How China's "Princeling" Backlash Could Impact Its Luxury Market

    Conspicuous luxury consumption may not be on its deathbed quite yet in China, but in the country's largest and wealthiest cities, online scandals and netizen outrage may ultimately put the last nails in bling's coffin.
    Jing DailyAuthor
      Published   in Fashion

    Netizen Outrage May Push Conspicuous Consumption Further "Underground"#

    Omega store on Shanghai's Nanjing Road. Will brands increase low-key luxury lines in China in coming years?

    Conspicuous luxury consumption may not be on its deathbed quite yet in China, but in the country's largest and wealthiest cities, online scandals and netizen outrage may ultimately put the last nails in bling's coffin. This April, in a stated attempt to defuse social tensions about a widening wealth gap, Beijing was the first Chinese city to put the brakes on overly "decadent" outdoor advertising, putting the kibosh on ads promoting (in the government's words) “hedonism, lavishness and the worship of foreign things.” As Jing Daily noted at the time, "Beijing’s new campaign should have little actual effect on the city’s fast-growing luxury market...[but] the ban shows that right now, in the words of one article, “luxury is a dirty word” in Beijing. (In public, at least.)"

    Indeed, in the nearly six months since the ban took effect, Beijing's luxury market has shown no outward signs of slowing, but it has shown signs of adapting to the evolving social climate. In response to the Beijing ban, the last several months have seen some of the world's largest luxury brands focus their efforts in China far more on the digital side, making popular Chinese social media platforms like Sina Weibo, Jiepang, and Youku lynchpins of their marketing campaigns. Though young, these digital outreach efforts have shown signs of paying off, particularly among the highly coveted "luxury newbie" demographic of young Chinese white collar workers under the age of 35. According to L2's new China Digital IQ survey, Burberry, which has been perhaps the most aggressive apparel-focused luxury brand in terms of digital expansion in China, is one of only three brands to be ranked as digital "geniuses," owing to its innovative use of Jiepang and Youku to complement its broader brick-and-mortar expansion efforts.

    Still, Beijing's "hedonism" ban and the digitalization of luxury marketing in China aren't the only reasons the decline of conspicuous consumption may speed up in coming years. Recently, a number of scandals have broken on the Chinese blogosphere via microblogging platforms like Sina Weibo, reflecting widespread anger among netizens about issues like corruption and the wealth gap. Controversies such as this summer's Guo Meimei flameup -- in which Chinese netizens pilloried a young women who flaunted her apparent wealth on Sina Weibo -- reflected the touchy situation for the world's top luxury brands in China, as public fury about Guo's desperate attempts at fame spilled scorn on Maserati, Hermes and other brands. Though Hermes may (according to an unverified study by Beijing's World Luxury Association) have seen a sales bump in China in the wake of the Guo Meimei scandal, the question does come up: At what cost?

    Luckily for labels that specialize in apparel and accessories, the greatest backlash in China has been reserved for automakers. (Although watchmakers haven't escaped unscathed.) As the Vancouver Sun writes this week, recent scandals involving "princelings," or the children of wealthy and/or well-connected members of the Chinese political elite have attracted perhaps the greatest public anger of all. From the article:

    The case [of Li Tianyi, son of son of People’s Liberation Army Gen. Li Shuangjiang, who was recently arrested for beating a couple after an auto accident involving his BMW] has revived public memory of the notorious incident in October last year when Li Qiming, student son of a police chief in Hebei Province, hit two fellow students while driving drunk on campus, killing one. Student Li leaped from his car and threatened bystanders by shouting “My father is Li Gang,” the police chief.

    This incident caused such public uproar that the authorities had to do something, and Li Qiming was sentenced to six years in prison.

    But blog sites and the Internet have been humming with the latest example of the increasingly frequent public assumption of privilege and entitlement by the often-arrogant so-called “rich second generation,” the sons and daughters of Communist party officials who have prospered, often by corruption, in the last 30 years.

    With public disdain for conspicuous consumption, netizen wariness about the "rich second generation" and princelings, and government involvement in banning certain advertisements coming to a head in China, what could be the effect on the country's still-booming luxury industry? Auto market aside -- there's little Audi, BMW or Mercedes can do to change the obvious luxury status of their vehicles -- it would seem that the adoption of "low-key luxury" (a trend Jing Daily profiled in August 2010) will only gain pace, particularly in economic and political power centers like Beijing and Shanghai.

    This progression is perhaps natural, and not terribly surprising, since lower-key luxury has been the name of the game in developed markets like Europe and North America since the financial crisis of 2008. Some of China's more sophisticated shoppers have gone this direction anyway, in response to the growing ubiquity of Louis Vuitton and Gucci over the past several years. As Richemont Group CEO Geoffroy de la Bourdonnaye said this February, many of China's wealthier consumers are "now looking for the brands that are not necessarily on the top of the radar screen."

    Greater emphasis on privacy and niche brands, then, seem to be the inevitable trends we'll see more clearly in China over the course of the next few years. While there will always be a market for garish, tank-like Russian SUVs, chunky diamond-studded watches, and logo-festooned bags, the country's ultra-wealthy, becoming ever more cautious about consumption, will likely gravitate towards boutique labels, private clubs and discreet concierge services. This shift may not adversely affect the major luxury brands, most of which have already focused their efforts in China on interior second- and third-tier markets, but it will certainly present opportunities for the kinds of boutique brands that have seen success in more developed Asian luxury markets like Japan and South Korea over the past decade.

    Summary: The simmering backlash against conspicuous consumption should see ultra-wealthy Chinese turn to niche, artisanal brands, focus more intently on privacy, and boutique concierge services to get their luxury fix in coming years.#

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