This piece first appeared on our sister site, Jing Daily.
The government of Hainan, perhaps China’s most lush and booming resort region, has cut an unusual deal with giant Chinese online luxury retailer Secoo. Its hybrid arrangement will now offer duty-free goods to travelers in airports, in the island’s hotels and online through Secco. More and more online retailers are selling their goods in stores these days, but the fully-fledged cooperation with a local government is a pioneering twist. As a unique location for luxury brands, Secoo is looking to Hainan’s government to help them bridge the gap between a growing online presence, and offline duty-free luxury retail.
Why is the partnership with Hainan a significant move?
Dubbed as ‘China’s Hawaii,’ Hainan is a hub of high-end shopping and entertainment, but more importantly, it’s been consistently promoted by the Chinese government as the crowning example of President Xi Jinping’s successful liberal economy.
The Chinese State Council started to run duty-free programs in Hainan as early as in 2011 intending to make it a world-class tourist destination by the year 2020. In Hainan, duty-free sales have generated $4.7 billion over the past seven years, and sales are still going strong. The government even said it would partly lift internet censoring in the area to help further lure foreign tourism.
With 18 million members, Secoo is much smaller than online heavyweights Alibaba and JD.com, but it has managed to grab a dominant slice—25.3 percent—of luxury e-commerce sales in China. And now, after spending a decade dedicated to the sale of authentic luxury goods, Secoo has announced its reward: a $175 million investment partnership with a private equity fund co-owned by the French luxury group LVMH, L Catterton Asia, and JD which should help to boost Secoo’s name internationally.
Just a week before releasing word of this alliance, Secoo announced its strategic partnership with the Hainan government. This move could give the company a huge boost in duty-free luxury retail sales—and give Secoo the opportunity to carve out an even larger share of the luxury market.
For e-commerce sites like Secoo who face heavy-duty import taxes, working with a major duty-free hub is an especially attractive offer. And since the Chinese government has established Hainan as a Special Economic Zone, Secoo can take advantage of the tax-free benefits of its new headquarters—right in the capital of Hainan.
After speaking with a Secoo spokesperson, Jing Daily has learned that there are, in fact, several new routes for the company’s offline expansion into Hainan. The China-focused initiatives will use both online and offline channels to showcase and trade Chinese cultural products. One goal will be to set up new duty-free stations in Hainan shopping malls and sell duty-free products in high-end island hotels. Customers can simultaneously check out duty-free products at Secoo’s online e-commerce mall.
But besides being able to take advantage of duty-free retail, there’s another benefit of the Hainan partnership: Secoo’s potential growth as a luxury online travel agent. One example is how Secoo plans to work with the Hainan tourism department to develop a high-end watersports program for tourists—a docket that would include activities like sailing, scuba diving, and fishing, not to mention an international series of lotteries and game tournaments. These activities have solid backing from the government, as is obvious from this April announcement from President Xi.
A high-end lifestyle platform
As Chinese luxury consumers continue to mature, the desire for experiences—like a custom trip to Hainan or elsewhere—is starting to take precedence over luxury goods. But that hasn’t stopped e-commerce companies from trying to figure out how to lure curious travelers to shop online for travel packages.
Taking on the travel industry is another big slice of the online sales pie for retailers (when we checked the Secoo site, there were only a handful of travel package reservations), but is Secoo spreading itself too thin with the move into travel sales, or is the company strategically planning on other ways to facilitate its luxury goods sales?
According to Secoo, luxury sales won’t infiltrate their travel program. The travel platform is—for now—placing service before sales. Secoo expressed concern that soliciting merchandise could taint the consumer experience (though they’re open to developing sports-related itineraries that use branded products).
This April, Secoo launched a rebranding effort that saw them unveil the umbrella term ‘lifestyle business’ in their quest to provide travel solutions for their increasingly travel-friendly shoppers. The retailer recently highlighted a 48-hour capsule travel package from Beijing to Hainan—a particularly popular junket among users who want a short getaway to celebrate a birthday or anniversary. A Secoo spokesperson told us that those 48-hour packages fall under “flash-sales” and aren’t a part of the overall sales number of the travel platform. Regardless, ever since they officially launched their travel sector in Q4 2017, Secoo has seen impressive growth. A Beijing city experience, for instance, which cost thousands of RMB, sold out on the site after three days. And Secoo is planning to expand their trip packages to other international cities like Chengdu and Hangzhou.
Due to China’s boom of outbound travel, the company has also expanded its travel sales ambitions—overseas. Soon it will work with the Sri Lanka Tourism Development Authority to launch relevant products and tourist activities in that region. Secoo explained that Sri Lanka is an important link in the Belt and Road initiative and they feel that high-end travel in that market hasn’t been fully explored. Needless to say, there is great potential to attract culturally curious, high-net-worth Chinese travelers. In order to find more travel-minded consumers, as Jing Travel reported previously, Secoo has also partnered with the HNA travel group’s agency Caissa to help develop customized luxury travel packages.
By establishing their headquarters in Hainan, Secoo is looking to expand fully into Chinese luxury duty-free shopping and high-end travel. Though it’s unknown whether combining offline retail and travel will help Secoo move ahead of their larger e-commerce competitors, the move will at the very least lure luxury brands who still prefer department stores to platforms that are solely online.