What can luxury brands do to boost sales in China?
By Gemma Williams, Vogue Business
The downturn in China dominated first-quarter earnings for many of luxury’s biggest players. Pent-up demand that spurred spending after lockdown restrictions lifted has fizzled. Consumer sentiment has been hit by local challenges including a sustained housing crisis and high youth unemployment. Geopolitics, weakened global demand and ongoing wars are also playing a part.
In a market that is no longer growing in the double digits, luxury reported a mixed bag of results. “Every quarter, the luxury industry has its share of over and underperformers. In a particularly difficult Q1 this year, this meant that some underperformers were negative as much as -30 per cent [in China], while the best performers were able to record positive growth,” says Jacques Roizen, managing director of consulting firm DLG China.
Among the underperformers, Kering’s first-quarter revenue fell 10 per cent. Group CFO Armelle Poulou cited a “huge drop in traffic in Asia Pacific” during the period, with China highlighted as the most challenging market for Gucci at the moment. At the other end of the scale, Hermes’s Q1 sales were up 13 per cent; Asia (excluding Japan) grew 14 per cent.
The polarisation is built upon class lines. In general, the luxury brands who rely on middle class consumers are suffering more, while brands focusing on high-net-worth individuals (HNWIs) have witnessed growth. “The performance divide between top-of-mind brands and the others will continue to enlarge in the second quarter, and the rest of year,” Mario Ortelli, managing partner of consultancy Ortelli & Co, previously told Vogue Business. HSBC predicts that Q2 could be worse, as the comparison base toughens. Some experts are suggesting this gloomy outlook has the potential to last well into next year.
While there is turbulence ahead, experts say China remains a critically important market for luxury. Research by McKinsey shows that, even though China’s economy is facing challenges, the country’s consumers demonstrate a higher intent to shop for fashion in 2024 than those in the US and Europe. By 2030, Chinese luxury consumption is expected to reach between 35 and 40 per cent of the world’s total, according to management consultancy Bain.
With that in mind, how can brands boost sales in China amid the downturn?
Elevating the store experience
Around 42 per cent of luxury sales are driven by Chinese consumers with a net worth greater than RMB 10 million, according to research firm Daxue Consulting. We are seeing brands “focusing hard on their HNWI”, says Roizen. “After benefiting from the growth of the Chinese middle class for over 20 years, many luxury brands are now realising the importance of redirecting their efforts towards high-net-worth individuals, a consumer segment that has demonstrated far greater resilience in the past 12 months.”
Reporting its Q1 results, Hermès executive VP of finance Eric du Halgouët told journalists that “more well-off clients continued to visit our stores”, and noted that average spending was higher during the quarter.
One way to cater to higher spenders but also bring along aspirational shoppers is to elevate stores. Luxury stores are becoming “bigger, more spectacular and more statement-making spaces”, says Roizen.
The new Tiffany store at Taikoo Li Qiantan, a retail project jointly developed by Swire Properties and Lujiazui Group, in Shanghai’s Pudong area, is “extremely statement making”, and better than other legacy stores in China, according to Roizen. It opened in December 2023 and is Tiffany’s 40th door in the country. Nearly 7,000 diamonds adorn the exterior and inside each floor has a private salon for VICs. While efforts to enhance the brand’s retail presence though larger and more prestigious stores target HNWIs, it also “positively impacts how the middle class now views the brand as more prestigious and aspirational”, adds Roizen.
There’s a trend towards storefronts with wider facades for larger, more engaging window displays and in-store installations, observes Ashley Dudarenok, founder of marketing agency Chozan. Gentle Monster reopened its flagship in Shanghai’s Huangpu shopping district following a three-month renovation, to reveal eight usable window spaces. Inside, there are four floors of exhibitions, kinetic art sculptures and collaborations.
Wider price points
Some multi-brand retailers are responding to the market polarisation by introducing a wider mix of price points. For Chinese concept store SND, which has 14 stores in locations like Shanghai, Chongqing, Shenzhen, Sanya and a newly opened outpost in Chengdu, this has involved trading down, as well as up. “We have observed a decrease in consumer desire for high-priced and strongly styled products,” explains founder Will Zhang.
While it still carries a mix of luxury labels including Dries Van Noten and JW Anderson, for Spring/Summer 2024, SND has brought in brands with “more accessible pricing” from overseas such as Knwls, Marine Serre, Lemaire and Peter Do. Certain Chinese designer brands fill this gap too, says Zhang, like Fax Copy Express, Duidao, Short Sentence and Yearly Plan. “These are all relatively affordable and contribute significantly to overall sales,” Zhang says.
The Lemaire brand corner at SND Chengdu.
His returning customers often have established preferences for specific brands, and the bestselling brands can vary depending on the city they are from. Zhang advises international design teams visit China to observe consumer behaviour and understand the atmosphere, as well as the brand mix in Chinese retail stores.
Money-can’t-buy experiences
Despite the plunge in earnings, major global brands are still actively investing in the Chinese market. In the past few months, Shanghai alone has witnessed a series of “glocal” events including the unveiling of Loewe’s ‘Crafted World’ exhibition and the launch of Louis Vuitton’s ‘Voyager’ travelling show, while Ami Paris held a repeat show in Suzhou. There’s also a Balenciaga show and an upcoming Chanel exhibition on the horizon.
“Brands are looking to interact with consumers in new ways while offering VICs money-can’t-buy experiences,” says Bohan Qiu, founder of PR and brand consultancy Boh Project. The Louis Vuitton show — which featured a collaboration with a local Chinese artist Sun Yitian, and was live streamed — was “a great well-rounded example”, Qiu adds.
Pop-up experiences continue to remain relevant as strategic tools for brand engagement and the cultivation of communities. And they’re evolving. Today’s pop-ups offer more than just products: they might provide a mix of dining, cultural activities and interactive experiences, says Sophie Coulon, managing director of digital consultancy VO2 Asia Pacific. Examples include Hermès’s kiosk concept in Taipei, and the YSL Beauty Loveshine Factory event at Start Museum in Shanghai. Events like this create buzz and serve as a focal point for locals and visitors, she adds. “By occupying large spaces like museums or city blocks, they enhance the aesthetic and cultural appeal of the area, drawing substantial attention.”
“The era of creating eventful things that excite the middle class is gone,” says Roizen. “It’s going to require real talent and leadership at a global or China level [to succeed].”