China'S Wild Ambition: The International Giants Are Overweight, And The Local Upstarts Are Catching Up.

5 from the end of the month to the beginning of June, three fashion shows in Shanghai, China's fashion capital, came to an unprecedented frequency. In May 31st, Fendi commemorating the 2019 autumn winter series of the former creative director "Buddha Karl" Karl Lagerfeld in Shanghai Baolong Museum of art. In June 5th, Chlo released the 2020 early spring series in the Shanghai Dragon Art Museum, which is the first time that the brand has performed in the cities outside the native Paris. At the same time, this is the first time for Chlo to perform the series for the season series. In June 6th, the Prada 2020 spring and summer men's wear series fashion show is coming.

The significance of these three shows to their brands is self-evident, and the reason why they will move to Shanghai in the same way is obvious. McKinsey's recent China luxury report 2019 shows that in 2018, Chinese luxury goods consumption at home and abroad reached 770 billion yuan, accounting for 1/3 of the total global luxury consumption. From 2012 to 2018, more than half of the global luxury market growth also came from China, and the proportion is expected to reach 65% by 2025.

Chinese consumers have become the first buyers of luxury goods in the world. With the return of consumption, "getting the Chinese to get the world" has become the consensus of the luxury goods industry. It is not only the international luxury brands who have frequently stepped up the Chinese market, but also the Chinese capital has been ready to enter the market. How to compete for China's market share may be a tough battle for luxury brands.

China is the biggest engine of luxury market growth.

The 2018 China luxury market research released by Bain company, a consultancy, showed that the overall sales of China's luxury goods market in 2018 continued to record a record growth rate in 2017, and its growth rate reached 20% to 170 billion yuan in second consecutive years. More and more Chinese consumers choose to buy luxury goods in the mainland market under the joint action of the Chinese government to cut import tariffs, strengthen the control of the gray market, and constantly adjust the price gap between domestic and foreign luxury brands. In 2018, the proportion of luxury goods consumed by Chinese consumers in the mainland rose from 23% in 2015 to 27%, and is expected to reach 50% by 2025.

This trend of consumer reflow is also widely seen in the first quarter earnings report of major luxury brands recently announced in 2019. From the data point of view, for many luxury brands, its income base in Asia Pacific (except Japan) has been very large, but the growth potential of the region is still the most robust. In the Asia Pacific region, the Chinese market is undoubtedly the biggest driving force.

In the first quarter of 2019, the luxury group LVMH achieved a total revenue of 12 billion 538 million euros, an increase of 15.5% over the previous year, of which Asia Pacific (except Japan) grew by 17% year-on-year, leading the global market, while the US and Europe grew by 8% and 7% respectively. The Asia Pacific region (excluding Japan) accounted for 35% of the total revenue, the largest contribution, followed by the United States (22%) and Europe (17%). "Brand is experiencing an unprecedented growth in China." Louis Vuitton CEO Micheal Burke pointed out at an analyst conference held in Paris recently.

Coincidentally, Kai Yun group's revenue grew by 21.9% to 3 billion 785 million euros in the first quarter of this year, and the luxury sector achieved 3 billion 648 million euros, up 21.7% compared with the same period last year. The Asia Pacific region (except Japan) had a 30% rise in the luxury sector revenue, and contributed 38% sales to Kai Yun group, while North America and Europe grew by 7% and 14% respectively. Gucci, who runs the cloud, is also highly dependent on the Asia Pacific market (except Japan), which has increased by more than 35% in the region and 5% and 12% in North America and Western Europe respectively.

Hermes said that in the first quarter, in Asia, except Japan, the fixed exchange rate recorded a growth of 16.9% to 656 million euros. This outstanding achievement is closely related to the good performance of the mainland market.

In cosmetics companies, L'OREAL achieved 7 billion 550 million euros in revenue in the first quarter, up 7.7%. The Asia Pacific region has outperformed Western Europe for the first time to become the largest regional market of the group, with an increase of 23.2% to 2 billion 400 million euros. Of these, the Chinese market is the main force in the growth rate of 32%. By contrast, North America and Western Europe were mediocre, with a growth rate of more than 1%.

Estee Lauder CEO Fabrizio Freda said: "our most powerful growth engine is the Asia Pacific region." In the first quarter of 2019, the group grew by 11%, of which the Asia Pacific region grew by more than 25%, while Europe, the Middle East and Africa increased by 15%, while the Americas declined by 2%.

"We had expected that the growth of retail sales and sales in the Chinese market will gradually slow down this quarter, but this has not happened." Fabrizio Freda said.

Ding Liguo, a retail, luxury and brand distribution expert, told reporters that the strong growth in the first quarter of this year was due to structural adjustment in the global luxury market. The implementation of China's new electricity supplier law has dealt a blow to overseas purchasing. In addition, the Chinese government has lowered import tariffs, and the major luxury brands have also lowered the price of their products in the Chinese market, while Chinese tourism consumption has decreased, while domestic consumption in Asia and China has increased. These positive factors partly offset the adverse impact of current international and economic environmental changes on the luxury sector. Against this background, these luxury brands will inevitably need to strengthen their support for China's local market in the future.

New high hopes to create "China Version LVMH"

In the face of the expanding Chinese luxury market, Chinese local enterprises have long been eager to try to get a slice of it. In early 2018, Ruyi group and Fosun announced that they won the Swiss high leather brand Bally and France's old fashion house Lanvin. The determination and action of Chinese enterprises to follow the example of international luxury magnates to build their own brand matrix has already been placed before the world.

The Ruyi group, which originated in the wool textile industry, has been distributing frequently from the upstream to the downstream of the clothing industry. In recent years, it has frequently launched "Hai Tao". It has already included the parent company of Sandro, Maje and Claudie Pierlot, France's light luxury group SMCP, the British windbreaker brand Aquascutum (three), and the RENOWN of Japan's largest clothing brand operator. From the point of view of revenue, Ruyi group has entered the world's top 20 fashion luxury goods group and has been crowned as the "China Version LVMH".

The dream of the Chinese version of LVMH is obviously not only a family. It has long emphasized that Fosun, a Chinese power grafting global resource, has a clear ambitions and layout for fashion industry. It has invested in some fashion brands as a financial investor, including Italy's high-end men's wear brand Caruso, the American high-end women's clothing brand St.John, and Germany's fast fashion brand Tom Tailor. In 2017, Fosun became the controlling shareholder of St.John and Caruso by increasing capital. In 2018, it also bought and sold Lanvin and Austria's high-end underwear brand Wolford. Subsequently, Fosun fashion group was established, all of which are brand names. In addition to brand acquisition, in February this year, Fosun fashion set up a FM star fashion brand management company, hoping to provide services for brands that are committed to developing business in the Greater China market.

For the future direction of Fosun fashion, in June 5th, Cheng Yun, chairman of Fosun fashion, told the media at the 2019 Fosun forum that "Fosun fashion is probably still young, but investment in fashion industry has been around for a while. What we need to do in the future is deep plowing and production, and strengthening post operation." In the face of China's largest luxury market, we will be rooted in China, and at the same time enable the global brand to restructure and operate in the global market.

In addition, the seven wolves, the song and so on are also active in the high-end consumption field. Herme group started from the channel end, located in the "international brand operation service providers", and bought many luxury and fashion brand operation holding companies including Shanghai Europe blue, noble department store, Ou Qiya, Rainbow Group China and so on, thus mastering a large number of international luxury goods licensing agency resources.

With the increasing demand for luxury goods by Chinese consumers, more luxury brands will fall into the hands of Chinese enterprises in the future. However, for these Chinese enterprises, "buy and buy" may be a shortcut to quickly build luxury goods group, but this road is not necessarily a good road. After all, many brands are seeking capital recovery because of their management difficulties. How to improve post investment management, open up the Chinese market and revitalize the brand is the key.

The millennium is a luxury.

In addition, another strong force in the luxury industry is rising, that is, as an intermediary business platform. The 25 year old Kong Gang Xiao Lu has ordered a Chlo bag of about 7000 yuan under an overseas luxury business platform. "Choosing to buy on the electronic business platform is mainly because there is a discount, but I will go to the physical store to see if the bag is suitable for myself or whether it is chromatic aberration." She said.

The millennial generation like Xiao Lu supported the rapid growth of China's luxury market. According to McKinsey's data, the younger generation represented by the "post-80s" and "post-90s" accounts for 43% and 28% of the total number of luxury buyers, respectively, contributing to 56% and 23% of the total consumption of luxury goods in China.

In order to comply with the consumption habits of the millennial generation, luxury brands embrace electricity providers to accelerate their trend. Public information shows that from August 2017 to April 2019, Tmall Luxury Pavilion has more than 80 luxury brands, including Burberry, Versace, Moschino, Valentino and other brands. In 2018, Alibaba set up a joint venture with Yoox Net-A-Porter, the "luxury YNAP", to further strengthen its deep layout in luxury goods.

Following the Tmall Luxury Pavilion, Jingdong launched a luxury electronic business platform TOPLIFE. In addition, Jingdong also spent $397 million on the UK luxury electric business Farfetch, becoming its largest shareholder. In September 2018, Farfetch went public in the US. In February this year, Jingdong announced that TOPLIFE will be integrated into Farfetch's China business.

In addition to being put into the embrace of the electricity supplier, under the tide of social marketing, luxury brands are also involved in WeChat small programs. WeChat's friends circle often shows advertisements of luxury goods.

It has become the consensus of luxury brands to interact with Chinese consumers in a localized way. When it comes to Lanvin's future development plan in China, Lanvin CEO Jean-Philippe Hecquet told reporters before: "on the online channel, we will pay more attention to the digitalization of the brand, content output in social media and e-commerce, which is a very important channel to communicate with Chinese consumers. In the future, we may also cooperate with some powerful local e-commerce enterprises in China. "

Ding Liguo reminds us that China has entered the era of mobile commerce. Luxury brands need to pay attention to the modern marketing of mobile terminals and social media. But in global expansion, brands need more sensitivity to cross cultural communication when they tell stories.

The McKinsey report points out that the growth rate of the global fashion industry will slow down to 3.5% to 4.5% in 2019, slightly lower than in 2018. "The future of luxury fashion brands is indeed challenging to achieve greater growth. China's fixed consumption group is relatively stable, but the incremental part may be affected by the economic downturn, but there are also opportunities, brand promotion, modern marketing or key points." Ding Liguo thinks.

This opportunity belongs to every participant in the Chinese market, and for them, there are two key words to compete for the market: Digitalization and youth.