What Increasing Domestic Chinese Spend Means for Luxury Brands

By Jiaqi Luo

When Chinese consumers travel, of course they are still shopping. Yet this year just gone by has seen one of those ‘rapidly changing marketplace’ aspects that is the much lauded hallmark of the Chinese economy and society.

In 2014, China’s official party newspaper People’s Daily reported that only 20% of Chinese shoppers were willing to purchase luxury inside the country. A Bain & Company report in 2015 also stated that the Chinese luxury spending in mainland China accounted for only 20% of their global purchases. China’s comparatively higher luxury tax at the time, coupled with a newfound obsession for luxury goods with such ‘international’ lustre, made ‘buying luxury’ equal to ‘buying abroad’ for the past decade.

Not only is this changing, but with aforementioned China-speed. Bain’s latest luxury market study in November 2018 identified that more Chinese-driven purchases are now happening in China. Between 2015 and 2018, their purchases in Mainland China contributed twice as much growth as their spending abroad.

Bain’s report estimated that by 2025, Chinese consumers will count for at least 45% of the worldwide luxury market – making half of their luxury purchases at home in China. Tiffany and Co’s CEO Alessandro Bogliolo confirmed the shift as well, saying that globally there was weaker-than-expected sales in Q3, yet double-digit sales growth seen in China in 2018.

Brands should already be aware of how to talk to the Chinese luxury consumer (D&G’s glaring recent example notwithstanding) and have them excited to shop at overseas destinations. Yet with domestic luxury spend clearly on the rise, businesses must be equipped to take this opportunity now. How can they maximise their ‘in China’ efforts?

To reap you must digitally sow

As the New York Times article “The Great Promise of China” (a worthwhile read) from Nov 2018 points out, today’s China is experimenting with different ways to boost its domestic economy. In 2018, the government crackdown on daigou, the lowering of import duties this summer to encourage consumers to make purchases at home, and China’s new e-commerce law have bugle-called the start of a different path for the Chinese to buy luxury.

Western luxury groups forming alliances with Chinese digital giants such as Alibaba x Richemont, JD x Farfetch have made up a significant part of news titles throughout the year. In November, China’s Ministry of Finance announced that it would lift the tax-free ceiling from personal cross-border e-commerce purchases from RMB 2,000 to RMB 5,000 (around USD 720), which means less pain and more motivation for shoppers to haitao (shopping for luxury on cross-border e-commerce, such as Tmall Global or MyTheresa).

Buying luxury “just a click away” is a cliché come true. As Chinese digital-first consumers are increasingly accustomed to this instant gratification and convenience, having an efficient, seamless shopping experience from brands is no longer seen as a plus but rather an expected norm.

Offline & physical are true ‘touch points’

In 2018, brand-themed spaces took the Chinese social media by storm. Louis Vuitton’s Shanghai “Volez, Voguez, Voyage” exhibition, Chanel’s Le Rouge immersive pop-ups across the country and Cartier’s virtual reality watch-making show are just some of the recent conversation-starters. While shopping for virtually anything is a matter of a few taps of the phone screen, physical places become luxury brands’ points of touch instead of points of sale.

Take Chanel’s Le Rouge pop-ups as an example. Ever since its debut in Beijing last September, the hashtag #lerouge (红色工厂)# has generated more than 5600+ photo entries on Little Red Book in the span of three months. Most users commented on the Chanel pop-up for being a “paradise for those who love taking photos and buying cosmetics.” The pop-up’s temporality and social-ready décor significantly enticed the fashion-forward crowd to spread the word and make buying offline in China a social-worthy experience.

A popular Le Rouge entry on Little Red Book. Credit: LRB screenshot. Cover image above: Chanel Le Rouge pop-up store in Beijing’s Sanlitun neighborhood. Credit: Elle China

Delivery that prompts showing off

Fashion shows and celebrity endorsements are no longer brands’ only massive marketing tools in China today. With social media sharing and influencer phenomenon as the new digital norms, individual consumers’ experiences are now also in the marketing radar. This year, Chinese shoppers have rewarded brands that go beyond and above the ordinary delivery experience with organic advertising and digital exposure.

#BoxOpening entries on Little Red Book. Credit: screenshot

In the social-commerce community Little Red Book, there are now more than 44,000 entries on #BoxOpening (开箱)#, featuring users opening their online orders and sharing their reactions in real time. The most popular posts in this kind are the users who received “limited edition” gifts, surprise samples, or beautiful packaging from brands.

This “box opening” phenomenon is particularly true after the double 11 shopping fest. When brands pampered shoppers with exclusive gifts, shoppers thus had the bragging right to share the “I am so lucky” excitement online. Precisely because of that surprise factor, they are more willing to buy online, in China.

Besides exclusive gifts in the delivery box, visually appealing packaging is another effective way to capture the Chinese shopper’s attention. “High appearance score(颜值)” in Chinese, or “Instagramable” to put it in global English, is a key factor to drive the consumer to advocate for a brand.

A popular entry on Lancôme’s Christmas-edition gift set is an example of “high attractiveness score” advocacy. Credit: screenshot

Speaking more in China for sales overseas

How does this impact overseas retail destinations? Firstly, selling items previously only available overseas has proven very popular – The British Museum opened on Tmall, selling out of all items in the first few days – and have recently further enhanced their China strategy with a partnership with Tmall.

Harrods is a good example of a brand focusing on speaking to the Chinese consumer while they are at home, to inspire and motivate both understanding of what they offer, and planned trips during a visit to London. As luxury retail leader TSUM showed, luxury shopping abroad can maintain its allure if the key motivation remains – choice and a seamless experience that caters to Chinese tastes.

To conclude: to keep relevancy in China’s hyper-competitive landscape, knowing the macro trends and top-level policies isn’t sufficient anymore. Brands need to go beyond the macro, learn to see the unique opportunity this domestic spending trend presents, and find their own edge.

With more Chinese spending more domestically and digitally, brands need to prioritise convenience, culture, and a unique delivery experience that can ‘wow’.

One thought on “What Increasing Domestic Chinese Spend Means for Luxury Brands”

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.