Bain: China’s Luxury Revolution Calls For Omnichannel Approach

The iAPM luxury mall in Shanghai. (Shutterstock)

The iAPM luxury mall in Shanghai. (Shutterstock)

As mainland China’s luxury market remains in slowdown mode thanks in part to a growing number of Chinese consumers buying goods through alternative platforms, a new Bain study argues that an omnichannel approach fusing digital technology with traditional retail is one of the best ways for brands to respond.

The global consulting firm’s annual study on China’s luxury market released this week provided further evidence that tastes and purchase platforms have been diversifying as the mainland market shrunk by 1 percent in 2014. With an approximate value of 115 billion RMB (around US$18.5 billion), the market’s decline wasn’t just caused by China’s anti-corruption campaign and economic slowdown, but also by rapidly evolving consumer preferences. In a survey of 1,400 Chinese luxury consumers, it found that they’re become increasingly interested in niche brands and experiential luxury while searching for ways to avoid China’s import tariffs—which often include buying outside the country or through third-party agents.

The survey results add to a growing body of evidence showing that niche brands are on the rise in China, finding that Chinese luxury consumers became more likely to switch between luxury brands in 2014. It states that 70 percent of respondents like to try different brands and styles, while 45 percent said they plan to buy more emerging luxury brands in the next three years. This is a trend we’ve been seeing for quite a while now, as multi-brand boutiques proliferate across China, department stores stocked with niche labels expand across the country, and trend spotters from Beijing to Shanghai recognize growing individualism in fashion tastes.

Department stores featuring niche labels including Lane Crawford, 10 Corso Como, and Galeries Lafayette have been expanding in mainland China in recent years. (Courtesy Photo)

Department stores featuring niche labels including Lane Crawford, 10 Corso Como, and Galeries Lafayette have been expanding in mainland China in recent years. (Courtesy Photo)

China’s luxury consumers are also seeking out more channels to avoid high tariffs, resulting in a lower official sales tally in mainland China. Bain estimates that 70 percent of all luxury items bought by Chinese consumers in 2014 were purchased abroad either directly or through daigou agencies buying the items overseas and selling them on e-commerce platforms such as Taobao. China’s daigou market grew to an estimated 55 and 75 billion RMB (US$8.8 billion to $12 billion) in 2014, according to Bain—a number that’s equal to around 50 percent of China’s store sales. The exact amount is hard to pin down given the fact that sales are made by unauthorized individuals (who sometimes try to pass off fake goods as real). The main category for daigou in 2014 was cosmetics, followed by leather goods, watches, and jewelry.

One of the main ways brands can respond to these trends is to embrace omnichannel strategies that integrate brick-and-mortar retail with e-commerce, digital campaigns, and social media marketing on platforms such as Weibo and WeChat. “In this age of brand redefinition, luxury brands in China must shed traditional concepts and channels and follow where their customers lead, or risk losing them,” says Bruno Lannes, a Bain partner and author of the report. “This may be a challenge for many, but those that understand how to change with the consumer will reap the rewards.”

One example of a brand that focused on this approach last year was Burberry, which was one of the first major international luxury fashion brands to open up an online store on Alibaba’s Tmall in order to battle the flood of daigou and fake goods sold on the t0p Chinese e-commerce site. In addition, the brand has embraced e-commerce while sponsoring several interactive mobile WeChat campaigns with online-to-offline (O2O) components such as product customization and interactive events.

Technological developments on top China mobile messaging app WeChat have provided brands with more opportunities for an omnichannel approach. The combination of e-commerce capabilities, CRM tools, and O2O technology through QR code scanning allows brands to engage their top customers both in-store and on their mobile devices.

This approach should also coincide with a focus on exclusivity and VIP treatment as Chinese consumers increasingly favor “experiential” luxury, according to the report. The study also found that a growing number of Chinese consumers were interested in experiential luxury in 2014, spending money not only on goods but also on travel or spa treatments. A total of 55 percent of consumers surveyed spent money on a luxury hotel or resort during the year, while 80 percent said they plan to increase leisure travel more than shopping tours over the next year. These findings echo a study published in December by Ruder Finn and IPSOS that found Chinese consumers are now more likely to spend money on luxury travel than goods.

According to Bain, luxury brands need to be willing to adapt to rapidly changing market conditions. “Brands’ future positioning and popularity within the luxury market hinges on their willingness to revamp concepts to serve the needs of the increasingly sophisticated and well informed Chinese consumers, while managing the growing diversity of sales channels, such as daigou,” says Lannes.

 

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