A screenshot of Xiu.com

Liu Ming, 33, used to work for a website in Shanghai providing information about luxury goods. When he saw a good opportunity in the online luxury retail market, he also wanted to have a try. Liu moved to Beijing in 2010 to research the market for a year, but eventually he gave up.

"Running a website that only sells luxury goods will not be successful," Liu told the Global Times.

While many people believe there are huge profits in the online luxury industry, there have been some warning signs that there is too much optimism toward the business. Some companies in the sector were forced to close at the end of last year.

Chinese Internet portal netease.com closed l.163.com, its online luxury goods shopping platform, on December 31 last year. The site offered watches, bags, leather products, shoes and jewelry from the world's top luxury brands, with discounted prices, but it was only open for one year. Netease didn't explain the reason for the closure.

It was also reported that the website of another online luxury retailer, wooha.com, had been hacked in December last year due to its failure to pay the wages of its employees.

Top brands disapprove

Around 40 e-commerce platforms are currently involved in the luxury retail business in China, but only 10 of them are doing well, according to Ding Jiaqi, an e-commerce analyst with consulting company iResearch.

Most of the online luxury retailers do not have authorization from the brands, said Liu Ming, which places a question mark over their supply chain. It also causes a problem in terms of after-sales service in case of quality problems, not to mention the risk of buying counterfeit goods, Liu noted.

Normally, online luxury retailers hire buyers to purchase luxury goods in outlets overseas, and most of the products are from last season. The goods are then brought back to China and sold at a lower price than in the official offline stores.

French luxury groups LVMH and PPR, and Swiss firm Richemont - which together own many of the world's most famous brands, such as Prada, Gucci, and Cartier - have said that they have not authorized any website to sell their products online in China, according to Ouyang Kun, chief executive of the China office of the World Luxury Association, a non-profit organization providing reports related to the luxury product industry.

The three companies are also looking into ways to clamp down on unauthorized sale of their goods, such as limiting the amount of goods individuals can buy, said Ouyang. This would force buyers to make more overseas trips to purchase the goods, which would raise costs for the online retailers.

Battle over exclusivity

The sales revenue of online luxury goods sold in China amounted to 10.73 billion ($1.7 billion) yuan last year, up 68.8 percent from 6.36 billion yuan in 2010, according to iResearch.

Online prices of luxury goods are lower than in traditional offline stores due to the lower operation costs.

"The cheaper price of online luxury goods really helps with the sales, but the lower price hurts the offline stores' interests," Chen Yong, chief operating officer with the e-commerce platform of Keer, a Beijing-based jeweler, told the Global Times.

"Nevertheless, luxury brands are targeting a minority group who have high demands in fashion and taste, so the prices are still so high that ordinary people can't afford them," Liu noted.

The online luxury retailers want more people to afford high-end items, but such a drop in exclusivity is the opposite of what the brands want, said Liu.

If the products sold on websites are genuine, brand owners can't accuse the websites of trademark infringement, even if the websites don't have the brands' authorization to sell them, Liu Jiahui, a lawyer at Beijing-based Derun Law Firm, told the Global Times.

So long as the websites haven't copied any of the brands' advertisements or slogans, the brands have no legal grounds for suing them, Liu noted.

But some brands are still trying to obstruct sales of their products by the websites.

Tissot China said it would not provide after-sales services for products sold on e-commerce platform dangdang.com, after the website sold Tissot watches with 25 percent discounts for Fathers' Day last year.

Austria-based luxury crystal brand Swarovski also announced last month it hadn't given authorization to any website to sell its products and that it would take action against retailers selling its goods illegally in China.

US-based luxury brand Coach opened an online store on B2C platform tmall.com in December last year. It was open only for a one-month trial, selling limited-edition bags and accessories. The brand said it would be helpful to find out more about the e-commerce market in China.

However, Ding from iResearch said the conflicts caused by price differences can't easily be solved in the short term. The lower prices at Coach's online store would hurt its offline stores' interests, and the company also can't differentiate the supply chain clearly between its online and offline stores, said Ding.

Aiming lower

"It would be a dead end if we limited ourselves to selling only luxury goods," said Wu Yingru, public relations manager at Xiu.com, an e-commerce website selling middle- and high-end products.

Xiu.com focused on renowned luxury brands when it began in 2008, but it has started selling more affordable items as well.

"The proportion of luxury goods sales for the website has fallen to 15-20 percent. We are now trying to cooperate directly with less famous brands, which can ensure regular supply, as it's really hard to cooperate with top luxury brands," Wu said.

Besides, the market for online luxury retail is still not mature because customers have not yet formed the habit of buying expensive items from websites, Wu noted.

Xiu.com's sales revenue rose from 250 million yuan in 2010 to 1 billion yuan last year following the decision to offer more affordable goods, Wu said.

Various other websites have also changed their focus from high-end clients to a broader, less affluent customer base, such as vipshop.com and vipstore.com.

"Online retailers can't survive if they only focus on luxury goods sales, due to the low credibility of the websites, limited purchasing base and higher operation costs than normal e-commerce platforms," Chen Shousong, an e-commerce analyst at Beijing-based Analysys International, told the Global Times.