China Luxury Market Will Continue to Grow Despite Concerns

29 Sep 2015|Added Value China

In reality, the new government measures do not directly target luxury products but are in fact part of an attempt to hide corruption as well as to pacify the increasing divide between the wealthy and the poor. This may affect brands in the short term but there is still significant room for growth for luxury brands in China. China is still producing more private sector millionaires than the rest of the world and will remain a key focus for luxury retailers. But luxury brands will need to constantly innovate by adapting to new customer expectations.

According to the China e-Business Research Center (CECRC), online sales increased 48.7% to RMB1.6 trillion (USD250bn) during the first half of 2015 representing 11.4% of total retail sales. Nevertheless as consumer tastes and trends continue to evolve at a rapid pace, luxury brands should carefully monitor the market in order to discover new opportunities to connect with consumers both online and offline. With the rapid growth of Internet and mobile usage (81% of Chinese millionaires use WeChat more than 5 times a day), consumers are increasingly looking for something beyond a luxury shopping experience. Both Western and Chinese brands need to understand the key trends shaping today’s luxury consumer as well as stay in tune with culture to remain strong in this increasingly competitive market.

Looking back over Chinese history, when it came to the Premium and Luxury categories, logos, price tags and international origins were once enough, as China’s ‘Lost Generation’, having come out of the Cultural Revolution, entered an age of accelerated personal wealth accumulation. Premium and Luxury quickly became ways to show off one’s success in China’s new socio-economic order. During the early days consumers were less discerning, focusing on brands offering affirmation of status. There was little need for brands to foster a deep, personal connection with consumers. However, nowadays the role of “Premium” has become more complex as China graduates through different stages of “showing to knowing” Premium. This can be loosely defined as…

The concept of “Show” in relation to premium is very status oriented and driven by materialism. It sees premium as a benchmark of success and proof that the individual is doing better than others. This is associated with bling and brands that express a sense of superiority and achievement. “Show you know” is the next step from “Show”. Consumers in this stage remain status driven, but also include a degree of knowledge about the things they buy, but only for the purpose of justification (not connoisseurship). This represents a step up from “Show” – brands here need to deliver on experience, knowledge, and status. The third stage is “Know” which involves a genuine appreciation and intrinsic knowledge of premium products. These consumers are less preoccupied with what others think, and see premium-ness as a personal experience and pleasure. Here, the role of the brand is to create a strong connection with the individual, delivering them a unique and personal experience.

The world of Premium in China is continually evolving and there are a number of interesting shifts taking place. The premium brand landscape is subsequently tapping into these shifts across multiple consumer touch points from communications, to POS, and product. Brands must be bold in creating interactive experiences in both online and offline brand spaces, in order to better engage with consumers and stay ahead of their competitors. From double-digit growth over the last few years the luxury goods market is still set to increase in 2015, but only between 2 percent and 4 percent, and with this slowdown comes more challenges for luxury brands to connect with their target customers. Knowledge and awareness of contemporary Chinese culture should be an overarching theme for brand building and communication across all industries. Experience speaks as loud as luxury products, if not more. As Premium categories and consumers become more mature, brands can no longer simply claim to be Premium – they have to justify it.

“Written by Panos Dimitropoulos, Account Director of Cultural Insight, and Sam Woollard, Client Development Director, with support from the Added Value China team.”

Contact: Added Value Shanghai Office; T: +86 (21) 3612 6666; Email: cninfo@added-value.com

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