Why the Chinese Market is a Crystal Ball Showing us the Future of Luxury

    China is at the top of their agendas, and not just because of the size of the market. China provides a window into the future of luxury markets.
    China is at the top of their agendas, and not just because of the size of the market. China provides a window into the future of luxury markets. Photo: Shutterstock
      Published   in Hard Luxury

    Luxury brand CEOs of every type, from technology and hospitality to fashion, all seem to agree on one thing: China is at the top of their agendas, and not just because of the size of the market. China provides a window into the future of luxury markets. In other words, the global luxury market in the future will eventually look like today’s modern Chinese market. So to win in China is to position your company quite well for years to come.

    Why is this? China is now the youngest global luxury market. Around 80 percent of their luxury goods are purchased by consumers below the age of 40 (Millennials and Generation-Zers) compared to only about 45 percent across the rest of the globe. These consumers are better educated than previous generations, are digitally native, and grew up without any financial worry or constraints. And consumers there, especially in Tier 1 and Tier 2 cities, have a significant disposable income and inherit their wealth much earlier.

    Because of their youth and digital lifestyles, luxury brands cannot rely on strategies that were developed for older markets, and in many ways, the China market is more open to disruption and new technologies than older markets. What we see there is a blueprint for what we can expect to experience in Europe and the U.S. a few years down the road. But what are these young Chinese consumers looking for? Surprisingly, they honestly prefer originality and authenticity — they don’t want brands that get complacent, copy others, or lag behind. They want brands that lead.

    Let’s look at the luxury automobile industry as an example. One successful luxury entrepreneur from China in his early 20s recently said that he wouldn’t even consider a traditional luxury car brand like Mercedes-Benz, Audi, or BMW anymore, as he felt those brands were stuck in the past and were no longer innovative or technically credible. He wondered aloud why they were so reluctant to adapt to electric and self-driving technologies and why their electric cars weren’t the best in terms of acceleration and range. To him, most traditional luxury car brands were not inspiring anymore, and he said he would only buy a new car that felt innovative and future-oriented.

    It’s clear that drastically different thinking and decisive change is needed to appeal to young, urban, and wealthy Chinese consumers, and for incumbent luxury brands, the time to act is now. Following the lead of smarter companies won’t be enough. New electric premium and luxury car brands like Tesla, Nio, Arcfox, Byton, Lagonda, and Pininfarina realize that they have a significant opportunity right now.

    But there is an additional threat to traditional luxury brands that comes from outsiders: brands that have excellent products and customer experiences from other categories like Apple and Dyson. There have been persistent rumors that Apple is preparing an electric car launch. Apple’s expertise in creating an integrated platform around the user and their proven ability to merge design, user interface, technology, and media content remains practically unmatched. An Apple car could possibly threaten the position of legacy brands by accelerating the disruption in the premium and luxury car market.

    Meanwhile, Dyson, a maker of high-end vacuum cleaners, already proved their ability to successfully disrupt entire categories, and they’ve announced that they’ll launch several electric cars within the next few years — something that should worry traditional car brands. Dyson already said China will be a key market for them, and that they’ll sell their cars at existing stores in China.

    But traditional luxury carmakers have also been hurting themselves. They’ve relied too much on their products and have neglected the luxury brand buying experience. At showrooms and dealerships today, only new brands are credibly delivering true luxury experiences to customers; brands like Genesis and Nio, both of which stand out in the luxury experience-creation category thus far. Remarkably, no traditional luxury car brand has a convincing dealership experience these days. Some incumbent luxury brand experiences are not significantly different from those of mass-market brands, and they’re sometimes even below mass-market standards. This will not be enough to compete in the future, especially for discerning Chinese consumers that move on fast when they’re not convinced.

    Young Chinese luxury consumers have expectations and a level of sophistication that exceeds any previous generation in that country. They work long hours and have significant commutes, so acquiring unique luxury experiences provides an escape from the stress of their daily lives. Anyone that has visited any luxury mall in Shanghai, Beijing, or Guangzhou can confirm that the quality, product displays, and in-store experiences exceed almost any other destination in the world. Why? Because young Chinese luxury consumers are highly educated, digitally native, and come with bigger expectations.

    Brands have to act fast in order to survive — much less lead — in China. New approaches to the traditional in-store experience are needed in order to offer consumers there a seamless and integrated digital journey. The aim is to create a branded, end-to-end luxury experience that is distinct across all touchpoints. Thinking needs to shift in a radical way so as to make the consumer the center of all activities. This requires real-time consumer insight generation and processing — a major weakness for most luxury brands today. But data means nothing if it is not rigorously applied to outstanding consumer experiences. And last not least, luxury brands have to become more innovative, dare more, and look to disrupt instead of getting disrupted. Chinese consumers expect this from them, and soon enough, global luxury consumers everywhere will have the same expectations.

    Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger

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