Decoding LVMH’s partnership with Alibaba

This article on LVMH and Alibaba is part of our Vogue Business Membership package. To enjoy unlimited access to Member-only reporting and insights, our NFT Tracker, Beauty Trend Tracker and TikTok Trend Tracker, weekly Technology, Beauty and Sustainability Edits and exclusive event invitations, sign up for Membership here. LVMH and Alibaba have cemented a deal that will help the luxury conglomerate increase its omnichannel, data and digital capabilities in China, while the tech giant will benefit from LVMH’s halo effect, signalling a buckling down in the region as sales continue to slump. Through the partnership, LVMH has begun integrating Alibaba Cloud’s generative AI capabilities, including a comprehensive AI model-building platform called Model Studio (Bailian) and Qwen, its proprietary large language model (LLM), into its chat interfaces and wider clienteling experience and services. “These AI [capabilities], which are similar to ChatGPT, can facilitate more customised recommendations alongside providing more digital assets that can enable consumers to have a richer shopping or brand experience,” explains Tom Nixon, co-founder of digital marketing agency Qumin. LVMH first implemented Dataphin — Alibaba Cloud’s data management tool — in 2019 to deliver personalised services through a bespoke platform called LVMH Atom. The luxury group has also used Alibaba Cloud’s machine learning platform, known as PAI, to develop customised services for Chinese consumers across all its brands. Around 30 of its leather goods, jewellery and beauty brands already leverage Alibaba’s digital capabilities for live streaming, virtual try-on and 3D product display inside Alibaba’s Tmall Luxury Pavilion. Qwen’s data analysis capabilities can potentially further enhance LVMH Atom to deliver personalised experiences and targeted promotions to the customer and valuable insights to LVMH. Aurelien Rigart, MD and co-founder of digital consultancy IT Consultis, says that this partnership means LVMH can change how it approaches content creation, such as adverts and physical displays, to customer service. The five-year extension comes as little surprise given the current volatility in the Chinese market and soft Q1 earnings. LVMH reported in April that sales for the quarter rose 2 per cent, while Asia, excluding Japan, declined by 6 per cent. China’s luxury sector, worth RMB 816 billion ($115 billion) according to PWC, is a vital component of any C-suite’s long-term strategy, but it’s difficult for international brands to navigate. China is a highly specific, complex market with “a unique digital ecosystem and market dynamics”, says Rigart. “It’s shaped by dominating super-apps, complex local data regulations (i.e., China Personal Information Protection Law), and the Great Firewall,” he outlines. The country is the most advanced market in the world when it comes to digital penetration, agrees Luca Solca, senior analyst at Bernstein, responsible for global luxury goods. Having an on-the-ground partner has become a common strategy for international brands to get a leg up and a clearer understanding of their Chinese consumers. LVMH is no different. Alibaba is a safe bet as it’s a “dominant player” that can provide “very high service levels”, Solca says. Amid fierce recent competition from tech companies like Pinduoduo and JD.com, Alibaba has increased investment in Alibaba Cloud infrastructure; the company said this has led to double-digit growth across key metrics including GMV. “The luxury market is very competitive and demands that players stay on top of new fronts that are opening up — we are seeing rising complexity and accelerating tempo in competitive dynamics,” Solca adds. He estimates that digital sales for LVMH in Fashion and Leather Goods were approximately 9 per cent — “China would be comfortably in the teens,” according to Bernstein’s understanding. “By integrating more AI into their operations, [LVMH] can aim to achieve their goal of stronger omnichannel capabilities in the coming years,” Rigart says. This ongoing partnership is also about “crafting digital journeys for customers — not selling handbags”, Nixon says. Three of LVMH’s most well-known jewellery labels have already elevated their experience on the Tmall Luxury Pavilion. Tiffany, Bulgari and Chaumet were the first to launch virtual flagship stores using the platform’s Luxury Stage model — a highly customisable digital arena that allows brands to build next-gen Tmall stores. Chaumet collaborated with Tmall’s 88VIP loyalty programme in March to provide exclusive offline jewellery experiences to a selection of its VIP clients. Such features support LVMH brands with their ultimate aim of “putting the right product at the right place at the right moment to reach the right customers”, Gonzague de Pirey, chief omnichannel and data officer at LVMH, told Alibaba’s news outlet Alizila recently. Nixon cites a broader shift in luxury globally towards more immersive storytelling in longer-form content, such as film, as well as a move away from high tech towards wellness and connectedness to tangible emotions and experience. Here, “data is fundamental” in understanding and predicting these consumer shifts. In simple terms, Alibaba’s AI and cloud capabilities make sense of the mammoth data points that LVMH can funnel from CRMs in stores. “Digital experiences have the risk of not creating that human authenticity so I think that will be where it will ensure things like movies and new experiential spaces engage people emotionally but with the data hidden away,” he explains. The use of LLMs and AI capabilities will not only “personalise and elevate” the luxury shopping experience but also “drive operational efficiencies”, notes China marketing consultant Amber Wu — ultimately facilitating sales. AI is already being used to streamline supply chain management, ensuring that inventory is managed efficiently, thus reducing overproduction and ensuring products are available when and where customers want them —again reinforcing LVMH’s mantra. Franck le Moal, group IT director and CIO of LVMH, told Alizila in November 2023 that the group is already using data from the supply chain and from various markets in order to “finetune the level of products it needs to produce” in multiple use cases such as in fashion, wine and spirits, and fragrance. According to Alizila, data-driven insights on and off the platform allow LVMH to gauge how new products will stir consumer interest. In an interview, de Pirey said it was “thanks to data and AI” that the company has “more accurate forecasting”. He estimates that using AI increases accuracy up to 10 times along the supply chain. “For LVMH, it can [help them to] predict which city or area has the customers that want which items most or least and even pinpoint the peak time,” Wu predicts. Going beyond China, the LVMH Group considers Alibaba Cloud a “global partner”, a spokesperson tells Vogue Business. “The capability for Alibaba Cloud to act locally but also to act globally is destined to help us unleash more potential in global markets,” they state. Alibaba’s data bank includes information from Alipay and the capture of travel behaviours through Fliggy, the company’s online travel platform. “Understanding the global Chinese consumer — not only within China — gives you a competitive advantage. That is pretty powerful,” Nixon concludes. Especially with the upcoming Olympic Games on the horizon. Comments, questions or feedback? Email us at feedback@voguebusiness.com. More from this author: Inside the Chinese beauty boom What can luxury brands do to boost sales in China? Olympics fever takes over Taipei Fashion Week

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