Robert Sue Tess Caven
Apr 5, 2016

What is the 'new normal' for luxury brands in China?

The luxury market in China is not in as much trouble as you have been led to believe. However, this does not mean brands can continue with business as usual and expect growth to return.

L-R: Robert Sue, Tess Caven
L-R: Robert Sue, Tess Caven

With China’s “official” GDP growth now quoted as having fallen below 7 percent and with the luxury market falling into negative growth for 2015, the reality of the country’s “new normal” is yet to be fully realised.

So what does this mean heading into 2016? Is there hope for luxury brands? What could be done to stimulate business? Here are some of our thoughts.

Shifting sands

On the assumption that currency and investment markets find a point of stability, many luxury categories should return to small levels growth by the end of 2016. Consumer confidence and spending will continue to be cautious, with focus upon highly selective luxury items or categories that are likely to retain or grow in value or fuel personal growth and standing. Wealth and status will continue to be defined by more diverse investments than the traditional luxury items (by traditional we mean those categories usually associated with luxury, such as watches, jewellery, fashion or accessories). Two industries that will continue to grow with this upscale shift will be travel (particularly experiential travel, as consumers look to display their achievements through experiences rather than destination and shopping), and Health and Fitness. Both symbolise a superior investment of time and effort—not just money. And just like 10 years ago when showing off the logo was the sign of wealth, where you have been and your body are now the new logos.

The Chinese traveller remains a hot topic. When it comes to getting on the desire list for the Chinese traveller (who still is likely to account for the largest portion of global sales), it remains vital to build the brand in China to influence spending outside of China. It is too late to significantly influence sales by targeting Chinese travellers when they are travelling using in-destination media. Investment in building the brand purpose and image within China will help brands get onto a traveller’s consideration list prior to travel, with deliberate outbound messaging acting as a trigger to destination decision-making. An example might be leveraging brand assets such as flagship boutiques (Cartier “Temple” on the Rue de la Paix Paris or 653 Fifth Avenue New York) or historic locations (Alfred Dunhill’s Bourdon House in London). Of course, having sales staff in those boutiques who understand the Chinese consumer is an obvious must-have.

For traditional luxury brands, those that will gain the most attention will be the ones that clearly offer something distinctive to the consumer—products that instantly stand out. Our recent Yangtze Study showed a clear trend toward a desire for distinctiveness and customisation. Not only will these products help define the brand, they will also draw attention to the person using them, again allowing them to tell the story. These distinctive collections need to be the primary entry point into the brand, particularly in communications. They do not have to be ‘limited edition’, super-expensive, rare or even best-selling. Those pieces the super-rich will buy anyway. The key is these collections are distinctive and clearly recognisable from the brand (for example, Jaeger leCoultre’s Reverso, Roger Dubuis’ Excaliber, Van Cleef & Arpels Alhambra).

The new language of luxury

Luxury brands that are brave will win. Moving at the pace of people is critical in maximising the effectiveness of communications. Abiding by the valid belief that good things take time and being careful to differentiate between fads and long-term trends, luxury brands are traditionally conservative in their nature. Faced, however, with the most empowered consumers in history, communications must be designed to achieve a better balance between brand heritage and traditions on one side and adaptation to local needs and behaviours on the other. Too often luxury brands stick to the tried and true when it comes to communications, with little flexibility given to localising communications—be it in the media used or the content and its application.

After a slow start, the digitalisation of luxury brand communications is at a point where investment has started to rival, and sometimes exceed, that of the traditional print media. Mobile investment continues to grow, although there is still reluctance to use this medium owing to concerns over the projection of brand image and status on a small screen.

Given the advances in screen technology and the undeniable fact that the smartphone is a primary device for the luxury consumer’s lifestyle and content choices, such concern is effectively based in perception and not consumer experience. As a key means of reaching consumers, luxury brands should be embracing the creativity and depth offered by mobile devices as an essential branding platform in 2016.

Moving pictures

Another focus area for 2016 will be content, and video content, in particular. Significant investment is made into the creation of beautiful brand films and stories for luxury brands, yet when shown in China, their reception is often not as enthusiastic or the message outtake not as clear as in other markets. In China people tend to follow people, not brands. Complementing global brand content with localised stories featuring known local people will help bring greater relevance and meaning to Chinese consumers. Such localised approaches could include original content created in partnerships (with a media owner or with a complementary brand) or could take the form of integration into third-party, high-end content. Starcom MediaVest Group’s Yangtze study shows that the top three branded entertainment elements to drive awareness, preference and desire to find more are having the brand or logo shown in the content, having the host or actor interact with the brand and having the host or actor wear the brand.

Webrooming versus showrooming

As has been well documented, the size of e-commerce transaction in China is astonishing. However it is important to remember China took time to gain e-commerce traction. Consumers were initially sceptical about buying products online, with concerns about delivery and quality issues uppermost in their minds. This scepticism was reduced when the payment-on-delivery system was introduced. As consumers began to trust more, shopping online took off. We are seeing the same trend for luxury e-commerce.

While you can now buy anything online, when it comes to big-ticket items, consumers are still reluctant to purchase. For many, there is still something about the magic of buying a luxury item in the boutique—the service, the ambience, the attention. There is so much emotional investment involved in a luxury purchase, particularly for those that work hard to afford this level of spending. This does not mean that they will not spend big online; the massive growth in online purchase of flights and hotel stays shows tolerance for high spends online. However, when it comes to big-ticket luxury purchases, consumers in 2016 will continue to be more reluctant to buy online. They still want the purchase experience. They will search, research, price-compare and source opinion online and will even visit the site. But more often than not, the final purchase will be executed in-store, much in the same way that they build their shopping lists for when the travel—research in China but buy outside China.

This is not to say that brands should not have an e-commerce offering. As mentioned earlier, as trust builds, sales will build. Also, the younger generation, which has grown up with the norm of online shopping, will continue to evolve its purchasing preferences and practices. But expectations need to be tempered. Saying ‘buy now’ on digital banners will not build trust. Affluent buyers need to gain assurance by seeing other people enjoying the e-commerce experience. It is important to remind again that in China, people are more likely to follow people than they are to follow brands. This is evidenced in the comparatively low level of followers of brands on social media versus in the West. People in China do not believe that they can learn from a brand, but they can learn from a person. So a brand telling a consumer ‘buy now in our eBoutique’ will not be as effective as personifying the message—either via KOLs, influencers or celebrities or by showcasing peers who purchase online.

Another aspect to explore in 2016 would be to create means of linking online sales to offline visits, tapping into the desire to have the boutique experience. For example, offer special 'pick-up in boutique’ service, thus providing the hands-on service that can be lacking online.

Conclusion

The China luxury market is not in trouble, despite brand reactions implying it is. Consumers will still buy luxury brands and products, and perhaps we will even see the market show better than expected growth by this time in 2017. This does not mean we can simply continue to do what we have always done and hope for the best. The new normal is for luxury brands to move at the pace of people to better meet their needs and desires. Brands can no longer remain aloof and expect followers to flock to them. Now brands need to be adaptive and personal, not only in the products that they provide, but also through communication. Mobile and content will be key areas to exploit in 2016—and ideally in combination.

Robert Sue is deputy general manager at Starcom MediaVest Group Shanghai and Greater China Richmont lead. Tess Caven is chief consumer officer with Starcom MediaVest Group Greater China.

 

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