Luxury Brands Are Too Dependent On Chinese Consumers. What Problems Can This Lead To?

According to the Wall Street journal, in 2018, many luxury brands were too dependent on the Chinese market, and investors had no choice but to get used to the situation.

It sounds a bit helpless, but this does not mean that the Chinese market is not reliable, but from a long-term and sustainable perspective, excessive reliance on one market can cause some risks.

For example, LVMH, the world's largest luxury group, has warned that Chinese people are more willing to spend more money on luxuries than Americans and Europeans. This habit may lead to instability in growth.

In October 2018, by the impact of international trade and the crackdown on customs purchasing, the Chinese luxury market slowed down, which made investors nervous.

Many luxury companies are facing a decline in share prices. The LVMH group's share price has dropped by 3.7%, Burberry's share price has dropped by 4.3%, and the share price of Gucci's parent company, France Open Cloud group, has dropped to 435.7 euros.

In just one day, the valuation of LVMH, Hermes and Kai Yun was erased by $21 billion.

Although the volatility of stock prices in October failed to shake up the confidence of luxury brands in the Chinese market, the performance in the fourth quarter ended in January 2019 will be more concerned than usual. Analysts may be able to further judge the direction of the Chinese market.

Another problem that may cause too much reliance on the Chinese market is that as Chinese tourists run around the world, luxury brands must expand their market range, but it is more difficult to do so.

According to data from the previous group, the Chinese are more sensitive to the exchange rate than other nationalities, and prefer to shop abroad.

This will also become an unstable factor, because luxury brands do not know which country the next Chinese people are going to spend.

This means that if you want to miss a chance, you need to ensure that you have more stores in more markets.

Aiming at this problem, luxury brands can aim at the hub of International Airport. The Wall Street journal says luxury sales in the International Airport are growing at a rate of 7%.

Bain consulting a 2017 report also believes that in the next ten years, 75% of the global luxury goods sales will still be completed in the physical store, and the airport store has played an important role.

In fact, this battlefield has always been a battleground for luxury brands. For example, the three terminal of Singapore Singapore Airport has entered the first airport complex flagship store of Louis Vuitton, which is the third airport store after the Inchon airport in Korea and Heathrow Airport in London.

The LV store has a 6.5 meter high LED screen and a double-layer glass exterior wall inside the diamond inner network. On the two floor, there are many antique products on display, such as a small museum.

Kai Yun group also has a specialized tourism retail team, and only opened four Gucci stores at Heathrow Airport.

European and American luxury brands are too "eccentric" for Chinese consumers, sometimes leading to local residents' dissatisfaction.

We have reported the "Chinese tourist dispute" between Paris's department store and spring department store.

In the commercial struggle, they have increased many services specially designed for Chinese consumers: they specially receive Chinese group tourists, Chinese shopping malls shopping guide, Chinese speaking salesmen, Alipay, etc., and even break the working habits of the French - they also open their doors on Sunday.

Under these consumer driven services, the influx of Chinese consumers has made local people feel crowded, leaving them wanting to stay away from all these overseas tourists.

This explains why the purchasing power of local consumers in France and Italy is the source of luxury goods.

But the Chinese market is really tempting, and the luxury brands are coming in.

The Wall Street journal points out that 1/3 of the achievements of Louis, Vuitton, Chanel and Burberry brands come from Chinese consumers. Meanwhile, the consumption growth of this group is also the fastest.

Over the past ten years, Chinese consumers have paid huge dividends to luxury investors.

Some trend analysis shows that the future of China's luxury market is also bright.

In recent years, McKinsey and BoF fashion business review published in the 2019 annual report on global fashion format, China will surpass the United States for the first time in 2019 to become the world's largest fashion market.

"This will be a year in history."

In the long run, if the luxury brands rely on the Chinese market blindly, the above problems may happen, and then they will be able to swallow their own benefits.

Author: Li Zihui