Is China's Luxury Market Still "Halfway Up The Hill"?

The trend of global market is becoming more and more complex, and Chinese consumers are constantly returning.

According to the "2019 China Private Wealth Report" jointly issued by Bain and China Merchants Bank, under the environment of global geopolitical economic turbulence, the total scale of investment assets held by individuals in the whole country reaches 190 trillion yuan, of which the population of super high net worth is about 170 thousand, and the assets of 50 million people can be invested by about 320 thousand people.

The report points out that although the growth of China's private wealth market has slowed down compared with previous years, it still has growth potential and is expected to break through the 200 trillion mark by the end of 2019.

At present, there are more than 20 thousand high net worth people in 23 provinces and cities in China. Among them, the number of high net worth people in Shandong has exceeded 100 thousand for the first time, and has entered the first echelon of Guangdong, Shanghai, Beijing, Jiangsu and Zhejiang provinces. The number of high net worth people in 5 provinces is over 50 thousand, namely Sichuan, Hubei, Fujian, Liaoning and Liaoning, which represents the potential of China's luxury market (Theme Reading) gradually sinking to two or three tier cities.

People with high net worth generally refer to individuals with net assets of 6 million yuan or more than 1 million dollars in assets. They are also social groups with high investment assets, such as financial assets and investment properties. With the development of this population, they have become the backbone of luxury buyers.

Another report by Bain earlier this year also indicated that Chinese consumers account for 33% of the total sales of luxury goods in the world, which will reach 46% by 2025. The overall benefit is mainly from the millennial generation and female consumers. It is estimated that 7 years later, 50% of Chinese luxury goods will take place in the mainland of China, far higher than the current 25%.

With the promotion of Chinese consumers with the world's 1/3 luxury goods, China has emerged as the first international luxury shopping mall.

According to the latest research report jointly published by Sybarite and GlobalData of the British Architects' office in 2019, the sales volume of luxury goods stores in China from Beijing to second square feet per square foot ranked the world's top in Asia, ranking second only to the British luxury department store Harrods in the world.

In 2018, Beijing SKP achieved 13 billion 500 million RMB sales.

China only has more than ten billion yuan of high-end shopping malls in Beijing SKP and Nanjing de chi square.

At the same time, the two major luxury markets in the United States and Britain are not as good as before.

The British economy has been on the decline since the British took off from Europe in 2016, which led to the fact that the British luxury retail industry was in danger, and consumer spending power and confidence continued to decline. In December last year, consumer confidence in the UK fell to its lowest level in five years.

Data show that in 2019, the British retail industry will cut 164 thousand jobs, compared with 2018, the wastage rate increased by 20%, and more than 2.2 stores are expected to close.

UBS analysts said in a report that the United States will close 12000 stores again, or at least lose about 40 billion dollars.

By the beginning of April, US retailers announced that they had closed 5994 stores this year, exceeding the total sum of 2018, according to fashion business express.

In its report, UBS also pointed out that Skechers, DKNY parent G-III Apparel, CK parent PVH and Ralph Lauren will be severely hit by China based apparel group.

According to the first quarter report of LVMH, Kai Yun and Hermes and other major luxury group, the performance of the luxury goods industry has shown signs of slowing down, while China has become one of the few growth points.

Among them, thanks to the effective layout of Louis Vuitton, DIOR and other brands in the Chinese market, LVMH sales rose 16% to 12 billion 500 million euros over the same period, exceeding analysts' expectations of 12 billion 200 million euros, with an organic growth of 11%.

In the three months ended March 31st, Kai Yun group's revenue continued to be driven by core brand Gucci performance, up 21.9% to 3 billion 785 million euros over the same period.

Among them, Gucci sales rose 24.6% to 2 billion 326 million euros, the growth rate slowed sharply compared with 37.9% in the same period last year, but the retail sales in Asia Pacific, including China, increased by 35%, mainly due to the contribution of Chinese consumers.

In the first quarter of the year, Hermes also showed strong performance in the Chinese market. Sales of the brand in Asia, excluding Japan, rose by 21.5% to 860 million euros, mainly due to the Chinese consumers' crazy pursuit of platinum packages and Kelly packages. The income of the brand in the Greater China China region increased by more than 10%.

China's importance for luxury brands to seek growth is self-evident.

The Wall Street journal further pointed out that compared with consumers in Europe and America, Chinese consumers spend more of their income on luxury goods, which means that luxury brands should focus on the development of the mainland market.

Luxury Institute CEO Milton Pedraza has made it clear that China is the Savior of the luxury market after the global recession, so how to attract the most attention and purchase among high net worth people has become a big challenge.

In fact, in the past 40 years, from luxury brands to China, to Chinese consumers' crazy pursuit of luxury brands, and to more rational consumption, China's "dream city" and "fashion capital" Shanghai are regarded as barometers of luxury consumption in China.

Statistics show that China's first real department store "Shi Shi Department Store" was set up in Nanjing Road, Shanghai in October 20, 1917. After that, Yongan, Xinxin, Daxin and other stores were set up, and the name of "ten seas" began to spread throughout the country.

Under such an environment, the people of Shanghai once became the main force leading the Chinese trend, and the strong artistic atmosphere made Shanghai have the artistic landmark of the old docks, the contemporary art gallery, the West Bank Art Center and the Rong residence. The strong fashion atmosphere and radiative power attracted many international brands such as LVMH, Kai Yun group and so on, taking Shanghai as the best base in China, and also the favorite place of the luxury brand.

Jingan District, which owns many high-end luxury shopping malls and office buildings, is undoubtedly a gathering place for high net worth people in Shanghai.

According to the big data released by Ali in 2017, the two largest proportion of women's consumption in Jingan District is cosmetic accessories and clothing accessories. Among the 18 to 37 year old women, the highest handbag brand is Louis Vuitton.

However, with the emergence of trade friction, real estate regulation and other factors, the development prospect of luxury brands in China is full of uncertainty.

Axel Dumas, the chief executive of French luxury brand Hermes, has said earlier that it will pay close attention to China's stock market and real estate market, because any change in high-end customer assets may affect group performance.

According to the "2018 richest consumer price index" released by the Hu Run Research Institute, the growth of the high net worth crowd in high-end hotels in 2018 was the most obvious. In Hongkong, the presidential suite of a luxury hotel rose to 140 thousand yuan by 25.4%, while the presidential suite of a luxury hotel in Shanghai rose to 20.5% yuan by 69 thousand yuan, which means that the consumer demand for luxury life experience is increasing.

In terms of gift brands, Louis Vuitton still ranks second of the men's list, and Bottega Venetta and Giorgio Armani are the new luxury brands.

In the list of women, Bvlgari ranked first and Louis Vuitton ranked third.

In addition, riding has become the outdoor activity most desirable for Chinese high net worth people in the next three years, which may be good news for the luxury brand Hermes, which is a high-end horse set.

On the choice of high-end jewellery brands, China's high net worth people still prefer international brands. This year's preferred brand is Bvlgari. Van Cleef & Arpels's limited edition gold Fritillaria Clover Necklace is also popular. Tiffany has become the fourth jewellery brand of the group with its newly launched Paper Flowers and classic T series.

Under the influence of trade friction, Tiffany CEO Alessandro Bogiliolo revealed at a meeting after the new earnings report that the number of Chinese tourists buying in the United States dropped by 25% this year, but sales of brands in the mainland market registered a strong double-digit growth, accounting for 40% of China's global consumer purchases.

Ike Borochow, an analyst at Wells Fargo, expects Chinese consumers to contribute about 25% of global sales to Tiffany.

Hu Run said that China's high-end consumers have entered the "post material era", instead of buying luxury items such as handbags, watches and luxury cars 10 years ago to show success, but rather willing to spend money on spiritual upgrading, such as tourism, education and health.

LVMH CEO Bernard Arnault stressed at the beginning of this year that the future of luxury goods is not just luxury, but luxury experience. The vision of the group is to integrate two fields well.

On the premise of this strategic thinking, LVMH began to continuously increase the hotel industry at the end of last year, and spent $2 billion 600 million to acquire Belmond, a hotel operator. In March of this year, it opened Cheval Blanc Baima Resort and spa in Mayfair District, London, and later invited general manager Christian Boyens of Ritz Carlton to join the hotel management department to supervise the group's hotel business in various cities around the world.

LVMH's Bvlgari hotel is currently only 7 in the world, two of which are located in Beijing and Shanghai, China. It seems that the high-end consumers' recognition and pursuit of luxury goods has been anticipated.

After entering 2018, Louis Vuitton played more and more frequent roles in the Chinese market. First, the actor and singer Wu Yifan was appointed as the spokesperson. At the end of last year, the VOLEZ, VOGUEZ, VOYAGEZ Limited exhibition was held in Shanghai. In collaboration with Shi Shangbo gogoboi, the H5 interactive game was better able to reach the new generation of consumers in China. In the 78 days, a total of 270 thousand viewers were received.

In a series of actions, Louis Vuitton has been gaining strength and performance in China in the past two years. Chief executive Michael Burke recently revealed to Paris analysts' conference that China's sales of Louis Vuitton are growing at the fastest pace in history, mainly affected by the increasing number of Chinese consumers choosing to buy luxury goods in China.

After China lowered its VAT in April 1st this year, Louis Vuitton took the lead in reducing the price of products in China by around 3%, so as to benefit more Chinese consumers.

In just a week, Fendi, Chlo and Prada have performed in Shanghai, and the frequency is unprecedented.

Another luxury brand CHANEL is also paying more attention to the Chinese market. Apart from holding the beauty store and doing the show in Chengdu, this year, from April to June, Mademoiselle Priv e was put into the Chanel exhibition in Shanghai West Bank Art Center. Through the highly similar device and layout with the headquarters in Paris, the French made an immersive experience for visitors to cultivate more potential consumers.

Cartire, the high-end jewelry brand of France, once again held the the Imperial Palace Museum for ten years after the successful Cartire jewellery exhibition in 2009, held a special exhibition of Cartire and the Imperial Palace Museum from June 1, 2019 to July 31st at the Meridian Gate of the Imperial Palace, displaying more than 830 pieces of art treasures.

In 2015, Gucci creative director Alessandro Michele and the British fashion magazine "LOVE" founder of Katie Grand co curatorial Exhibition "No / Longer" / Not Yet crossover art exhibition opened in Shanghai Minsheng Art Museum, the industry described it as a turning point in the performance of China in the province.

Then, in 2017 and 2018, Gucci held the exhibition of curator Mickey and artist in China respectively.

The successful practice of the head luxury brand has made other brands gradually realize the degree of recognition and acceptance of such activities by the Shanghai audience. The agglomeration effect is becoming more apparent and began to race in different forms.

According to fashion business express, Fendi, Chlo, and Prada have been in Shanghai for a short week, and the frequency is unprecedented.

Among them, except for Fendi's second landing in China, Chlo and Prada are the first time in the cities outside the local market, they have chosen to broadcast live through WeChat official small program.

Chlo e immediately opened a flash store in a small program after the show, and sold 4 limited Chinese "mini C" handbags for 48 hours in an attempt to maximize the benefits with the remaining temperature of the show.

However, Geoffroy de la Bourdonnaye, chief executive of Chlo, said the event is a one-off, not a new convention, and the main purpose is to make Chinese consumers better understand the brand.

Prada creative director Miuccia Prada emphasized in the statement that China has been playing an important role in the brand development strategy.

Last week, the Italy luxury brand also released the first advertising blockbuster, "almost human", which was directed by Chinese artist Cao Fei, nearly 25 million of micro-blog fans, and the new Prada spokesperson Cai Xukun KUN, the "almost human", which has aroused widespread heated debate among Chinese consumers. Some fans are directly supporting the purchase of Prada products in the relevant micro-blog reviews.

Since October 2017, Prada has held the "Rome 1950-1965" art exhibition in Shanghai's Centennial mansion, which has been renovated, and the three exhibition of "What What Was I", designed by the artist Goshka Macuga, has attracted many fashion lovers.

Whether it is fashion show or exhibition, it is a form of luxury brand contact with consumers. It is a medium for brand to communicate with consumers.

For young consumers, the art exhibition can help them first try to contact the brand culture rather than hastily buying a 10 thousand yuan handbag. In the eyes of high net worth people, art exhibitions help them understand and identify the value and DNA of the brand and enhance the added value of the product.

Nico Yang, chief marketing officer of China luxury electronics business platform temple, pointed out in a recent report that luxury brands want to win the Chinese market. They can not just satisfy one kind of consumers, but need to make different strategies for different subgroups.

According to the report, Chinese high net worth people buy luxury goods more than 50 times a year, almost once a week, and have strong interest in cultural and artistic activities.

Bloomberg analysts believe that investors are beginning to worry that Chinese consumers are no longer keen on buying Balenciaga sports shoes and Cartire bracelets. Therefore, luxury brands should be vigilant. If the eyes only focus on the present, impatiently seek rewards, and push creativity to the corner, the outcome will be different from the collective suicide of the brand.

To be sure, the localization strategy of luxury brands in China will continue to get close to the core, but the freshness of consumers is fleeting. The definition of "luxury" is changing in high net worth people. How to make them feel more involved and connect with brands is the challenge that luxury brands need to face.

Author: Zhou Huining