Armani: Expanding Customer Reach from Retail to E-Tail in China
The Armani Group designs, manufactures, distributes and retails lifestyle and fashion products around the world. Armani first entered China with its 1,100 square meter Shanghai flagship store in 2004, and has since opened boutiques in more than 40 major Chinese cities. Like many western multinational companies, Armani plans to expand aggressively in China in the coming years where it aims to open at least 35 new sales outlets annually. Given that China should become the world’s largest luxury market by 2015, Armani seems to have picked the right country to place its international investments.
Armani’s China retail model combines third-party resellers with direct stores totaling over 180 points of sales nationwide. While there are high concentrations of luxury consumers in urban centers like Shanghai and Beijing, it takes time to build brick and mortar boutiques to meet the needs of China’s luxury consumers who reside in second and third tier cities. Given the limitations on expansion, Armani was missing out on an opportunity to reach potential customers beyond the scope of their existing operations.
Chinese luxury consumers are, on average, relatively younger than their counterparts in developed countries. Forty-five percent of Chinese luxury consumers are between the ages of 18 and 34 years old. Additionally, China is home to the world’s largest Internet population with 200 million online shoppers who spent 750 billion RMB online in 2011. Armani found that opening an online store would tap into both of these trends and enable it to expand its reach into third and forth tier cities where it could connect with young technology savvy luxury consumers. Armani partnered with YOOX.com, a global operator of luxury e-commerce websites, to build an online storefront tailored specifically for Chinese consumers at Emporioarmani.cn.
Through Armani’s partnership with YOOX, the Italian luxury group expanded its reach in mainland China. Its online storefront provided an Armani retail experience to potential customers regardless of whether they were located in Beijing, Harbin or Urumqi. By understanding the dynamics of the Chinese market, Armani developed a solution that enabled it to effectively scale its operations online, while its brick and mortar operations caught up offline.
The China Observer View:
Building effective distribution networks and managing channel partners are top of mind issues for western multinational companies operating in China. As a result, partnering with third party distributors is almost unavoidable. However, progressive companies should consider e-commerce solutions to expand their reach and mitigate the risks associated with partnering with several different distributors across the country.