Complacency of Luxury Brands and the Chinese Customer

Endaba Group

Chinese shoppers were once the all-important ingredient for luxury brands, totalling a third of global luxury product sales, mirrored in a decade of store openings and consumers flocking to the region for their luxury goods. 2008 to 2011 saw a 42% spike in the number of luxury retail stores in Asia, compared to the 28% rise in Europe and 5% in North America.

However, that luxury spell didn’t just fizzle, it shattered, sending stores into a store-closing frenzy as the shadow of President Xi Jingping’s government austerity and anti-corruption campaigns, economic slowdown and weak consumer sentiment took hold.

And yet, recovery seems to be on the horizon. Chinese shoppers are currently shifting their resources for luxury purchases from abroad to China, evidenced by the foot traffic rise in opulent Shanghai malls, surging Swiss watch sales and top European luxury brands, like Burberry and LVMH, reporting sharply improved revenue from China in the second half of 2016. These strong sales were driven by higher property prices, narrower gaps between domestic and international prices and a curb on overseas purchases. To enable that, the Chinese government has opened designated duty-free zones and slashed luxury goods duties to promote domestic consumption. There is also a growing middle class with more disposable income for luxury purchases which goes beyond personal luxury goods, such as luxury cars, fine foods, luxury hospitality and furniture.

But, luxury brands are still struggling. And as the country’s three-year anti-corruption campaign comes to an end and spending is on the up, what can brands do to prevent being implicated in another downturn?

One of the most urgent needs for the luxury fashion industry is the need to innovate!

Customers have changed how they define luxury and the new path-to-purchase is redefining strategies; for one, customers are expecting their purchasing of a product or service to be an experience. The industry does not lack the creative talent to address this innovation challenge. Luxury’s unique aversion to change comes from finding the balance between heritage and prestige versus innovation and novelty.  Luxury brands need to be flexible, deft and innovative to gain favour with the new luxury customer!

The reality is that most European luxury brands do not understand Chinese customers. The brands need to implement an equally sharp branded presence across all channels to survive; a strong digital strategy; to allow them to reach customers outside of big cities; a greater focus on how to interact with the digitally savvy and social Chinese customer to localise customer engagement so that it suits them.

Many brands are changing in baby steps and modest tactical shifts. Slow evolution won’t cut it anymore. The rapidly-changing times today call for reinvention and innovation so that they can meet consumer behaviour and demands.

Ultimately, luxury brands play the long game. For the agile brands, the actions they do today determine their longevity for the next few decades.