In recent years, the Chinese market has significantly impacted the fashion industry, which is increasingly focusing on and investing more in the Chinese consumer, particularly in the luxury market.
The reduced travel activity to the country due to the COVID-19 pandemic, as reported by Bain & Company, has led wealthy Chinese consumers to give particular importance to luxury goods. Despite the subsequent global economic crisis, China’s luxury market is redefining market interest, recording a remarkable 37% increase in sales compared to last year, according to Jing Daily.
Notably, with the completion of the country’s lockdown in March, houses such as Dior, Kering, LVMH, and Louis Vuitton, as seen in the review of its business ecosystem, experienced a doubling of sales in China, while Prada confirmed a staggering 60% increase in total revenue.
However, statistics for the American luxury market are particularly dramatic, with a decisive 23% decline to $257.5 billion, marking the first year of sales decrease since 2009 and largely the largest annual drop in history.
Source: Bain & Company
The percentage damage of the annual cost to the industry will not return to 2019 levels for at least the next 2-3 years, while the future of 2021, based on current events, remains uncertain due to the impact of the second wave of lockdowns. The indicative respectable growth rate of 10-19%, estimated by Bain & Company, however, leaves a scent of hope but also concern in the international market.
Travel bans, as a result of consumers’ reluctance to travel abroad, yield opposite results compared to those in China. The combination of store closures, lack of luxury tourism, and indirect alienation of citizens from the market results in contrasting outcomes, with Europe suffering severely with a significant 36% decline and a 27% sales decrease in America.
With the two affected continents experiencing a significant drop in their total turnover and “mourning” the loss of affluent luxury consumers (who before the Covid era made up to two-thirds of their purchases in tourist hotspots like Paris, London, Rome, New York, and Los Angeles), the future for luxury houses resembled a well-directed science fiction thriller.
At this point, as a side note, I suggest reading an important article by Deutsche Welle (DW) where Film expert Denis Newiak analyzes movies and TV series that we have seen in the past and are perfectly correlated with today’s pandemic. His observation is noteworthy: “It’s incredible that people have been watching such films for the past 10 years, but now they are surprised that it is happening in reality.” Perhaps all of this ultimately cost more to the… unprepared. Psychologically but primarily in business terms.
This year, approximately 80% of total luxury spending will take place at the local level with whatever follows, while China seems to be the only regional market experiencing growth this year with a 45% increase in current exchange rates. Is it perhaps a result of culture? Middle-income levels? System and economy? Or is it the result of a targeted favorable business and innovative plan? We would probably agree that it is a series of business strategies capable of competing strongly with established industry models in a way that creates sustainable competitive advantages and therefore above-average profitability. Hence, the difference in statistical data.
Source: “Dragon Social” site
Allow me to remind you that China is the third-largest luxury goods market with sales of $52 billion worldwide, behind the United States with $74 billion and Europe with $68 billion. According to Bain & Company’s forecast, by the end of 2025, we will have forgotten this distribution as Chinese consumers will fully represent half of the total spending on luxury goods.
If Chinese consumers do not resume their globetrotting and continue to spend their money in the same way, China is poised to surpass the United States and claim the title of the world’s largest luxury market. This, of course, poses a problem for American luxury houses that do not have the cachet of their European counterparts.
Source: China Luxury Report by McKinsey
On the one hand, it’s evident that Chinese consumers are gradually losing interest. During Shanghai Fashion Week, the Shanghai-based key opinion leader (KOL) management and analysis company “Parklu” noted something particularly significant. None of the top 20 collections included any American brands, while Prada, Chanel, Dior, Valentino, and Burberry topped the list.
Furthermore, a survey by AlixPartners with over 2,000 Chinese consumers found that more than half (57%) planned to spend less money on American products during this year’s Single’s Day holiday (November 11), a shopping festival that rivals Black Friday and Cyber Monday in the e-commerce space. However, the most noteworthy aspect is consumers’ preference for Chinese brands due to the increase in national pride.
The distinct Chinese worldview, combined with the unique consumption dynamic of the 25-30 age group, fueled by strong entrepreneurial spirit and national pride, led Daniel Langer, Ph.D., CEO of Équité and luxury strategy professor at Pepperdine Graziadio Business School, to state: “In ten years from now, at least one of the top ten luxury brands in the world will be Chinese.”
However, this victory seems to come at a cost to significant fashion landmarks, such as Tiffany & Co., which is automatically at risk of losing its position on Interbrand’s top ten list, while any hope for Ralph Lauren, Michael Kors, and Coach to enter the list is dwindling.
The American transactional business model will prove costly:
The American approach to business seems incompatible with the methodology of the Chinese. While European luxury houses struggle to operate efficiently, we cannot ignore their adept handling and visionary management.
The American approach is more short-term focused and transactional, whereas the European approach to business emphasizes long-term brand building.
Tiffany & Co. falls victim to all this. It expanded and invested in wrong pillars, such as cheaper materials and accessories. In this way, as Daniel Langer among others points out, they fail in creating and evolving experiences. “You walk into a store and can’t discern anything personal; there’s a slight arrogance prevailing. And as for the last piece, creating experiences, American brands are probably only focused on the ultimate goal of the transaction and do not establish meaningful relationships with the customer,” adds Daniel Langer.
Source: DW
The excessive promotion of American entrepreneurship repels the intelligent and conscientious Chinese consumer
Another failure of American firms, reflecting their short-term focus, is the excessive and deliberate sales promotion. It is known that Americans offer discounts at a significantly rapid pace to maintain their revenue, something we observed intensively during the pandemic with undeniably aggressive marketing strategies that nearly frightened consumers. It is no coincidence that esteemed houses like Chanel developed new sales techniques with targeted and intelligent ways of garnering public interest, without arrogant strategies, but rather with the energy of slight price increases. However, within the context of aggressive American marketing strategies, the perception that such a plan would yield opposite results contributed to the subsequent decline in the revenues of these houses, especially compared to the times we are globally experiencing.
On the other hand, the Chinese consumer seems to appreciate more the strategy of price increases – confirming the understanding and strong, reliable relationship that brands have built over time with their consumers – skyrocketing their revenues despite adverse economic conditions.
It is true that the success of a brand is revealed in adversity. The relationship you build with your customer and the credibility you provide mediate the final outcome. When you win a consumer, it means that automatically they identify with your name, and even in the most adverse circumstances, a large percentage of loyal customers will prefer your business. So, what is this relationship?
Considering the value of retaining existing customers, the necessity of marketing in developing as long-lasting and strong bonds with customers as possible becomes apparent. Dialogue takes the place of monologue, thus building the relationship. The customer finds it difficult to abandon the benefits offered by the supplier. Simultaneously, the supplier knows the customer well and implements targeted marketing, making it the strongest bond. What are the success factors? Recognition, reward, continuity.
However, poor storytelling constitutes another blunder of American strategy, the consequences of which tend to become increasingly apparent to the consumer.
The short-term and poor approach of American brands to their storytelling erodes brand equity, even if it was already partially eroded. “American brands have always been weak in storytelling. They operate through a playbook for well-known brand awareness, rather than focusing on building brand equity,” says Daniel Langer, adding, “You can easily create brand awareness, just do something crazy or spend a lot of money, like in a Super Bowl ad. It indeed attracts a lot, but it does not create brand equity.”
Brand equity is based on storytelling that focuses on the desires and values of the customer. American brands know very well how to “market” their name, but they undeniably fail to achieve storytelling for the reason why customers should care about the brand. In other words, the historical context of each house.
The Chinese consumer is gradually moving away and seeking quality, which, unlike the American vision, will provide them with a different approach, more humane, more substantial, more authentic, and undoubtedly sustainable.
Source: AdChina.iO
Chinese consumers have individually demonstrated themselves to be particularly astute when it comes to their purchases. They typically operate with specific criteria, are very discerning, and have a more “correct” perception regarding the fashion industry, as they constitute an integral part of luxury houses. This naturally makes them particularly intelligent to avoid falling into the trap of simple, poor-quality American business marketing. A Chinese luxury consumer would never pay extravagantly for something whose value is qualitatively cheaper. Perhaps we could characterize this as a form of consumer consciousness that does not allow them to be easily deceived. Therefore, to succeed in a firm market like China, an undoubtedly methodical, competitive, flexible, and resilient marketing plan is required, with authentic, original storytelling and a visionary outlook that is constantly redefined.
Perhaps it is time to adopt some of the beneficial, unwavering, and integral Chinese consumer attitudes that adapt business requirements for luxury and beyond on a global scale with a more revolutionary approach.
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