Coach abandons Tmall as Alibaba continues battling counterfeit (BABA, COH)

Coach abandons Tmall as Alibaba continues battling counterfeit (BABA, COH)

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US-based luxury brand Coach officially shut down its portal on Alibaba-owned Tmall last week, reports The Wall Street Journal.

The company will instead only sell in China via its own branded website and on its WeChat account. While Alibaba reports that Coach's decision is purely to "adjust its operational strategy," luxury brands are likely reassessing partnering with the China-based e-commerce giant as it battles counterfeit goods on its marketplaces. However, China is one of the biggest luxury retail markets in the world, meaning retailers have a lot to lose by opting out of the country's top marketplaces.

Coach is leaving one of China's biggest online marketplaces just as its sales begin to rebound. Total sales for the luxury goods retailer had been declining for years, and only began to grow again during Q4 2015. During Q2 2016, Coach experienced total sales growth of nearly 15% year-over-year (YoY), totaling just over $1 billion.

Based on this recent favorable performance, leaving one of China's biggest online retailers may serve as a disadvantage for Coach. Alibaba's 434 million global active users gave the company a massive potential audience to market its products to.

More luxury brands may exit Alibaba marketplaces as counterfeits continue to be sold on the market. Alibaba has been on the Office of the United States Trade Representative's watch list for counterfeit goods since 2008. And in May, the company was suspended from the International Anti-Counterfeiting Coalition due to protests from other retail members citing Alibaba's lack of strict policing over counterfeits.

In response, the company rolled out a new counterfeit detection tool in July. But this tool may be too late considering the company's extended history with counterfeit problems, and Coach's recent decision to shut down its portion of Tmall completely.

Leaving Alibaba could leave foreign luxury brands at a disadvantage. China's luxury market totaled about $20 billion in 2015, according to a report from Bain & Company. Moreover, Alibaba reported $126 billion in global gross merchandise volume (GMV) during Q2 2016. Luxury brands — and general retailers — have a significant asset in partnering with Alibaba to reach its millions of shoppers.

Instead, Coach will be selling in a saturated market without Tmall's platform increasing visibility. Despite Alibaba's counterfeit woes, luxury brands could decide that the benefits outweigh the risks in addressing Chinese luxury shoppers.

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