China’s luxury goods market is back in business. The industry was badly subdued by President Xi Jinping’s 2012 anti-corruption drive, which halted a decade of heady growth, while the stock market crash in 2015 further sapped consumer spending.
Last year, however, marked a recovery point. The luxury goods market grew by a modest but significant 4 percent, according to consultancy Bain & Co. Kering Group said in February that its same-store sales in 2016 increased by 11 percent in Asia, mostly led by a rebound in China, while Hugo Boss’s mainland sales increased close to 20 percent during 2016. In January, Burberry said it was returning to expansion in Asia due to “high single-digit comparable sales growth” in China and in a recent market note, analysts at investment firm Exane BNP Paribas predicted continuing luxury growth during 2017.
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Digital China: New frontiers in online innovation
Part of the reason for this rebound is the way luxury brands are innovating in China’s fast-moving digital space. Having been slow to move in this market, brands are finally pushing into new digital technologies. A joint study by Exane BNP Paribas and ContactLab, published in February, concluded that more luxury brands are increasing their presence on a variety of platforms they had previously avoided, including ecommerce portals such as Tmall, Secoo and JD.com.
They are also integrating into online platforms such as WeChat and launching marketing campaigns to domestic social media such as Weibo. Coach, for example, has offered coupons on WeChat and launched media campaigns on Weibo, while Cartier has introduced a product translation tool on WeChat.Burberry, meanwhile, partnered with Chinese model Wu Yifan for its 2016 menswear line, allowing him to share exclusive content via his hugely popular Weibo account.
As these luxury brands experiment, they are starting to embrace other, newer technologies including livestreaming, virtual reality and augmented reality as well. Hugo Boss launched a virtual reality campaign on WeChat in January that took visitors to a virtual boutique to do their shopping, while the luxury site Mei.com livestreamed a fashion show in September in collaboration with Tmall, receiving over 5 million online interactions and selling more than 65 percent of featured products. In August, the luxury travel brand Zanadu opened what it says is the world’s first VR travel concept store in Shanghai, featuring cinematic virtual reality films: visitors use Samsung Gear head-mounted displays to explore hotels, destinations and activities before booking their trips.
“What has been most interesting is how luxury destinations and real estate have been embracing new technologies to get to market,” says Marc Arnold, chief strategy officer at RTG Consulting. “For example, leveraging big data to understand the behavioural characteristics of their target market, using the data to develop emotive campaigns for their target consumer and then using new technologies to bring to life a campaign that is more personal and interactive with the consumer.”
Even brands known for traditional products have experimented with digital. In September, Montblanc hosted a livestreamed event with the astrological guru Uncle Alex in honour of its new Boheme collection, leading to over 1.9 million clicks to view and 195,000 simultaneous users during the broadcast.
Swarovski targets China’s independent urban women
One example of luxury brands targeting China’s new urban elites is Swarovski’s 2017 Valentine’s Day campaign. The crystal brand created an interactive campaign featuring the actor Maggie Jiang, who played two roles — herself and Jiang Lai, her character in the TV show To Be A Better Man.
The campaign starts with a simulated WeChat group chat between the two characters and Cupid, and then sends the consumer a video. By picking their own relationship status, the consumer follows the relevant character and their story.
The campaign was designed both to appeal to independent urban women in China and to challenge traditional concepts around romance and Valentine’s Day: the plot in Jiang Lai’s video reverses traditional gender roles and sees her propose to her boyfriend.
Battle lines: To Be A Better Man star Maggie Jiang took on her alter ego in this tale with a twist
Digitalisation also allows luxury brands to gather data on new audiences. “Most luxury brands’ new initiatives are now articulated around their online CRM activities in China or, more specifically, their social CRM since WeChat is becoming more and more the backbone of such initiatives,” says Pablo Mauron, managing director, China, at the Digital Luxury Group.
“However, while the technology and the platforms fully allow this, brands need now to tackle several challenges when it comes to integrating their existing infrastructure with WeChat, especially in terms of confidentiality, infrastructure, integration to existing CRM databases and in-store activities. This is a topic that has kept us very busy with several clients in the past months.”
There is a concern that mass digitisation may damage the quality, exclusivity and heritage feel of the brand in the eyes of consumers, which partly explains why the luxury sector has typically been more digitally cautious than other industries. Linked into this is also an awareness that for China’s aspirational consumers, what is defined as ‘a luxury experience’ is shifting. It is no longer simply about the label itself, or the high-quality service a customer might receive in-store.
“The aspiration of luxury used to be status or discernment. It is now becoming about humanity, individuality and connectivity for the new generation,” says Arnold. “So, how to bring back poetry and a seductive language that they yearn for? Those are the questions that smart luxury brands will answer in the present future to win the heart of consumers.
“In fact, the real challenge for the luxury industry is to take advantage of the digitalisation without compromising the codes that make luxury brands what they are.”
While platforms such as WeChat remain essential for reaching consumers, traditional luxury brands in China would do well to keep one eye on the new startups emerging in the country in this sector. These include digitally-native ecommerce websites like Kaola.com and Mihaibao, and startups like SECOO and Share2 that offer second-hand luxury products. Several luxury houses have already partnered with new O2O site 5lux.com, where customers can buy brands including Dior, Gucci, and Bulgari online but collect purchases in-store, or buy products in stores and have them delivered to their homes.
One of the key challenges in the luxury sector’s move to digital is the fight to win over digitally minded and increasingly wealthy millennial consumers, as well as the age group that comes after them. Research from RTG looking at the emerging consumers in ‘Generation Z’ concluded that they were continually looking for ‘deeper meanings’ in their everyday existence. “While acknowledging the importance of the material, never before has life been so spiritual as it is for Generation Z. Questions surrounding the deeper meaning of life tightly hold our new generation,” the report says, citing an interest in handcrafted goods, creative arts and collective wellbeing.
Millennials, likewise, are harder to impress than previous generations, the luxury sector is finding. “Millennials are more sceptical than any other generation towards advertising messages and that, in turn, means brands need to adapt: communications must be more authentic, instantaneous and meaningful,” says Mauron.
One example of brands getting this wrong can be seen in the criticism Victoria’s Secret met when it livestreamed its recent Paris fashion show in stores. The brand has been heavily investing in China’s digital space for several years, but only recently opened a full flagship shop in Shanghai. Draping models in dragon costumes on the runway irritated many of its Chinese viewers, who found it patronising and distasteful. The Global Times newspaper even said the show rubbed “Chinese consumers the wrong way, with ill-conceived Chinese-inspired elements.”
When done well, however, younger consumers who crave something ‘real’ respond very well to livestreaming in the luxury sector. L’Oréal’s beauty brand Maybelline decided to livestream the announcement that Chinese icon Angelababy was its newest ambassador through the broadcasting platform Meipai, with a direct link to its Tmall store. The brand sold over 100,000 lipsticks during the two-hour stream.
“Historically, luxury brands mostly defined themselves through stories about their heritage,” says Arnold. “However, the new generation of digital savvy-consumers are looking to explore a brand by themselves. Consumers want to be involved in the stories, and they want an experience. Given this new dynamic, it is essential for luxury brands to start carefully listening to their consumers and optimising campaigns and especially creative content to be social-friendly, community focused and conversational.”
Brands that choose not to innovate in this way may be running a risky game. Despite recent developments, China’s luxury sector is still not seeing the growth it once saw, and its recent boom isn’t simply a result of digitisation. Terrorist attacks in Europe largely kept Chinese consumers spending at home in the second half of 2016, further encouraged by the global normalisation of prices at brands such as Richemont, Cartier and Chanel.
The sector is still very fast-paced, too, and luxury brands must balance innovation with retaining their historical values if they want profits to last in the long-term. “The principles of luxury are built on the idea of scarcity and exclusivity, which goes against the ‘anything, anytime, anywhere’ [mindset] that the digital savvy audience is used to,” concludes Mauron. “It becomes key for brands to find the right balance between targeting these aspiring consumers and build their brand awareness without alienating their core consumers — the ones driving their current sales.”