Chinese shoppers have regained their appetite for luxury brands

20 Feb 2017 , 12:00pm

China’s luxury goods market is showing signs of growth for the first time since the beginning of President Xi Jinping’s austerity and anti-corruption campaign in 2013.

The recent lull in Chinese consumers’ interest in luxury brands emerged in the aftermath of a period of incredible growth for luxury in China, wherein sales of luxury goods expanded around 19 per cent annually between 2007 and 2014 and countless international luxury brands launched their flagship stores in the country.

However, President Xi’s crackdown on ‘gift giving’ and other forms of government corporate entertainment in 2013 has since coincided with a slowdown in the Chinese economy and poorer consumer sentiment over the last several years – together, a troubling mix for luxury brands. Data collected by consultancy Bain & Co showed a stagnant luxury sales market in China between 2012 and 2014, and a 2 per cent contraction in 2015 at constant exchange rates.

Signs of recovery 

As data trickles in for 2016, however, the outlook in China is finally starting to look rosy again for domestic and international luxury companies. Bain & Co have reported 4 per cent growth in Chinese luxury consumption over the course of last year, with analysts citing a recovering equities market, growing house prices in China’s biggest cities and the efforts of luxury brands to harmonise local and international prices for Chinese consumers as the financial drivers behind the country’s recovering appetite for luxury goods.

A host of international luxury brands – among them, Burberry, LVMH, Swatch, Coach and Hugo Boss – have reported stronger performances in their China business over the second half of last year. However, analysts have noted that Chinese consumers also seem to be widening their embrace of domestic luxury companies and ‘reshoring’ their luxury spend.

President Xi’s anti-corruption crackdown, though still firmly intact, is also easing in its effects as the initial zeal of early enforcement efforts begins to fade. Erwan Rambourg of HSBC told the Financial Times: ‘The anti-corruption campaign has not disappeared, but its impacts have. Business-to-business gifting has probably started to pick up again – that’s part of the way you do business in China.’

E-commerce buoys market 

To capitalise of China’s recovering luxury market and the newfound financial clout of the country’s middle class, international brands need to tailor their marketing strategies to the unique preferences of Chinese consumers. ‘The reality is that the majority of European luxury brands do not understand Chinese consumers,’ Contactlab chief executive Massimo Fubini told The Drum, highlighting in particular the Chinese preference for mobile, digitised and highly personalised luxury shopping experiences. Embracing e-commerce will be essential for any luxury brand looking to build its presence in China, but will require significant rewiring for those many high-end brands in the West who have long relied on customers’ in-store experience as the crux of their point-of-sale marketing strategy.

Sources: Financial Times; The Drum; The Epoch Times