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This start-up is betting on more luxury consumption
The global economic chill may have helped cool the runaway growth in luxury brands as consumers start to think twice before splurging. One e-commerce player, however, is hoping for an Indian summer.
Daniel Lim, one of the co-founders of Reebonz, said the "aspirational middle class" - particularly in Asia - will underpin demand for personal luxury products.
Reebonz sells new and pre-owned designer bags, shoes and other personal luxury items on its website and mobile app. It has a service, Reebonz Closet, available in selected markets, that lets users buy and sell directly to one another.
Merchants from around the world are also able to list their items on Reebonz Marketplace, creating variety in selection. The company also has in-store presence in Australia and pop-up stores in Singapore.
Lim's forecasts come at a somewhat challenging time for personal luxury goods. A study by management consulting firm Bain & Company released in December showed the real growth in the global personal luxury, at constant exchange rates, was only 1 to 2 percent in 2015. This compared with a 3 percent growth in 2014 and 7 percent in 2013.
Bain said in the report that a combination of currency fluctuations, contracted local spending, government reforms against graft, and tourist arrivals influenced regional performances in 2015.
"Macroeconomic factors will always be there," said Lim in an exclusive interview with CNBC. However, "luxury is one of the few classes of products, where people aspire to constantly upgrade," he said.
Erwan Rambourg, global co-head of consumer and retail research at HSBC echoed the sentiment, telling CNBC that luxury demand is "often driven by social, cultural and fashion trends rather than by mere financial means."
Unlike other purchases, luxury items have great resale value, the Reebonz co-founder added.
Online shopping has seen rapid growth over the last several years, underpinned by emergence of e-commerce giants such as Amazon (AMZN) and Alibaba . Euromonitor data showed in 2015, internet retailing totaled $990.7 billion worldwide, up from $851.20 billion in 2014.
Luxury players have been relatively slow to adopt e-commerce due to fear among brands of not being able to replicate the experience of in-store buying, according to Lim.
Data from Bain showed online shopping currently comprises only 7 percent of the luxury market, with 93 percent of market share still resting with brick-and-mortar stores.
But Lim expects more innovation to take place as more players explore online options and models to sell to customers. "We have only touched the tip of the iceberg," he said.
Since its foundation in 2009, Reebonz has expanded into several developed and developing markets in Asia Pacific, including Australia and Indonesia among others. While the company is still focused on Asia Pacific, it delivers to 30 countries worldwide, including the United States.
Last April, Reebonz entered Asia's largest luxury consumption market: China.
Lim said Reebonz's decision to enter China was influenced by favorable cross border e-commerce tax policies, the huge market for luxury, and strong local partnerships the company has forged.
Even though some of the tax policies that attracted his company to China are now being reversed, Lim remains unfazed.
Last week, China announced it will charge imported retail items purchased online in the same way as any other imported goods, scrapping a provision that enabled e-commerce companies to import goods more cheaply, reported China's Xinhua news agency. The changes will be effective from April 8, said Xinhua.
The move will see many e-commerce retailers experience a cost increase through higher taxes, according to Yating Xu, an economist at IHS Global Insight. Xu told CNBC the tax reform is designed to level the playing field for traditional retailers, who have, in recent years, been hurt by the tax benefits enjoyed by e-commerce players.
He acknowledged, however, the steep competition Reebonz faces from local players in China.
Many luxury brands, such as Burberry (London Stock Exchange: BRBY-GB), Estee Lauder (EL), and Calvin Klein, have launched e-boutiques on Alibaba's Tmall platform to penetrate broader areas of China, according to Hui Wan, research team lead at Euromonitor International.
Other brands such as Alexander McQueen and Balenciaga have established official websites "to present their brand image, launch their new collections and sell products as well," she said.
Wan told CNBC, currently "Chinese consumers [still] prefer to browse online but buy at the stores, especially for luxury goods purchases."
Lim is banking on Reebonz's strong reputation for selling authentic products, wide range of options and good customer service to make headway into the biggest luxury market in Asia Pacific.
"Penetrating China obviously will take a bit of time but I think we see a great opportunity there."
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