delivery, digital media, entertainment), and two others are devoted to companies (cloud services, logistics),
• The ecosystem is completed with a transversal set of companies: Alibaba Health, Freshippo supermarkets, Fliggy travel agency, etc… all acting as funnels to capture customers into the larger ecosystem, but also as independent brands as well.

The Alibaba group ecosystem represents a fully omnichannel structure, articulating online and offline propositions in all consumption areas, including e-commerce, local services, cloud, financial services, and logistics, for both customers and companies (suppliers). Each app is designed to be an entry point to other apps from the ecosystem, keeping the customer in the Alibaba group universe. This unique proposition does not exist in the West due to privacy concerns: this fully integrated ecosystem allows for a 360° understanding of customers, from their tastes to their needs, even providing the possibility of anticipating their needs according to what they see, browse, or watch at any given moment. In China, customers’ rationale is different from western ones’: they are willing to let go a part of their privacy in exchange for performance and relevance in their shopping experience.

Another point worth noting: Chinese customers are digitally sophisticated, and probably more advanced on average than Western ones. This comes from the fact that China went from analogue to mobile without a sizeable, computerised era. As such, customers were born mobile-first and blending online and offline comes naturally for 97% of them, which means that a purely transactional approach does not work. Content and storytelling are key, as everything is about providing authenticity, emotion, and experience to customers who lack brand knowledge, but who learn fast. As such, Alibaba Group has focused very early on content creation, streaming, and social commerce on B2C and C2C platforms.

The Tmall Luxury Pavilion was launched in 2018 at the core of Tmall, not separate, to maximise the value of the 800m MAU traffic. This proved to be a winning formula: the Tmall Luxury Pavilion addresses the needs of 120m customers, of whom 60% are members of the “88VIP” loyalty programme. Out of these customers, the top ones spend an average of $14k a year on the platform. 5% of the customers provide 35% of the revenue.

Tmall focuses on customer experience, service digitisation, clienteling, engagement and innovation to always bring something new to clients. This means that, besides the transaction, Tmall aims to excel at product and brand push, search optimisation, and customer education before the purchase. Historically, in terms of brand proposition, Tmall and Tmall luxury started with premium labels, then moved to luxury brands, ultra-luxury brands, then niche. The current onboarding trend is all about super-specialized brands.

Tmall embodies the very notion of omnichannel retail

97% of Tmall’s clients are omnichannel customers, as they purchase on every possible platform, online or brick-and-mortar, and products are coming from a wide variety of fulfilling options (brands’ warehouses in or outside of mainland China, such as Farfetch and YNAP who ship their products from Hong Kong, brands’ partners’ warehouses…). Brands must team up with a partner to operate on Tmall, which acts as a mix between an exclusive multi-layered service provider and a retail representative .

In fact, Tmall, because it is a marketplace where brands must operate with a third-party partner, positions itself more as an amplifier than a pure retailer: they have the tech and the innovative tools to make brands stand out (AR, VR, digital collectables, virtual avatars, extended reality, blockchain…), which they offer to brands, allowing them to develop strong storytelling. An interesting point to make is that, for Tmall, customers are everywhere, be them end-customers, or brands:

• End customers are provided with a 360° experience with no boundaries between online and offline channels,
• Brands are given the space, tools, and capability to boost their creativity and offer an outstanding experience.

Tmall offers a wide variety of synergies between online and offline worlds and between end customers and brands, through various activations and activities: online and offline exhibitions, private viewings, made-to-measure service from online to store… For instance, Paris’ Place Vendôme was fully digitized and offered as a playground for brands, who could develop their creativity in this umbrella event and bring something new to customers. Numbers were astonishing: in 15 days, a billion customers attended the virtual event, they spent 1.7 times more time online, and new members joined the loyalty programme at a pace four times faster than in regular times.

Tmall has recently developed the “Meta pass,” a new activation that brings the online and offline worlds even closer: customers can purchase a digital collectable (NFT) in addition to the product, which provides them special access, benefits, or perks based on their ownership of the digital collectable. Cognac brand Hennessy recently used this approach to launch a new spirit.

Understanding the partnership with LVMH

Usually, brands are given the possibility to interact with and offer customers various perks on various platforms (for instance, a cashback from a purchase made on Tmall could be used on Taobao). VIC clients are leveraged through couponing, gifting, and payment instalments. To pilot this, brands have access to a dashboard that provides them with everything known about their customers’ behaviour on each platform (campaign ROI, CLV, information, etc.) and free access to Alibaba's technology.

The partnership with LVMH goes further, by providing additional, and exclusive, capabilities. It was not unforeseen as it started by a cooperation with Alibaba Cloud in 2020, focusing on data, omnichannel capabilities, and AI. Thirty LVMH brands then moved to the Alibaba Cloud for their Chinese operations, and some extended this partnership to the region.

This new deal allows LVMH to push this collaboration further: Alibaba provides LVMH access to 2 new AI languages the group has developed, and to a dedicated machine-learning platform. This, in turn, allows LVMH brands (including Sephora and DFS) to fully differentiate: their messaging, positioning and product proposition is less standardised than in the past, less similar from the competition, and more tailor-made to each brand.

In short, this partnership allows LVMH to tap into Alibaba’s vast investments in AI to leverage their operations in China (and potentially in the region) by:

• Fine-tuning their omnichannel strategy and limited-edition approach in a customised way for each customer,
• Create new digital experiences with more interesting shoppable content,
• Use new, state-of-the-art CRM tools that can be then seen as use-case for potential deployment outside of the region

*Given the size and the power of LVMH, such a deal with Alibaba/Tmall can appear surprising at first glance. However, one must keep in mind that, for many different reasons, the gap between how the West and the East operate in retail is increasing, and China, a strategic market for luxury, is a very good illustration, with customer behaviour and retail channels that simply do not exist in the US and Europe.

When looking at the current dynamics in China, it seems that the return to pre-pandemic international travels levels is very difficult to forecast: Chinese customers are increasingly favouring local consumption and local brands, all the more that, due to the COVID-19-related travel restrictions, they have been encouraged to rediscover their country instead of travelling abroad. As such, the incentive to travel far away has reduced. Also, another consequence of the pandemic is that they have taken even more the habit to inform themselves on social media, which suggests that anyone targeting them at a granular level needs to be efficient on social media platforms. It is difficult for foreign companies to do so, independently of their size or purchasing power.

This strategic alliance between LVMH and Alibaba can be therefore seen as the recognition by the French luxury group that such a different market as China requires a different, and individualized, approach, but might also show that, for them, the widening gap between how business is done in Europe/US on the one hand, and China on the other hand, is not going to resorb, and as such, a local partnership (whatever its size) is needed to project the business in the future.*

Credits: IADS (Selvane Mohandas du Ménil)