The luxury market in China has been shrinking. A large-scale anticorruption campaign targeting government officials is partly to blame, but luxury brands’ failure to capitalise on a population that’s savvy about e-commerce is at the heart of the problem.
Indeed, the scale of official corruption in China is staggering. The Bank of America estimates the nation’s GDP fell 1.5% last year, as officials refrained from purchasing luxury goods and real estate for fear of being targeted for investigation.
This has had a flow-on effect within the luxury goods sector, where many brands were already struggling to settle on a strategy to grow sales within the region. Luxury brands, in general, are not fond of online sales and prefer to stick to traditional marketing channels. They equate e-commerce with mass markets, discounting, and cheapening of their brands.
One trend, however, seems to be nudging luxury fashion brands towards new digital channels despite their resistance: Chinese consumers’ increasing appetite for luxury.
The growing elite in second- and third-tier cities in China are hungry for luxury goods, and consumption is still at the infancy stage, said Dr Marina Yue Zhang, lecturer at the School of Business at The University of New South Wales.
In this emerging market, showrooms and brand propositions associated with terms such as “high end,” “luxurious,” “rich,” and “international” are still the most effective marketing tools. The strategy of using celebrities--especially movie stars and pop singers--is popular.
“In other words, luxury goods are for showing off to others, rather than for enjoying the quality that legendary brands could bring them,” Zhang explained.
Another strategy in play to attract consumers to luxury goods in China is offering discounts on the mainland. Additionally, in recent years luxury international brands have added Chinese elements to the designs of many new products to attract Chinese and other consumers who favour Chinese culture, said Dr Neil Wang, global partner and managing director for Frost & Sullivan Greater China.
Bricks, Not Clicks
Despite these shifts, self-operated, single-brand stores are still, by far, the major distribution channel for luxury in China.
But Wang said brands seeking a bigger slice of the luxury goods market in China need to make better use of mainstream online gateways and apps to promote new products. Some brands have already started to do so, such as Burberry, which opened its online store in a marketplace owned by the Alibaba Group–Tmall–in April 2014.
The market is more than set up for it: Given that China is the largest mobile phone market with the highest number of smartphones in the world, e-commerce there–especially on the mobile platform–is quite advanced, supported by well-developed logistic networks and online payment facilities.
Forecasts are favorable, too. According to Forrester Research, online spending in China will reach $1 trillion by 2019. The growth will be fueled by mobile apps and improving logistics networks, which have helped e-commerce companies reach new customers in smaller cities. Investing in mobile apps is key for e-commerce companies because most people in China now use mobile devices to access the Internet.
For the time being, however, the current number of online channels to sell luxury goods in China is small. Brands have started to use new media platforms, such as Chinese microblogging website Weibo and free messaging and calling app Wechat to promote products, but the primary media channels for luxury remain TV, movies and magazines, Wang said.
“They could consolidate resources, such as social media applications, e-commerce platforms, and smartphone apps through the O2O [Omni-Touchpoints + Omni-Experience] model, to offer online purchase and offline experiences,” he added.