What Shanghai’s Tourism Expansion Means for Luxury
What Happened: Shanghai isn’t letting a global pandemic dampen its fun. This week, local authorities announced plans to double the city’s tourism revenue over the next five years, focusing on cultural tourism and digital events. Shanghai also aims to build 30 smart scenic areas and 600 smart hotels in 2021, as well as cultivate several top international tourism brands and flagship tourism events.
At the opening ceremony of the Tourism Plus Shanghai 2021 exhibition, Fang Shizhong, head of the local culture and tourism bureau, said that Shanghai is an important window of “how the world sees China” and a significant link for domestic and international tourism cooperation.
The Jing Take: Although global travel is on the back burner, Shanghai’s tourism ambitions point to the staying power of staycations. The tier-1 city alone received 236 million domestic visitors in 2020, with revenues reaching $42.8 billion despite the impact of COVID-19. Nationally, the China Tourism Academy predicts that a total of 4.1 billion trips will be made this year, up 42 percent from 2020.
And where there is travel, there is shopping. With Chinese consumers unable to spend abroad, high-end purchases in the mainland more than doubled from 2019 to 2020, according to Bain & Co. As Shanghai is already home to flagship stores for many luxury brands, including Hermès, Louis Vuitton, and Dior, strengthening its tourism infrastructure should help these players see increased foot traffic — if, of course, they capitalize on the timing of these events and continue to innovate their retail experiences.
But repatriated spending isn’t great news for flagships in Milan and Paris that used to rely on Chinese tourists, or for smaller brands without a physical presence in China. While vaccine rollouts offer hope that the world may soon open up, brands shouldn’t hold their breath; rather, they should get busy pivoting to local tourist hubs because domestic travel, as Shanghai is banking on, is here to stay.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.
Will China Unplug Tesla Soon?
Chinese government officials helped Tesla secure loans worth around $1.6 billion.
Tesla sales in China reached $6.66 billion in 2020, accounting for 21 percent of its $31.54 billion total.
Tesla can expect an immediate fallout and penalties if it doesn’t overcome its performance and safety issues.
The media has widely reported that Tesla enjoys a privileged position in China. In fact, the brand caused a stir among local consumers in late 2019, when it inaugurated production at its Shanghai Gigafactory. But apart from its fans’ love for the brand, what really attracted global attention was the government’s favorable treatment of Tesla compared to competitors.
CNBC reports that, in 2019, “Chinese government officials helped Tesla secure loans worth around $1.6 billion” for building its Shanghai factory. Moreover, during the global pandemic in 2020, the Shanghai government-assisted Tesla to “get back to normal operations quickly” despite widespread lockdowns.
Apart from the cheap loans, tax breaks, and relaxed restrictions, Tesla also enjoyed unprecedented freedoms that were not granted to other foreign competitors. For example, Tesla was allowed to retain full control of its China operations without entering a joint venture with a local partner.
In response to China’s benevolence, Elon Musk praised the country and its leadership in various interviews. Musk even infuriated some American political analysts when he celebrated the “smart” and “hard-working people” of China while criticizing the “entitled” and “complacent” character of Americans, especially those living in places like Los Angeles and New York.
Soon after news broke that Chinese regulators were concerned that Tesla cars might be used to spy on China, Musk used a more seductive communication style, talking about China in even more flattering terms. “I’d like to strike an optimistic note, and I’m very confident that the future of China is going to be great and that China is headed towards being the biggest economy in the world with a lot of prosperity in the future,” Musk said.
The business magnate also tried to convince China that his company would not reap any benefits from spying for foreign governments. “There’s a strong incentive for us to be very confidential with any information,” Musk said at the China Development Forum. “If Tesla used cars to spy in China or anywhere, we would get shut down.”
But despite Musk’s concentrated attempts to escalate a charm offensive, a major fallout could be imminent. In a new era of superpower rivalry and unresolved tensions, American companies with large operations in China have seen their profits trimmed. Moreover, these firms have become defenseless against local threats like consumer boycotts and regulatory sanctions.
Up to this point, Tesla seemed safe, and China often saw Musk as the model Western entrepreneur. But in a capricious and fast-changing market like China’s, you can go from a business celebrity to an outcast in a matter of days. Jack Ma is the perfect example.
And if there is any indication that China is falling out of love with Tesla, it is in the drastic tone change of local newspapers. CNN highlights how, in November, Xinhua blasted Musk’s company after an incident in which a Tesla attorney wrote to US regulators about a China recall, blaming the problem on “driver abuse.” In January, another controversy erupted when a Tesla employee told a customer after a charging accident that damaged his car that the power grid was at fault.
CNN reports that these incidents outraged Xinhua, which criticized Tesla for its “arrogant attitude.” The Global Times also blasted Tesla for “its ignorance in understanding Chinese consumers.” These incidents hurt Tesla’s credibility and attracted greater scrutiny from Chinese regulators.
Obviously, if Tesla wants to remain the EV market leader in China, it should steer clear of future reputational crises. At this point, Musk needs China more than China needs Tesla.
Tesla sales in China reached $6.7 billion in 2020, which accounted for 21 percent of its $31.5 billion total, according to a recent company filing. Moreover, Tesla was the top-selling electric car in China last year, with 135,400 Model 3s sold, says the China Passenger Car Association. And its Model Y had a powerful market release, becoming the third best-selling electric car in February.
However, the winds of change are about to sweep through China’s electric car industry, with competition intensifying and domestic companies becoming more innovative.
In January, the Chinese electric automobile manufacturer Nio presented its first sedan, the et7, with self-driving technology, CNBC reports. Likewise, the state-owned SAIC Motor found success with its budget-friendly Hong Guang Mini EV priced at $4,500, which is currently “outselling Tesla’s more upmarket cars,” according to BBC News.
In the second half of 2020, the Hong Guang Mini EV sold 112,000 cars, ranking second behind Tesla’s Model 3.
China’s position vis-à-vis Tesla is ambiguous, so it is difficult to assess Beijing’s future strategy. But Tesla can expect an immediate fallout and penalties if it doesn’t overcome its performance and safety issues.
The American electric vehicle company can no longer afford to lose a key advantage if it wants to stay ahead of domestic competitors. And at this point, a misstep could turn China against Musk.
Undoubtedly, Beijing’s ambitions of building “a world-leading electric vehicle sector” will inevitably impact its approach to foreign businesses. While a future divorce is unavoidable, the question is whether Tesla and China will end their liaison amicably or ferociously.
Douyin Offers Flagship Stores for Brands
What Happened: Douyin continues to build-out its e-commerce capabilities by launching flagship stores for brand accounts. The feature, made available on March 29, includes a campaign banner, brand recommendations, vouchers, product recommendations, and offline store information, Dao Insights reports. Already, more than 220 brands are using the function, including homegrown giants Perfect Diary, Peacebird, and Huawei.
The Jing Take: Over the past few years, luxury brands like Gucci, Prada, and Dior have hopped on the popular Gen Z platform — albeit to varying degrees of success. Now, global players that weren’t convinced to join before have another reason to consider China’s TikTok counterpart.
For one, these flagship stores will help brands increase their product exposure. Not only will the ratio of product views to total page views from the account’s homepage jump from 17 percent to 80 percent, but the click-through rate will also rise 250 percent month-on-month, Douyin predicted. Moreover, conversion rates are set to increase, with Douyin’s brand vouchers, attained from the flagship stores, redeemable both online and offline.
Brands should note, however, that there are plenty of Chinese sites already offering store features like Tmall, Little Red Book, and WeChat. As such, they should tailor their content to Douyin, capitalizing on its unique features and youthful vibe to resonate with its 600 million daily users. Here, brands can take a page from Cartier, which recently saw success on the platform with its user-generated content campaign, bringing in over one billion views.
Besides benefiting brands, the new service should also help close Douyin’s e-commerce loop, something the Bytedance app has increasingly focused on, from cutting links to third-party websites like Taobao and launching Douyin Pay in January. Ultimately, this e-commerce expansion better positions Douyin to take on domestic rivals such as Kuaishou, which teamed up with JD Retail last year to enhance its livestreaming ecosystem, as well as to potentially list overseas.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.
Is China’s Luxury Future In Vintage?
Brands should keep an eye on Chinese consumers’ pursuit of vintage luxury items. These consumers are looking for cost-effective luxury items with high levels of craftsmanship and design that reflect their personal style rather than seasonal products and up-to-date fashion trends.
Over and above re-inventing classic models that have been discontinued, luxury brands should combine the brand story and cultural heritage with contemporary design and quality to imbibe contemporary products with classic elements.
The Chinese second-hand luxury goods market has enormous potential, but for this market to keep developing, it’s still necessary to guarantee authentic products, ensure that supervision and market regulations are in place and that the supply of goods is sufficient.
When looking back at 2020, China’s luxury market performed remarkably well, despite the impact of the COVID-19. According to Bain, the market share for luxury items in China almost doubled, from approximately 11 percent in 2019 to 20 percent in 2020. This growth is expected to continue and should result in China occupying the largest share of the global luxury goods market by 2025.
The expansion of China’s luxury market reflects consumption upgrades, but the country’s luxury consumers have also become younger due to the shift toward online shopping that has increased young consumer purchases. Bain & Company points out that consumers born after 1981 now account for nearly 60 percent of all luxury purchases. And by 2025, Millennials and Gen Zers will make up 65-70 percent of all buyers. But this doesn’t mean that they’re all looking for the hottest new thing with a big logo slapped on it.
Luxury consumption’s evolution in China
There’s no question that China has been a battleground for global fashion brands, and the ever-changing demands of Chinese fashion consumers have injected vitality. And, as of late, category preferences have undeniably moved toward classic items that will retain their value. According to a report from BCG and TMI, the penetration rate of jewelry, watches, and bags in 2020 increased about 6 percent over 2019.
At the same time, China’s consumption is maturing. It’s no longer limited to big brands like LV, Gucci, and Hermès. Consumer demands have diversified, moving from the pursuit of certain brands to a greater focus on design, quality, and exclusivity. As an emerging consumer group, Gen Z now has a huge impact on brand digitization, and they prefer niche designs and co-branded models. According to Tmall, from January to October last year, Gen Z’s spending on co-branded and limited-edition luxury items increased by between 300-400 percent, year-on-year. Apparently, Chinese consumers not only use luxury to show off; they also choose niche luxury brands to match their unique tastes and personalities. Yet, cost performance is a key factor as well.
Second-hand vintage luxury takes off
Six-year-old Aloooooha Vintage, one of the earliest offline vintage stores in China, is a prime example of how the market has been changing. Fendi Baguette bags have soared from around $154 (1,000 RMB) to more than $922 (6,000 RMB). And during a livestream hosted by the boutique on Red, a new consumer bought a Hermès handbag for $44,245 (288,000 RMB), which took the shop’s manager by surprise.
Celebrities are also jumping on this trend, with some leading the way. Vintage items worn by celebrities have become viral topics on Chinese social media. Jennie Kim, a member of the Korean pop group Blackpink, has 3.29 million followers on Weibo and is a vintage fan, having led the high-teen fashion look that harkens back to youth fashions of the 1990s. Data shows that 41 percent of consumers trust celebrity opinions about fashion. As such, idols, especially those with huge followings on Chinese social media, have an essential influence on brand awareness and purchasing behavior.
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Finely-crafted and period-inspired luxury vintage items from the past have also become popular. However, connoisseurs have a strict definition of vintage that includes 1. only the finest items in classic styles made over 20 years ago and 2. items that are no longer produced.
Diversifying online purchase channels
In the past, luxury sales were concentrated in brick-and-mortar stores. But in the post-Covid era, online channels are taking on a new importance, so vintage sellers, including individuals and second-hand luxury e-commerce platforms, are accessing increasingly prosperous users on Chinese social media platforms. These sellers are immeasurably raising vintage culture awareness through online marketing, opening up a new market to young people.
Aloooooha Vintage made 600,000 sale transactions during its first livestream on Red, ranking it first in its category on the platform. Through livestreaming, the store attracted a nationwide audience, especially in Tier-3 cities and below — an unimaginable feat for brick-and-mortar operations in the past.
Yet, with booming e-commerce on social media, second-hand luxury goods have become an important sector. Douyin e-commerce set up a second-hand luxury goods operational team that, among other things, drove traffic to second-hand luxury livestreams and reduced transaction commissions for this category. According to Feigua Data, Douyin’s top livestreamer for the shoes, hats, suitcases, and bags category in February was a seller from the second-hand luxury e-commerce site Feiyu. The same seller also has an offline store in Shanghai that racked up GMV of $11 million (71.76 million RMB), ranking it no. 5 in the category.
The rise of vintage has led luxury brands to recreate vintage styles to appeal to retro-style fans. Dior has reinvented the Saddle Bag (born in 1999) as a new classic that it’s keen to promote. On Weibo, two topics related to #DIORSADDLE have attracted 7 million views. On Chinese social media, grabbing the younger generation’s attention is crucial to reviving classics. While consumers are trying to shape their unique tastes, luxury brands should reinforce their cultural value and endow classic styles with new meanings that communicate to contemporary consumers.
Nevertheless, the issue of authenticity makes potential consumers apprehensive, and professional authentication services are at the core of winning consumers’ trust. Feiyu has entered into a partnership with the CCIC (China Certification and Inspection Co., Ltd.) and even provides additional CCIC certificates and insurance coverage for fakes that result in a triple refund for one fake product. Aloooooha Vintage, on the other hand, requires each of its appraisers to have both Chinese and Japanese appraiser certificates. Services like these give consumers much-needed reassurance.
What are the opportunities for the future?
This shift in Chinese consumers’ consumption habits means that a new track has opened up for the second-hand economy. More than half of premium-item consumers in 2020 were under 30. Meanwhile, according to China’s Second-Hand Luxury Market Development Research Report, the number of certified luxury goods on the market in 2020 is now about 1.5 times that of 2019, with second-hand goods accounting for 60 percent of it. However, the market for second-hand luxury goods only accounts for 5 percent of the total market. By contrast, second-hand luxury goods in developed countries make up as much as 20-30 percent. That shows China still has great potential in this sector.
But some factors are restricting the sector’s development, such as shops that sell genuine and fake goods together and the difficulty of tracing sources and establishing authenticity.
Additional research by Stella Zhang
Join Jing Daily and Sotheby’s For a “Virtual Event” Tailor-Made For Luxury
In 2020, China went from a key luxury market to arguably the most important in the world, as brands had no choice but to tailor their marketing and sales strategies for a consumer base that went from globally minded to much more domestically focused virtually overnight.
With Chinese consumers turning to digital trends like livestreaming and local platforms such as Douyin to discover and, increasingly, purchase luxury goods, brands now must make decisive moves to leverage popular culture and domestic trends in order to sell to the critical China market. Today, China’s retail market is largely open for business as usual even as international travel and luxury shopping remains off the table. As such, understanding how popular culture now impacts China’s luxury market (and what that means for a successful marketing mix) is more urgent than ever for luxury brand decision-makers.
Addressing this critical moment in time for the luxury industry, Jing Daily and Sotheby’s will hold a must-attend webinar on Thursday, April 8 at 10am EST / 3pm GMT exploring “How Popular Culture Has Redefined Luxury in China.” Moderated by Enrique Menendez, Editor-in-Chief of Jing Daily, the live webinar will also include contemporary artist Daniel Arsham, editor Ted Gushue, and Yuki Terase, Head of Contemporary Art, Sotheby’s Asia.
Covering a wide range of topics, including how popular art carries over into what we call popular culture, how the definition of luxury has changed over the years, and the specialities of the Chinese luxury market, the webinar will provide attendees with a clear view on the current state of the global auction, art, and luxury markets, with takeaways that will help refine a global and a China strategy for 2021 and beyond.
RSVP today to receive discussion link, submit questions or receive post-event recording.
Why Sharing is Caring in China
China’s rental field only started in 2014 when Ms. Paris entered the market, and twelve other startups followed in the coming year. From 2014 to 2017, the sector boomed, during which time it received over $130 million from venture capital firms.
Lockdowns acted as a natural selection process for sharing models. The subscription platforms that quickly revamped their business structures made it through COVID-19 and earned a dominant market position. Now, YCloset, LeTote, Ms. Paris are seeing user subscriptions return to pre-pandemic levels.
China’s national statistics state the domestic sharing economy market size surpassed three trillion in 2019 and is set to grow by 30 percent in the upcoming three years. Environmentally-conscious Gen Zers are the main drivers behind luxury growth, yet their debt-income ratio has climbed 1,850 percent as per 2018 data.
Not everyone can afford Gucci or Dior. So what’s the next best option for owning a designer brand coat or handbag? Rent one, of course. And now, some young fashion fans looking for luxury are turning to China’s affordable rental market, which offers guilt-free, space-saving options to style-conscious consumers.
Over the last few years, rental platforms have been gaining traction in the local market. From cars to phone-charging power banks and fashion sharing, local investors have been tapping into the rental trend by throwing billions in venture capital at the sector.
Until last October, the possibility of renting clothes and accessories was relatively niche in China. Then, an article that came out on WeChat, titled, “I lurked in the Shanghai Socialite Group & Observed Them For Half a Month,” unveiled the glamorous world of luxury flexing in China. The post caused a stir on social media and gained over three million views. But, more importantly, it uncovered the fashion rental platforms that these socialites used to display their wealth.
Additionally, with limited spending power, young generations are eying alternative solutions to keep up with the latest trends. Mckinsey & Co. reported that China’s affluent consumer households earn above $3,900 per month, accounting for 30 percent of the urbanized population.
Yet, while the US rental market is valued at $1.9 billion and is expected to double by 2026, China views renting as radical, as its societal mindset is firmly rooted in the worship of ownership. As this mentality changes, Jing Daily looks at what has worked in China, what hasn’t, and what rental opportunities will present themselves in the future.
China’s relationship with renting so far
China’s national statistics state that the domestic sharing economy’s size surpassed three trillion in 2019 and is set to grow by 30 percent in the upcoming three years. But it is hampered with issues from slow user uptake to operations costs.
It took off in 2014 with the creation of the local company Ms. Paris, which was founded by the female entrepreneur Xu BaiZi. Others then followed into the sector: YCloset received a $50-million investment from Alibaba in 2017 and became the industry’s unicorn. Meanwhile, the company DoraYmen, which obtained $12 million in funding, quickly folded. In total, at least 14 different companies have held a market share at one time.
Fashion subscription platforms face competition from affordable luxury, second-hand luxury, and even counterfeit goods. And the average $60-a-month rental fee is still considered high for many users. YanYan Froud, the regional VP of APAC at the marketing agency Forwardpmx, agrees that the sector is flooded with difficulties.
“Consumer acquisition journeys can be immensely long [on rental platforms] and don’t see immediate conversion,” she explained. “The business model itself [poses challenges.] In China, renting a luxury brand is only $3 a day.” But the outbreak of COVID-19 accelerated the model, resulting in a rental market revitalization. And, in 2021, despite the challenges, three big players have survived.
China’s three main rental players
American rental platform LeTote charges $77 per month, which is the highest fee, and offers affordable contemporary pieces for office women, including some local niche names. It has increased user trust by livestreaming its sanitizing and disinfecting process for the clothing in its warehouse centers, credibly convincing users.
Domestic company YCloset targets young consumers by offering a $60 monthly fee for contemporary American and European designer brands. When people were stuck indoors during the lockdown and decided to make money from unused wardrobe items, it quickly saw an uptick and diversified. Soon it had positioned itself as a platform where users could sell or purchase second-hand products, as well.
In a fiercely competitive field, building trust and brand recognition can be a long and arduous journey for luxury rental platforms. As the oldest rental company in China, local luxury pioneer Ms. Paris, which has the most reasonable fee at $50, has built up fans over time.
Does renting have a future in China?
Rental platforms work on long-term, return-on-investment cycles, and as an early flood of investing has died down, the industry’s future survival is now in jeopardy. Price competition among various platforms threatens business liquidity, and none of these companies have yet to turn a profit.
DoraYmen’s failure was most likely due to its high shipping and cleaning costs, which often surpassed garment values. But other companies have failed, as well, such as Magic Wardrobe, You Clothes, and Mocha Box. And LeTote’s monthly charge is the highest among its competitors, making it harder for the platform to be the first choice for new users.
While the pandemic did accelerate positive changes for the industry, it also brought challenges. To meet them, some have changed their models to guarantee cash flow. LeTote reduced its number of shipments to twice per month, and YCloset now requires clothes to be returned within 24 hours, leaving frustrated users with “gap days.” Yet, China’s customers are spoiled for choice, so these companies must meet their demands.
If they don’t, social media will be awash with complaints, and that can severely damage their reputations. Online comments reveal that LeTote lacks luxury designers while Ms. Paris stocks outdated collections. Until companies can address issues ranging from unsatisfactory selections and subscription models to shipping and packaging, the entire division will suffer.
How can luxury tap China’s rental frontier?
International rental players looking to tap the Chinese market will need intimate knowledge of the industry. Ralph Lauren’s new rental venture may work in the US, but he knows his audience there. Froud suggests that potential newcomers need to understand expectations and the competition, saying, “[Companies must ask themselves]: if local competitors are offering low prices, can they compete with them? If they don’t compete by adding value, what can they provide so consumers will subscribe?”
Rental platforms can help brands raise awareness with younger luxury buyers and capture consumer trend shifts or accumulate relevant data on their profiles, which should help labels learn about emerging trends. Other gaps rental luxury could fill include offering subculture fashion trends, such as Preppy style or Dark Academia, two styles that are gaining traction with younger Chinese consumers.While the luxury opportunities in China’s rental are debatable, brands can no longer simply bet on debt-ridden Gen Zers to drive market growth until the bubble bursts. But by aligning with a sustainable expansion model and the circular economy, luxury will improve its stickiness with this generation.
Will China’s Boycotts Hurt H&M’s Bottom Line?
What Happened: After some international fashion companies — H&M, Burberry, Nike — voiced their concerns about cotton sourced from the Xinjiang region in China, they suffered a startling quick nationalistic backlash. Meanwhile, several competing Chinese apparel companies seemingly gained from the situation, posting wildly positive performances in the stock market in the last three days.
Shanghai Metersbonwe Fashion & Accessories Co. and Ribo Fashion Group Co. each grew a whopping 33 percent after Chinese netizens called for the cancellation of H&M (to date, six H&M stores have already been shut down in the mainland), which later spread to a boycott against other international brands, including Burberry and Nike. According to Bloomberg, which emphasized the “the speculative nature” of the rally in the Chinese apparel stocks, Shanghai Metersbonwe announced in October that it will post a loss of 820 million yuan ($125 million) for 2020, and Ribo Fashion issued a profit warning in January. “The speculative buying on nationalist sentiment is irrational and would be unsustainable,” Zhang Gang, an analyst at Southwest Securities Co. told Bloomberg.
The Jing Take: This is not the first time that Chinese stocks have rallied following a boycott encouraged by the government. Last July, a front-page editorial in the state-owned China Securities Journal said that fostering a “healthy bull market” is important. The Shanghai stock market jumped 5.7 percent after the news was published. China, however, is not the only country where government-backed entities have used their power to influence the market or call for boycotts on international brands.
In 2020, for example, President Recep Tayyip Erdogan, called on Turks to boycott French goods over French President Emmanuel Macron’s “hostile stance” and remarks on Islam. The “boycott approach” was also used in India after the killing of twenty soldiers at the border site in the Himalayan Galwan Valley. A central Indian minister called for a boycott of restaurants selling “Chinese food” and “by all accounts states and public sector companies have been reportedly asked to desist from issuing new contracts to Chinese companies,” the BBC reported. And the US, under the presidency of Donald Trump, used the same belligerent approach against China, urging his many, many Twitter loyalists to follow their “patriotic duty and buy their products at Walmart to punish China,” adding: “If you go to a GREAT AMERICAN STORE like Walmart, you’ll find lots of cheap sportswear, shoes, and other items for you and your family to enjoy. What better way to show China that we don’t need their dumb stuff!”
In broad terms, boycotts have provisional effects. After the initial animosity and anger phase, consumers tend to return to the products they love and enjoy — no matter where they come from. Moreover, despite a temporary drop in sales, boycotts have shown little impact on a company’s bottom line. Take, for example, H&M; China is H&M’s fourth biggest market, but it represents only 5.2 percent of the group’s total sales in 2020. As harmful as the boycott in China is, H&M won’t change its stance because it has a global market of “progressive” consumers to satisfy, and it can’t displease the majority.
As for the recent jump in Chinese apparel stocks, this too is ephemeral. Seasoned investors understand the association between the current positive performance and the political hostility against foreign brands in China. Investors and analysts know that both the boycotts and stock jumps won’t have a lasting impact on the market — that it’s simply the cost of doing business in China. For Chinese consumers, the same could be true. Nike reportedly sold out its Air Jordan and Dunk Low sneaker release on Tmall, with more than 340,000 eager buyers.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.
The Friendly Flagship Of The Future
The flagship store is an integral part of a luxury brand’s strategy in China, and it offers instant credibility and a bold statement, so a brand can break through the clutter and reinforce its stature.
A significant percentage of post-90s consumers have just started buying luxury goods, and a flagship store helps inexperienced customers get a sense and feel for the brand.
Flagship stores can offer brands unique opportunities to instill exclusivity and develop more meaningful relationships with the customers.
The smell of coffee is an instant yet subtle reminder of craft and culture. In Shanghai, the Lavazza flagship store — their first outside of Milan — attempts to recreate the Italian coffee experience that cannot be emulated on social media.
The flagship store is an integral part of a luxury brand’s strategy to showcase the brand. And in China, it offers instant credibility and a bold statement, so a brand can break through the clutter and reinforce its stature. That raises the competitive pressure for brands to deliver a “wow” flagship store experience to their customers.
But the accelerating digital transformation of luxury’s retail landscape means brands are not sure if they should keep investing in physical flagship stores. In fact, Gucci Beauty recently launched its digital flagship store on Tmall Luxury Pavilion. So is the traditional flagship store dead? Luxury executives have certainly become astute at developing their digital footprints. But it would be a miscalculation to play down the strategic value of physical flagships.
New to luxury
Young Chinese customers are new to luxury. According to McKinsey & Co., a significant percentage of post-90s consumers have just started buying luxury goods. Digital informs and inspires, but a flagship store can help inexperienced customers get a sense and feel for the brand. The flagship experience is a critical interaction between brand and consumer — one that can make or break the relationship. As Toni Belloni, group managing director at LVMH, stressed in an interview with the Financial Times: “The store is the first point of contact for all our brands – where its story-telling becomes story-living.” This early discovery stage is particularly significant for luxury brands that do not enjoy mainstream awareness.
Luxury brands use brand signals to position the brand, and the flagship store provides a conspicuous platform to support the desired positioning. Longchamp, for example, is broadly associated with Le Pliage, especially among younger consumers. But its flagship store in Shanghai is a reminder that the brand is also a specialist in traditional luxury leather making. Flagship store strategies can also be used to reposition the brand. The opening of Huawei’s three-story flagship on East Nanjing Road in Shanghai is an attempt to pursue a prestigious position, competing against the likes of Apple. But it also demonstrates innovation beyond the smartphone category in new growth sectors such as the smart home.
Luxury consumers want to acquire new skills or increase those they already have. Numerous digital tutorials exist, of course, but they can’t replicate the intensity of active involvement. For example, Miele provides consumers an opportunity to cook with leading chefs in its Shanghai, Beijing, and Hong Kong showrooms. Meanwhile, the Porsche Experience Center in Shanghai offers training courses to enthusiasts who want to improve their driving skills. Hennessy’s first Chinese flagship store in Sanya offers shoppers a selection of masterclasses like its Mixology Ateliers. The flagship store experience provides a forum for upgrading the skills, knowledge, and confidence that luxury consumers need to elevate their status.
Flagship stores can offer brands unique opportunities to instill exclusivity and develop more meaningful relationships with the customers. For example, Hermès Maison in Shanghai has a designated event and exhibition space that hosts art and cultural exhibitions, and many of them focus on the culture and heritage of the French luxury house. Luxury brands have also sought to develop dedicated store collections, such as The Burberry Shenzhen Capsule Collection, or offer exclusive in-store services, such as creating an individualized glass bottle at Hennessy’s flagship Sanya store. These luxury experiences are accessible for those who choose to visit flagship stores.
Beyond sales figures
Luxury brand executives should look beyond weekly sales figures to justify a flagship store strategy. There will always be a need to surprise, advise, or entertain customers. However, reinventing the flagship experience will be vital to ensuring that the luxury brand connects with younger, tech-savvy customers. Burberry’s first social retail store in Shenzhen, which blends the physical and digital worlds, will continue to disrupt the retail experience. In the future, these trends might even change the way we appreciate Italian coffee.
Glyn Atwal is an associate professor at Burgundy School of Business (France). He is co-author of Luxury Brands in China and India (Palgrave Macmillan).
Content Commerce-Fueled Glamping and RVing Trend Sweeps China
- While relatively small compared to the North American or European markets, China’s RV industry is growing by leaps and bounds, powered by younger consumers eager to escape the city.
- Luxury brands like Gucci and Loewe are creating new collections, collaborations, and content around getting back to nature.
- Recent film and television content centering on enjoying the comforts of home while glamping or traversing the countryside in an RV is proving popular with young viewers.
Along with the e-commerce livestreaming boom, the exponential growth of brand collaborations and swelling brand-funded film and TV budgets, marketing strategies that fuse content and commerce are increasingly fostering new trends in China, offering a glimpse of what may come next globally.
A good example of this is the rising interest in glamping and RVing in China, a trend that connects to two key developments in the market: the steady growth of China’s recreational vehicle industry and the focus on domestic travel and “slow living” in the wake of the Covid-19 pandemic. (Which has been keeping millions of Chinese citizens who would otherwise jet off to global destinations closer to home.)
While RV travel in China is decades behind established markets in North America, Europe and Japan, the domestic industry is catching up quickly, with hundreds of new local companies aiming to meet the growing demand. According to Chinese credit agency Qichacha, more than 1,200 new RV companies were established in China in the first half of 2020, an increase of 36 percent year-on-year, with 849 set up between March and June alone.
Coming on the heels of last year’s extended lockdowns, millions of Chinese were drawn to the option of exploring the country solo in rented or owned RVs, or through self-driving trips organized by travel sites like Qunar. While still small compared to the United States and Western Europe, China’s RV market is expected to see RMB 13.6 billion ($2.1 billion) in sales by 2023, up from virtually nothing 20 years ago.
But unlike in years past, when RV travelers in China mostly took long-distance domestic trips, the trend is now to visit nearby parks and destinations, fueled by younger travelers new to the RV lifestyle and inspired by a boom in related content on Chinese TV and video streaming platforms.
Over the past year, the rise of “slow living,” single-living, and “homebody lifestyle” content, reflected in streaming programs like iQiyi’s “I Want to Live Like This” (我要这样生活) and Youku’s “Not a Loner” (看我的生活), has been impossible to ignore. For producers and brands alike, content centering on enjoying the comforts of home while glamping or traversing the countryside in an RV has proven popular.
Last March, Mini leveraged interest in glamping, RVing, and “cloud living” by launching a 24-hour livestream on Bilibili in partnership with Tmall from Mini’s “Nomad Hotel,” a set of six customized Countryman vehicles dispatched to Yunnan Province in southwest China, equipped with rooftop tents and set up with an outdoor barbecue area, dining tables and bathroom facilities. Since its debut in 2019, the Nomad Hotel has expanded to another location in Yunnan and one in Anhui Province in eastern China.
In another effort to tie its brand to China’s travel and camping trends, last year Mini also partnered with production company Xinshixiang to produce “Two Days Away” (出逃两日又如何), a branded travel documentary series that aired on Tencent Video.
This year, we very well could be on the cusp of a camping and RVing content boom, with the recent debuts of Zhejiang Satellite TV’s “Star Chaser” (追星星的人) and iQiyi’s “I Told the Spring About You” (春日酱). For “Star Chaser,” Zhejiang TV assembled a cast of young celebrities including L’Oréal brand ambassador Zhu Yilong and noted Lamborghini crasher Li Yifeng for a camping-themed reality show that sees a rotating set of guests join the hosts as they visit six scenic spots around China. “I Told the Spring About You” takes a slightly different and more youthful route, with iQiyi combining the camping reality TV trend with the similarly popular food TV trend and sending five Gen Z stars (Fei Qiming, Yao Chi, Niu Chao, Hu Chunyang, and Li Mingde) around China to experience the sights and tastes of the country al fresco.
According to the Gen Z-focused 2021 Spring and Summer Season Fashion Report from Bilibili, Tmall and Alimama (Alibaba’s online marketing technology) the Chinese experience with lockdowns and social distancing have encouraged young people to get closer to nature. This trend has arguably taken hold globally, and brands have been quick to capitalize — Gucci’s recent collaboration with The North Face and the ongoing gorpcore craze spring to mind. In China, this trend has driven the surge in interest in camping in general and glamping in particular, with views of camping-related content on Bilibili increasing 160 percent year-over-year, and the platform has become a popular place for Gen Z to share their camping experiences and tips.
Now, we can expect to see a wide range of services springing up to meet this demand for camping, and glamping and RV travel, and a corresponding increase in brand attention to promoting outdoor lifestyles through content.
How NFTs Could Revolutionize Luxury
The global pandemic has helped the NFT phenomenon since more brands started focusing on digital innovation and blockchain-backed digital assets.
NFTs provide greater protection against the duplication and distribution of copyrighted materials.
Non-fungible tokens will impact digital storytelling by bringing creators who understand the power of ethical marketing to the forefront.
Over the past few years, digital technology has revolutionized marketing and storytelling. But recent developments in blockchain and non-fungible tokens (NFTs) are likely to change the industry further. The global pandemic helped launch the NFT phenomenon since more brands started focusing on digital innovation and blockchain-backed digital assets.
But how will non-fungible tokens revolutionize digital marketing and luxury storytelling? Compared to “fungible” assets like bitcoins, NFTs have more appeal for luxury brands because they are “non-fungible,” meaning each NFT is assigned a digital hash that distinguishes it from every other NFT of its kind.
NFTs have a “value” that is set by market demand. As such, NFTs can gain digital scarcity, which pushes the valuation higher. It’s the same scarcity principle that the luxury industry uses regularly.
Take, for example, Hermès. The French luxury goods manufacturer has used the scarcity of its most iconic bags, the Birkin and the Kelly, as a marketing tool. It has also used the brand’s desirability to dictate prices for its bags because, in the luxury world, leather bags don’t all hold the same value.
Marketers can use non-fungible assets to set distinctive values for their digital products. And more importantly, NFTs provide greater protection against the duplication and distribution of copyrighted materials.
Think of it this way, SASSO designed a visual ad for Coca-Cola and shared it on various social media platforms. The ad gained traction and was quickly redistributed and rewritten without SASSO’s permission.
This predatory practice alters the perception of SASSO and its creative team. Moreover, a buyer might think that the ad is an original work and, in good faith, might decide “to buy” it from a third party. In this case, the buyer would inadvertently infringe copyright laws and become liable for violating the law.
NFTs are used to avoid this depressing experience because the origin, authenticity, and ownership of the digital asset (in our case, the SASSO video) has been protected by blockchain technology. This digital certificate assures that the trade of digital assets is transparent and ethical.
Protecting marketers and content creators will boost artistic creativity and confidence. And as a bonus, NFTs also amplify the voices of lesser-known content creators and digital storytellers.
Imagine an artist has a thousand followers on Douyin, but she produces a very engaging short-video that gets re-shared millions of times. An NFT can help her achieve notoriety by making the video easily traceable to her, also amplifying her profit margins. Instead of working with a middle-man like an influencer, incubator, or e-commerce platform, which “owns” the work, the artist can sell her work directly to the end consumer.
In doing so, she can improve her profit margins and create a more reliable, transparent interaction with her fans. Meanwhile, creators can slowly reduce marketing costs by eliminating intermediaries. Therefore, they can offer discounts and special pricing collaborations to brands.
But brands also benefit immensely from the removal of intermediaries with NFTs. Not only can brands save marketing money, but they could also combat influencer fraud and eliminate the risks associated with paid bots and fake followers.
Lastly, NFT will impact digital storytelling by bringing creators who understand the power of ethical marketing to the forefront. “Consumers are increasingly interested in understanding the story of the items they buy,” says Grant Wenzlau, Director of Creative Strategy, Day One Agency. “They want their products to reflect their values. Shoppers today are looking to brands to help them connect to other people.”
Wenzlau rightfully highlights how modern consumers expect brands to express a set of principles that mirrors their progressive values. Therefore, ethical content and social impact storytelling will be in high demand.
Building an ethical supply chain and offering consumers the opportunity to track each phase in the object’s lifecycle gives companies “the opportunity to tell extremely compelling product stories.”
What the World Needs to Learn From Chinese Content Commerce: Part Two
In this five-part series, Jing Daily looks into the lessons that every brand should learn from the evolution of content commerce in China since the start of the Covid-19 pandemic in early 2020. We will publish one piece every week, with the full series to be made available for download as a PDF. If you missed Part One of the series, you can give that a read here.
Strategy 1: Unexpected Collaborations
Brand collaborations are nothing new in China (or globally), but where companies in China pulled ahead of the pack in 2020 was in taking real chances and launching unexpected collaborations that created deeper connections with consumers rather than simply attracting buzz. Some of the most innovative collaborations were seen in the consumer goods and food and beverage industries, with lessons to be learned for all.
What Luxury Can Learn From Fast Food
One company that has mastered the art of the unexpected collaboration is fast food mainstay Kentucky Fried Chicken (KFC), which made headlines worldwide for its collaboration with Crocs on a pair of fried chicken-printed and -scented shoes. The sought-after clogs were only available in the United States and China, a market where KFC has gone even further into collaborations, including:
- The release of two joint products with the old-school Chinese insect repellent brand Liushen: an herbal water-flavored KFC coffee drink and a coffee-scented version of Liushen’s repellent. While audiences outside of China may have recoiled at the concept, young Chinese consumers in China were drawn by the nostalgia factor, recalling the scent of Liushen’s Florida water from their childhoods. (More on nostalgia marketing in a later section.)
- The creation of co-branded Karl Lagerfeld x KFC bucket-shaped handbags and shopping totes to mark the 80th anniversary of KFC’s original fried chicken recipe. The limited-edition bucket bags rapidly sold out after their official launch during KFC’s Tmall Super Brand Day in September 2020.
- A collaboration with Chinese video streaming platform iQiyi’s popular Mist Theater collection of suspenseful drama series. KFC launched a campaign to place clues to the plots of Mist Theater shows on 10 million cups of its coffee, and offered additional incentives to iQiyi’s paid subscribers such as discount coupons, free coffee, and early access to content with the purchase of KFC coffee products.
- A campaign with the National Gallery in London that put world-famous Impressionist works from the museum’s collection on buckets and cups that were available at KFC’s more than 5,800 Chinese restaurants. The “Summer Impression” campaign also includes themed tea beverages and promotion by actor and brand ambassador Zhu Yilong.
Through its willingness to experiment and try virtually every type of content-commerce format, KFC ensured that it stayed front-of-mind and, perhaps more importantly, never let its marketing get too predictable or boring.
Another way that collaborations can boost their novelty is by involving a third party in a so-called “mega-collaboration.” An example of this was a spring 2020 collaboration between Airbnb and popular beverage chain Hey Tea (喜茶), one of China’s savviest collaborators.
For that campaign, designed to promote the “staycation” concept among would-be travelers who had just spent months cooped up at home, Airbnb and Hey Tea enlisted actress and musician Lin Yu-pin to curate a Shanghai getaway decorated in bright colors inspired by a Hey Tea mango beverage and amply supplied with Hey Tea products. Opportunities to win weekend stays were offered via social media channels — a case of a mega-collaboration used to generate engagement and awareness for the brand partners rather than merely selling products.
For its part, Hey Tea has made collaborations built around its popular, brightly colored beverages part of its core marketing strategy. In addition to reimagining a mango drink as an apartment via the Airbnb collaboration, it also partnered with Adidas to launch a limited-edition ZX model sneaker inspired by the chain’s popular “Succulent Grape” drink. The colorway of the sneaker included various shades of purple against a milky white base and the beverage brand’s logo for a very on-trend product that fuses the disparate but complementary youth trends of streetwear and fruity milk tea in one unexpected package that simply works.
While the West is seeing an increase in unexpected collaborations — the McDonald’s Travis Scott Meal comes to mind — in China, they are more than a gimmick, becoming widely accepted as a way for consumers to discover new brands and products. Although some products, such as the widely panned Spam x Oreo burger by McDonald’s China, miss the mark, more often than not a well-planned yet still unexpected collaboration can delight consumers and complement the broader marketing initiatives of all brands involved.
Strategy 2: Standout Livestreams
In many ways, 2020 was the year of e-commerce livestreaming in China. Top sellers such as “Lipstick King” Li Jiaqi, renowned for his encyclopedic knowledge of beauty brands, and Viya, who can sell everything from ramen to rocket launches, solidified their status as bona fide celebrities, while brands turned to sales broadcasts as a way to reach housebound consumers with an element of entertainment.
Saturation has quickly become a significant issue in China’s livestreaming industry. As of December 2020, China’s livestreaming audience had reached 617 million, a rise of 57 million since March of last year. But they’re not just watching, they’re shopping as well, as 388 million Chinese consumers made purchases via livestreams by December 2020, up from around 300 million last summer.
Where Chinese livestreaming stands out is through its inherent shopability. Alibaba’s Taobao Live platform dominates the market, with approximately 80 percent market share, but other platforms are trying to gain market share. Alibaba rival JD.com has heavily promoted its own e-commerce livestreaming services and entered into a strategic partnership with short video platform Kuaishou, while fast-growing apps such as Bytedance’s Douyin (the Chinese version of TikTok), Bilibili, and a constellation of niche fashion-oriented players like Mogu, Secoo, and Xiaohongshu (Little Red Book) are investing heavily to attract influencers and shoppers alike.
In China, the effectiveness of livestreaming as an avenue to reach consumers — who share a willingness to sit through hours-long broadcasts that are essentially extremely long advertisements — has lured influencers, celebrities, and CEOs to get in front of the cameras to promote their brands. Luxury players have been quick to jump on the bandwagon, with Bulgari CEO Jean-Cristophe Babin recently telling Jing Daily, “We used livestreaming when we launched the Ambush collection on WeChat by collaborating with celebrities and KOLs to introduce the collection, linking to our WeChat Mini Program for conversion.”
A common thread for livestreaming success in China, whether the broadcast is hosted by a celebrity or company founder, is entertainment value. The most successful applications of livestreaming in China are those that integrate with some form of entertainment, such as branded reality show-style productions or collaborations with popular shows.
An example of the latter was JD.com’s spin on Tencent Video’s standup comedy competition “Rock & Roast.” In the run-up to the November 11 Singles’ Day sales, JD.com partnered with the show’s producers to livestream a “season 3.5” of the series that highlighted the advantages and benefits of shopping on JD.com during the Singles’ Day sales period.
Meanwhile, rival Alibaba’s Taobao Live assembled a cast of a dozen comedians to share daily deals on hot products. Popular “Rock & Roast” competitors, such as champion Wang Mian, were also actively courted by brands for Singles’ Day, with Wang appearing in e-commerce livestreams to promote L’Oréal and Biotherm, among others.
But major global brands have also failed to hit the right notes with their early livestreaming efforts in China. In March 2020, Louis Vuitton conducted its debut broadcast on its official Xiaohongshu channel with fashion blogger Yvonne Ching as host. Although the livestream garnered more than 880,000 views, according to the South China Morning Post, the audience reaction was far from uniformly positive, with some viewers criticizing the backdrop as cheap-looking and complaining about the number of references to making purchases.
More recently, Dior livestreamed its Spring 2021 Couture show to an audience of more than 11 million viewers on Weibo, with a panel discussion broadcast immediately afterwards hosted by media maven Hung Huang and featuring celebrity guests Carina Lau, Ming Xi, and Dior brand ambassador Yang Caiyu. The discussion was also livestreamed on platforms such as Douyin, Xiaohongshu, Bilibili, and Tencent Video. But while it drew many viewers, it may have fallen short on entertainment value, with audiences rating the discussion as boring, unrelatable, and awkward.
Dior’s experience, like that of Louis Vuitton, shows the complexities of engaging Chinese audiences, who are generally more open to commercial elements in programming. It’s a challenging proposition that requires the right combination of topic, trend, host, and medium to get right.
The impact of new and evolving regulations points to more uncertainty for brands. Throughout 2020 and into 2021, the Chinese government began a major crackdown on various types of livestreamed content, issuing new regulations aimed at an “intensive” clean-up and announcing that it wants to apply AI and big data to promote “‘positive’ broadcasts in line with ‘core socialist values.’”
China Says No to Cannabis in Cosmetics
What Happened: According to an announcement posted on the website of the National Institutes for Food and Drug Control (NIFDC), the Chinese government is proposing new legislation to prohibit the use of Cannabis and Cannabis extracts in cosmetics, including Cannabis sativa kernel fruit, Cannabis sativa seed oil, Cannabis sativa leaf, as well as cannabidiol. The proposed ban is in stark contrast to the Western approach where the complex regulatory landscape is being simplified, but it is in line with the measures taken in other Asian countries where the oversight of CBD products is still restricted. It is worth mentioning, however, that China classifies marijuana as a dangerous narcotic drug and possession of hemp seeds is criminalized.
The Jing Take: China has grown hemp, a strain of Cannabis, for thousands of years to use in clothing and traditional medicine and is one of the world’s largest hemp producers. Some critics argue that this approach is duplicitous, as the government allows the cultivation of hemp but criminalizes possession.
According to George Deckner, personal care and cosmetics industry expert at Prospector, Cannabis derivatives are “some of the hottest, most talked about ingredients in cosmetics.” Deckner rightly highlights that the use of CBD skincare and beauty products has become a major beauty trend; thus, the segment offers noticeable opportunities. This is even more the case in a major holistic market like China, where consumers demand “natural” and organic ingredients. Moreover, an AlixPartners survey showed “a common interest in natural and organic beauty products” in China, France, Germany, the United Kingdom, and the United States, with 90 percent of the Chinese respondents stating it “was important to purchase healthy or clean products.”
Regarding the benefits of Cannabis derivatives in cosmetics, one thing is certain: if China continues to prohibit the application of Cannabis-related ingredients, it will lose an enormous market opportunity. Not only will the industry move overseas, creating business disrupters and beauty unicorns, but it will also give competitors a chance to capture a larger global market share.
Burberry’s Ban Shows How Global Luxury Has Changed
Last year, the video game Honor of Kings had more than 100 million daily users on average, with 95 percent of its users in China, making it a massive platform where close to 10 percent of the Chinese population meet and interact daily in a virtual world.
Burberry’s suggestion that cotton from the Xinjiang region is controversial, and its public stance not to use any of it in its products, did not sit well with its Chinese target audience. In fact, it triggered its removal from the Honor of Kings video game.
Luxury brands must realize that the virtual world is as important as the real world. However, in the virtual world, repercussions that can happen dramatically faster are, therefore, more severe.
Honor of Kings is the world’s most played online game. Last year, it had more than 100 million daily users on average — the first game ever to cross that mark. Even more remarkable is that 95 percent of its users are in China, making it a massive platform where close to 10 percent of the Chinese population meet and interact daily in a virtual world. The multiplayer game is run by Tencent, the Chinese digital entertainment giant that also operates its dominant WeChat platform and has a market capitalization of almost $800 million as of March, currently the seventh-highest in the world, according to CompaniesMarketCap.com.
When so many people meet daily in a virtual space, it becomes a massive place for brands to interact with customers while targeting, advertising, and selling virtual products. In 2020, gamers spent $2.6 billion on the game, making Honor of Kings not only the most profitable game of all time but also a significant new marketplace. For some luxury brands, virtual products have already become a large part of their sales since people who spend a lot of their time and passion in virtual worlds often apply the same behaviors online as they do in the “real world.”
As such, it was no surprise that Tencent recently announced a strategic partnership with Burberry for the company to provide brand-designed “skins” for video game characters. These partnerships allow brands exclusive access to the most important luxury customers worldwide: young, affluent Chinese. Brands come to life virtually, and people can experience and interact with brands in cyberspace.
What brands start to understand is that the same rules of cultural sensitivity apply in the virtual space as much as in the real world. Virtual reality becomes a blended, highly-connected reality. Burberry learned it the hard way when Tencent suddenly suspended their partnership. Tencent announced the suspension in a post on Weibo, the popular microblogging platform, citing the British fashion brand’s position of no longer using materials from the Chinese Xinjiang region and supporting the Better Cotton Initiative as a member.
The initiative is a non-profit, multi-stakeholder governance group promoting better cotton farming standards and practices across 21 countries, including China. Burberry’s suggestion that cotton from the Xinjiang region is controversial, and the public stance it took to not to use any of it in their products, did not sit well with its Chinese target audience and triggered its highly-publicized and instantaneous removal from the platform. It followed the similar Nike ban from Tencent’s game League of Legends Pro League. Although Nike is the official sponsor of all the teams in the league, Nike merchandise and logos were removed as a protest against Nike’s similar position.
Ongoing controversies over Western brands in China over the past few years, from Dolce & Gabbana’s infamous canceled Shanghai Fashion show disaster to Burberry’s virtual reversal of fortune, underlines how luxury brands must develop a much higher cultural sensitivity in other nations. While it is important, even critical, to take a stand, brands cannot have it both ways: taking a position against a country (showing insensitivity toward local feelings) yet assuming those customers will continue to support them.
The stakes in luxury, in particular, are high. Luxury brands create so much connection and desire that I often compare the relationship between them and their customers as a love relationship. Therefore, cultural insensitivity acts like a catalyst for breakups. As Chinese customers embrace their culture and local values, national pride has been rising significantly over the last two decades, so brands need to be much more careful. When consumers break up with a luxury brand, it is usually forever. And they share their emotions, which isn’t a good thing for any brand, to put it mildly.
It is always easy to point to the customers and say, “They are overreacting.” This reaction is typical, and I usually hear it in luxury brand boardrooms when these backlashes happen. The first reaction is always the easy one: blame it on the people (then reluctantly apologize). But Western brands need to reflect upon why these cultural missteps keep continuously happening, especially in China. I believe it reflects how these brands do not understand the customers they are serving enough — their dreams, preferences, and expectations.
Luxury brands will only win in China and other regions when they truly nurture the love relationship with their local customers, respect them and their feelings, and provide extreme value to them. As long as brands think profits first and then try to sell themselves to customers worldwide, we will see more of the same. Only when brands redefine their approach, put customers at the core of what they do, and build an ongoing, understanding, and respectful relationship can they touch their hearts.
This episode teaches us two things. The virtual world is as important as the real world to luxury brands. The same rules apply, as well as the same opportunities and risks. However, in the virtual world, repercussions can be dramatically more severe. Your revenue can plummet from a hundred to zero in a split second if you get pushed off a platform or an e-commerce store decides to delist you. In the real world, those decisions cannot happen suddenly or without warning. But in the interconnected digital world, they happen in real-time since information spreads instantly and on a global scale.
Luxury brand cultural sensitivity and real-time management have never been as critical as they are now. It is another aspect of today’s real-world luxury market disruption that most brands don’t understand. China will soon be where more than 50 percent of all luxury purchases are initiated, whether they are buying in China or abroad. That number will easily grow to 60 percent by 2035, as more and more local people improve their economic means and enter the middle class.
Équité estimates that 400 million additional Chinese customers will have the means to purchase luxury brands over the next two decades. So, the clock is ticking for Western luxury brands as they try to get it right. More and more, local Chinese luxury brands are emerging across every category. And when they look back in the 2030s, many Western brands will see where they missed an opportunity to truly connect with Chinese customers.
Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger
What Happens to Luxury if China Stalls?
A confidence crisis in the Chinese leadership or a new policy like [China’s] anti-corruption policy from 2012 could stem the tide of luxury spending.
Other experts, such as McKinsey & Company, predict that China will only reach 40 percent of global luxury purchases by 2025 or lower.
Political reasons, such as heightened trade wars, could keep China from reaching 50 percent of all luxury sales in five years.
China has emerged as the economic winner of the COVID-19 pandemic, and analysts predict that gains made in 2020 — when it was the only major economy to record growth — have set it on a path to become the world’s largest luxury market by 2025. At that point, Chinese consumers are predicted to make up nearly 50 percent of all luxury purchases globally, according to a November report from Bain & Co.
But could anything slow the runaway train that is China’s economy? Is there anything that would not make this a reality? “I don’t see many reasons that would prevent Chinese consumers from representing a larger portion of the luxury goods market in five years,” says Luca Solca, the senior research analyst of global luxury goods at Bernstein. “One would have to imagine low probability events hitting China, specifically. [Something] like a confidence crisis in the Chinese leadership or a new policy like [China’s] anti-corruption policy from 2012.”
And while those events don’t seem likely, Bain & Co’s prediction isn’t the only one out there. In fact, one of Bain’s rivals, McKinsey & Company, has settled on a lower figure. “Chinese consumers have been contributing a growing share of global luxury spending,” says Dr. Daniel Zipser, the senior partner and leader of the McKinsey Consumer & Retail Practice, Greater China. “We anticipate this share to reach 40 percent by 2025.”
But there are challenges. “Chinese consumers traditionally have been purchasing large parts of their luxury goods during their outbound travels,” adds Zipser. “In the absence of travel, luxury brands will need to create new occasions to grow domestic luxury spending.”
According to London-based China expert Yishu Wang, the director of digital marketing agency Half a World, which focuses on bringing international brands to China, not traveling is quickly becoming comfortable. Therefore, creating new occasions may soon be key. “There are a couple of really big changes,” Wang notes. “One is that people are now fine with not traveling internationally. Traditionally they would shop in Paris and Milan. Now they are happy to buy these goods at home. They are happy to buy them domestically within China.”
But trade policies and politics could also interfere with Bain’s predictions, she says. “My initial thoughts were: ‘of course it will happen.’ Politics are a reason it might not happen both internally and externally,” she adds. “An anti-corruption policy came out a few years ago and really affected luxury. Trade wars are a possibility. It is difficult to predict. Apart from that, I think China is on track to hit that target.”
Ron Wardle, a 15-year China veteran and digital marketing professional whose most recent project Yooma is launching luxury CBD products into China, lists a few possibilities that might make this 2025 Chinese payday come to fruition. “China’s economy and housing market taking a downturn is one reason,” he says, “but that is a slim possibility over the next four years. China not doing enough to counter IP and counterfeit products is another. Also, if COVID continues to disrupt the supply chain and production or Chinese consumers get luxury fatigue and switch to independent and local brands.”
Paris-based industry expert Serge Carreira, the head of the Emerging Brands Initiative at the FHCM fashion and couture federation in Paris, points out that Europe and America could upset the apple cart. “China is definitively the main driver for luxury growth,” he says. “The elements that could relativize this dynamic include a fast and significant industry boom in Europe and the US that rebalances China’s market share, international tensions that restrict global trade (a significant increase in import taxes, for example), a countercyclical economic slowdown in China due to the global economic situation, or a national movement in China that rejects Western values, embodied by luxury brands. These hypotheses are not unrealistic yet are unlikely.”
Solca says there are ten accepted luxury market risks, and five are currently being triggered by the pandemic, which could impact these predictions if it continues to rage on. And China is not immune to these. “The luxury market has become dependent on China,” Solca writes. “If the Chinese sneeze, the luxury sector gets pneumonia.”
Is Li Ning Ready To Challenge Nike In China?
What Happened: On March 26, the Chinese sportswear giant Li Ning announced boy band X NINE member Xiao Zhan as its global ambassador for trendy sports products. In its campaign post, the idol wears a full Li Ning look, which sold out in under twenty minutes online. The hashtag #
The Jing Take: Li Ning’s appointment comes at a time when enraged netizens want substitutes for Western brands that have been embroiled in the Xinjiang cotton controversy. Amid the current backlash faced by international competitors, chiefly Nike and Adidas, Li Ning’s shares jumped to 10.74 percent, indicating a surge in support from local patriotic consumers.
Yet, support for the domestic group had already been steadily building. In 2020, Li Ning saw its revenue increase 4.2 percent year-on-year to $2.2 billion. Native brands are clearly benefitting from China’s rising appetite for “guochao” (国潮) among the younger generation, and the “Made in China” label is no longer considered poor quality but rather a source of pride.
In recent years, the affordable sportswear brand has started to rebrand itself by showcasing its fashions on an international stage and evolving with the middle-to-high-end sportswear market, allowing it to compete with Western sportswear brands. The current “guochao” trend is advantageous for the brand, and Zhan’s 28 million followers will surely help boost Li Ning’s image. For the moment, it will be hard to estimate the long-term impact of the Xinjiang controversy on international players. But the rise of local brands will undoubtedly continue to derail global brands in the Mainland.
Chinese Sportswear Giant Anta Rides China’s Winter Olympics Fever
The Social Edition is our weekly series which deep dives into luxury initiatives in China’s social media landscape. Every week, we highlight brand campaigns distributed on Chinese digital platforms — WeChat, Weibo, Tmall, Douyin, and beyond.
Our coverage spotlights global luxury brands, global beauty brands, and local Chinese brands. The latter gives insight into some of China’s most successful campaigns, which often come from local players, and are outside of the beauty and fashion space.
In this week’s roundup, we look at three campaigns, including Chinese sportswear brand Anta’s partnership with a young skiing star, Li Ning’s crossover with contemporary artists, and Japanese beauty label ADDICTION’s collaboration with POP MART.
Anta Rides China’s Winter Olympics Fever
CATEGORY Fashion & Sportswear
PLATFORMS Weibo, WeChat
MEDIUM Image, Short-video, Offline Exhibition
FEATURED TALENTS Eileen Gu (588K Weibo Followers) | Li Fei’er (12M) | Yuan Shanshan (30M) | Jiang Yingrong (6M) | Jiang Luxia (3M) | Chen Zitong (2M)
Chinese sportswear brand Anta launched its “Keep Moving” campaign in collaboration with ambassador Eileen Gu — a freestyle skier who, on March 13, clinched her second gold of the International Ski Federation (FIS) Snowboard and Freeski World Championships. The next-generation sports idol was also featured on the cover of the last edition of SuperELLE magazine. The campaign’s one-minute film, which stars Gu, encourages women to express themselves and gain self-confidence in sports.
Meanwhile, the brand has initiated online conversation under the campaign’s hashtag by teaming up with the five female celebrities involved in the second installment of China’s popular reality TV show “Sister Who Make Waves.” Anta has also created immersive exhibitions called “Snow Land” for the Shanghai TX Huaihai Mall and the Wanda Plaza (Wujiaochang), which has brought the interactive experience of winter sports to local consumers.
The American-born Chinese skier has collected 588,000 followers on Weibo, thanks to her exposure in China’s mainstream media. Her latest run in Aspen was also a sensation, as it marked China’s first-ever world championship in that program. As such, her appearance in the campaign sparked audience patriotism and drove huge social traffic for Anta.
Anta’s initiatives combine female empowerment and the Winter Olympics hype, helping the brand further expand its influence among Chinese youth. China’s government has devoted substantial efforts toward promoting winter sports to prepare for the upcoming 2022 Winter Olympics in Beijing. Anta has smartly leveraged this trend, standing out among sports brands through its marketing.
Li Ning Scores Again With Latest Campaign
BRAND Li Ning
CATEGORY Fashion & Sportswear
PLATFORMS Weibo, WeChat
MEDIUM Image, Short-video, Offline Exhibition
On the heels of Li Ning’s groundbreaking 2021SS campaign theme, “The Art of Sports,” the local sportswear powerhouse has collaborated with New York-based visual artist Mel Bles, fashion stylist Jay Massacret, and its production team to create a new project titled “New Frontier.” The campaign video takes place in a desert outside Los Angeles and uses drone shots and CGI-rendering techniques to portray the four classic elements: land, fire, water, and wind. The brand also teamed up with the Chinese robot artist Sun Shiqian to create a 2.2-meter high installation of the Ox from the Chinese zodiac. The artwork was exhibited at its Shanghai Grand Gateway flagship store.
The video has been a success, garnering over 321,000 views since its release on March 16. The brand’s newly-announced global ambassador Xiao Zhan and fashion ambassador Hua Chenyu own a social following of 28 million and 39 million, respectively, which has driven significant traffic for the campaign — even though they didn’t star in it. The campaign hashtag #TheArtsOfSports has received over 80 million views on Weibo alone, and netizens have commented that they love the industrial aesthetic and are eagerly anticipating the collection.
Li Ning has extended sportswear beyond functionality and pioneered the territory of Guochao (national pride) over the past few years. The company’s strategy — “Single Brand, Multi-categories, Diversified Channels” — has proven an effective way to tap into China’s booming fashion retail market. According to the company’s 2020 annual report, released on March 19, its net profit rose by 13.3 percent to $261.3 million (1.7 billion yuan) last year, bucking the retail turbulence the COVID-19 pandemic has wrought. The collab exemplifies the label’s dynamic approach, which resonates with today’s young leisurewear shoppers, who value newness and brand communities.
ADDICTION’s Blind Box Blueprint
PLATFORMS WeChat, Weibo, Tmall
The KOSÉ Corporation-owned cosmetics brand from Japan known as ADDICTION has produced a collaboration with Chinese toymaker POP MART’s popular BUNNY character. The launch, which is available on the brand’s Tmall Global flagship store, features an exclusive lipstick gift box that includes two random dazzling imprint matte lip glazes and a toy from the BUNNY magic series. The collectible figurines are packaged opaquely, similarly to the toymaker’s usual “blind boxes.” The gift box packaging also doubles as a DIY jewelry box that customers can assemble themselves.
The blind beauty box is exciting Chinese beauty shoppers who are also fans of POP MART. Since the BUNNY magic series is rarely available at regular retail prices (prices for the popular characters in second-hand markets are usually higher than retail prices), collectors consider the lipstick box to be a value-added set. KOL @RubyYouxi posted a cosplay make-up tutorial video about creating a Bunny look based on the figurine from the gift box, which received over 1 million views on Weibo.
Blind or mystery boxes that feature opaquely-packaged, collectible mini-figures have become a phenomenon in China’s retail market. Yet not all toy consumers are children, and POP MART has become a leading player in the country’s designer toy market. Discerning fashion and beauty brands like Little Ondine are organically leveraging this trend to reach their young target consumers, as blind-box marketing hinges on the exclusivity tactic on which luxury brands usually rely.
Behind the Boom in Art x Brand Collaborations With Artestar’s David Stark
- Gone are the days of art world snobbery towards commercialization, in 2021 artists are coming to agencies like Artestar to commodify their assets.
- Authentic storytelling is the main focus for brand-artist collaborations.
- Luxury is incorporating artist partnerships to appeal to today’s pop-culture and hype-obsessed Gen Z.
Jean-Michel Basquiat and Keith Haring may have had their heydays long before Gen Z was born, but they are still playing a leading role in the pop culture zeitgeist of 2021, and that’s largely thanks to David Stark, founder of Artestar.
A U.S.-based global licensing agency, Artestar represents artists both living and deceased, ensuring authentic collaborations with brands in fashion and other categories. They’re the reason why Kenny Scharf’s artwork recently decorated the Dior Fall/Winter 2021 collection, and why artists like Basquiat and Haring have dropped multiple fashion collaborations around the world over the past decade.
Back when Stark started working with Haring in 1989, artists were subject to criticism if they showed any inclination toward commercialization, such as by selling merchandise. Fast forward to 2021, and artists are flocking to agencies like Artestar to garner hype through partnerships with other major pop culture players, such as luxury labels.
“Things have changed a great deal,” Stark told Jing Daily. “It’s not only accepted now, but these brand partnerships are also expected in some way. When I speak to artists about doing collaborations now, they’re very enthusiastic, whereas 10 to 15 years ago, they were very cautious about doing anything.”
The traditional art world snobbery over consumerism used to jar critics, yet in the current era of social media, the fluid evolution of artists as brands has been embraced for offering both revenue streams and a way to meet the desires of growing fan bases.
“We’re still far from being overexposed like a commercial brand,” said Stark. “The commercialization is a secondary part to the marketing and storytelling behind our collaborations. The product has to be great, but it’s the emotional connection to the consumer — that’s what it’s about. We’re really thinking about storytelling.”
Artestar owes its hundreds of successful artist-brand partnerships to consistently staying loyal to each artist’s identity, while simultaneously considering how a brand aligns with the communities it represents. “We have a lot of different stories to tell and we’re looking for a particular customer who has the right fit. Whether we’re talking about pride, social activism or New York City, we look into how the brand can tell their story authentically,” Stark said.
Noting how, for example, Haring has sometimes been falsely associated with subway graffiti despite not being a 1980s “street kid” at all, Stark said. “We have to make sure that the story we’re telling is true and not a romanticized myth.”
The flourishing online fan communities behind Artestar’s roster have made the authenticity of collaborations even more critical, since today’s social media users are quick to point out any insincere touches.
“In the 1980s and 1990s, you couldn’t find these tribes, these communities of people who are interested in these artists,” said Stark. “Now, we can be very surgical and know that there’s somebody in Oklahoma City who loves Keith Haring, or someone in Perth, Australia.”
The internet has also placed iconic artists at the center of today’s pop culture frenzy, triggering fashion’s obsession with art collaboration, with high-end heritage labels in particular aiming to stay relevant for younger generations. “The luxury consumer has changed, it’s someone who is a passionate collector and someone who is in the know,” said Stark. “There’s this whole new lifestyle wrapped around them.”
The communities that surround artists are global. Stark noted that while Artestar may have only opened an office in China and dropped the Coach x Keith Haring collaboration there in 2018, an artist such as Haring has been part of the country’s art-world consciousness well before then.
When Artestar dropped the Coach x Keith Haring collection in China in 2018, Stark realized the huge potential of the now-solid market. “Two-thirds of Coach and Haring’s business was in China and the rest of Asia,” he said. “It was pretty eye-opening to see that reception. Once that started to open up, we started to do a lot with Chinese brands.”
The fusion of art and fashion also meets the demands of China’s Gen Z consumers and collectors, who increasingly seek some level of cultural relevance in the products they purchase. Stark has found that Artestar can be more innovative with fashion choices in that market. “They are a lot more cutting-edge than the West,” he explained. “They’re similar to how America was in the ‘50s, ‘60s, and ‘70s – anything goes. People are very individual, they experiment more when it comes to fashion.”
Artestar is currently working on a project with Lee Jeans in China, which, Stark said, will be positioned away from American associations of the brand with vintage and lean more towards a fresh fashion feel catering to Chinese tastes.
The intersection of community, culture and marketplace is the core of Artestar’s work, and has helped shape the current trend of brands turning to artists for cultural capital. It’s a realm fueled by the melting pot of online hype culture, and ultimately steered by luxury’s new consumer: Gen Z.
“Democratic” Luxury: It’s Not Because It’s Affordable That It Will Sell
China’s middle-class expansion, the US economic rebound, European consumers feeling the pinch: surely, affordable luxury is poised for superior growth? I don’t think so.
In handbags, the market is crowded and the more premium brands are better capturing the cultural zeitgeist, generating better growth.
Jewelry and ready-to-wear are likely better segments to roll out an affordable proposition
The growing potential
The affordable luxury segment should be driven by value-for-money American consumers and aspirational Chinese consumers who are just entering the sector. The US is the land of the deal. It’s the country that invented Walmart, Amazon, eBay, refillable Coke, couponing, all-you-can-eat menus, outlet malls, the doggie bag, buy one, get one free, and so much more. So presumably, affordable luxury should resonate well there. In the decade between 2000 and 2010, the US saw a rise of the affluent, with more people becoming wealthier and the middle class getting more money to spend. In 2019, consumer confidence was very high, and the unemployment rate in the US was at the lowest it had been in fifty years, and there are now hopes for a post-COVID rebound.
In 2015, China’s middle class accounted for 57 percent of the economy, and it should amount to as much as 75 percent by 2030 according to The Economist. Because Chinese consumers are more connected and knowledgeable, and e-commerce in China has been tied to promotions, it would also be natural to believe that affordable luxury would do well with Chinese consumers as well.
Separately, if looking at the leather goods pyramid of brands, space seems to be available for consumers to logically trade up, with affordable luxury brands building a bridge to aspirational luxury. Many brands stand at the bottom and at the top, leaving a relatively untapped market in between. This is what is often referred to as “white space.” Few affordable luxury brands, however, have been able to penetrate this white space. Coach developed a 1941 collection a few years back, and Longchamp looked to move away from its entry-price-point, best-selling foldable bag (known as Le Pliage) by developing higher-end leather-based products.
All of these factors together should, in theory, create a profitable opportunity for brands to be successful here. The reality has been somewhat different — why?
Reasons for underperformance
First, it is a classic case of buy less, buy better. When consumers decide to spend money on a handbag, they prefer to allocate more money to a premium product. The phenomenon is not limited to bags, of course. Compounding the problem is that traditional luxury players have invested in the white space between affordable and aspirational luxury. Indeed, Louis Vuitton, Gucci, Prada, and smaller European luxury brands driven by streetwear (e.g., Balenciaga), have revamped their access price points, which is resonating well with consumers, and hence, capping the growth of affordable luxury competitors.
Second, not being truly global could be an issue. When the world reopens, consumers will again study abroad, vacation internationally, and consume media from all over the globe. Given this, they want to buy brands that are as cosmopolitan as they are, or as they aspire to be. Brands that are not recognized globally do not carry the same status and desirability. This can affect demand, particularly for those that are heavily exposed to one particular region — for example Coach and Michael Kors, which have a majority of their sales in the US.
Third, brand equity itself could be affected by the ubiquity of brands or by a strong outlet presence that makes it difficult for the brands to gain prestige. When brands are associated in consumers’ minds with outlets and promotions, they begin to feel accessible and cheap and lose their brand equity. Walking the line between visibility and exclusivity can be difficult. Be too exclusive, and you run the risk of leaving money on the table and alienating potential customers. Be too visible, and your higher-end consumers, who are willing to pay more for your product, will look for more exclusive brands. In luxury, ubiquity doesn’t get you anything; the illusions of scarcity and exclusivity do.
Lastly, given the issue of lower brand equity, newly developed secondhand concepts in luxury are eroding the value proposition of affordable luxury brands. You can visit a luxury secondhand store and buy a secondhand Burberry, Prada, or Celine bag at the price of a new affordable brand bag. That is an attractive proposition, especially as you will value the creativity of the premium European brands more. In a visit to an affordable luxury brand flagship recently, I walked the floor with a sales associate who was telling me “this is our take on the so-and-so Prada bag, this is our version of the Vuitton whatever carry-on” and so forth to the point where I had to ask her what was developed from scratch for the brand itself. Not much. Sure, imitation is the sincerest form of flattery, but imitation doesn’t buy loyalty. If you can get the original secondhand at the same price, why bother purchasing the affordable luxury equivalent?
Handbags are a very tough market for affordable luxury brands, given the status-seeking of the buyer, the crowded nature of the sector, and the reality that consumers will want to trade up to stronger brand equity propositions. Jewelry and ready-to-wear affordable brands, in my view, have much more potential for growth in China and beyond.
Erwan Rambourg has been a top-ranked analyst covering the luxury and sporting goods sectors. After eight years as a Marketing Manager in the luxury industry, notably for LVMH and Richemont, he is now a Managing Director and Global Head of Consumer & Retail equity research. He is also the author of Future Luxe: What’s Ahead for the Business of Luxury (2020) and The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun (2014).
CollaBrands: The New High-Performance Active Lifestyle Collabs
Adidas x Peloton
Peloton is a direct-to-consumer (DTC) sports brand that has injected new life into the experience of cycling for exercise. In addition to their immensely popular Peloton stationary bikes, the brand offers a treadmill and a digital studio with more than 10,000 boutique fitness classes. Founded in 2013, Peloton is not simply an exercise brand, but a true early adopter of content and commerce, having integrated the concept of subscription-based video into its product to take monotony out of working out at home, making it fun and interactive. For Peloton, the ability to create a continual revenue stream of dedicated customer-fans through monthly subscriptions has been a game changer, with two tiers of membership: All-Access, for owners of Peloton bikes and treads, at $39 a month, and the Peloton App, which hosts an extensive library of content with no equipment required, at $12.99.
Starting from the original stationary bike in 2013, the company added a $4,000 treadmill in 2018 and rolled out two new models this year with a broader range of price points (currently between $1,895 and $4,295). Peloton equipment features large screens to encourage user interaction with instructors, many of whom have become celebrities with large fan followings. Combining exercise classes with a fun social media-style element has enabled the brand to grow exponentially, especially once the coronavirus pandemic shut down gyms around the world. Peloton’s stock has nearly quadrupled over the past year as consumers lined up to invest in its at-home workout equipment and sense of community fostered by its digital experience.
In the latest boost to the Peloton brand, the company announced an international partnership with Adidas on a line of performance and lifestyle apparel. The collaboration will be launched with the Adidas x Peloton Spring/Summer 2021 collection, developed with popular instructors Ally Love, Robin Arzón and Cody Rigsby. The trainers were involved in the design process to help establish a co-creation model for the future, as this marks Peloton’s first-ever instructor-designed global-level collaboration.
New Balance x Stone Island
Known for its consistently strong brand collaborations, New England-based New Balance announced last week a multi-year partnership with Italian men’s luxury label Stone Island, following up on a one-off 2013 sneaker collab.
In an Instagram post announcing the partnership, Stone Island wrote:
Known as cultural drivers, both brands share similar values of research and functionality in their respective areas of expertise and take an analytical approach to innovative data-driven design. Initial talks were based on the common vision of developing a footwear partnership that will roll out in several different waves over the next few years. By transcending current trends, New Balance and Stone Island will together bring their shared values to life in a new and creative way.
According to New Balance senior collaborations manager Joe Grondin, the company places an emphasis on “aligning with brands that are authentic in their space and have substance behind their message.” New Balance’s roster of collaborators represents a wide range of aesthetics, communities and subcultures, which means that the brand can speak to a variety of consumers based on how it matches products and collaborators. Other successful co-branded projects from New Balance have included WTAPS, Joe Freshgoods, Stray Rats, Aimé Leon Dore, NBA star Kawhi Leonard, and British fashion designer Paul Smith.
A major question for successful brands is why they should collaborate with another brand at all when they might feel they are doing well enough with their core products. The answer is that collaborations delight consumers through their novelty and provide opportunities for expansion into new categories with top-tier partners. Stone Island could have easily licensed its name to a shoe company to produce Stone Island branded shoes, but the collaboration with New Balance gives the consumer the best of both worlds. Both labels have their fans, and by joining forces they can satisfy their avid consumers while drawing new ones. The same reasoning lies behind Peloton’s partnership with Adidas. Working with best-in-class companies only enhances the fruits of the collaboration and creates greater value all around.
Steven Ekstract is Managing Director of Global Licensing Advisors, a consultancy that provides companies with insight and strategic direction to succeed in the $300 billion a year licensing business. Ekstract is the founder and former Publisher of License Global magazine, the leading information source for the consumer licensing business. He can be reached at Steven@globallicensingadvisors.com.
Burberry & Nike Next to Face China Backlash
What Happened: The backlash over international brands’ positions on Xinjiang cotton has escalated in China and is showing little sign of abating. Burberry is next, as Tencent has halted its Honor of Kings partnership with Burberry (the brand recently released two new skins exclusively for the video game’s players in China). In addition, brand ambassadors Zhou Dongyu and Song Weilong announced they would no longer work with the luxury company.
In fact, the cotton crisis has sparked a domino effect of Chinese celebrities quitting their contracts with members of the Better Cotton Initiative (BCI), despite the penalties incurred. Li Xian, Yang Yang, and Liu Haoran have all ended their collaborations with Puma; Ni Ni and Roy Wang Yuan have quit a partnership with Uniqlo; Li Zhenning and William Chan have exited Tommy Hilfiger; Wendy Zhang Zifeng has distanced from New Balance; and Calvin Klein is now without Liu Yuxin and Greg Hsu. Adidas, too, has suffered some big hits: Eason Chan, Angelababy, Jackson Yee, and others have all left their posts.
Nike is also suffering the losses of its Chinese idol, Wang Yibo, and contracts with national and regional soccer, basketball, and track & field teams, all of which terminated their relations with the sportswear giant.
The Jing Take: Luxury names across the board are feeling the pressure of this situation. They are businesses, after all, and Chinese shoppers buoyed most of them during a pandemic — that is far from over. Plus, most brands will be banking on China well into recovery too, making responses to these issues incredibly complex.
The Japanese lifestyle brand Muji and the sportswear brand Fila are both openly promoting the use of Xinjiang cotton, and Chinese media reported that Spanish clothing company Inditex had “quietly removed” a statement from its English and Spanish-language websites about Xinjiang cotton. Hugo Boss’s Weibo stated, “We will continue to purchase and support Xinjiang cotton” however its website claims the brand collaborates with a small number of organizations that promote fair trade, including the Better Cotton Initiative.
Meanwhile, the positive benefits from this fallout for domestic companies have been notable. Local sportswear giant Li Ning has seen a 10 percent rise in stocks, and many other Chinese names, including Septwolves Group, Heilan Home, and Metersbonwe, are performing well. Anta Group, which announced its withdrawal from the BCI, jumped by over 8 percent in Hong Kong.
Amid these boycotts, shares of Adidas, Inditex, and H&M are all plummeting in light of their stances. As this situation echoes what is playing out on a geopolitical stage, it could well have the potential to escalate. International brands may be in for a bumpy ride.
Auction Houses Embrace Luxury Fashion as New Frontier
The discussion will be moderated by Enrique Menendez, Editor-in-Chief of Jing Daily, who will be joined by contemporary artist Daniel Arsham, editor Ted Gushue, and Yuki Terase, Head of Contemporary Art, Sotheby’s Asia. Together, the panelists will explore the intersection between luxury and popular culture, look to the unique tastes of Chinese cultural consumers and how they have established a new utopia for luxury.
As entry points to auctions or other categories, luxury is a good way to lure new clients to enjoy the thrush of bidding.
When it comes to watches, Chinese buyers have a particular leaning toward modern styles from Patek Philippe and Rolex, as opposed to the vintage styles preferred by many European and U.S clients.
In luxury auctions, auction houses can help build emotional connections between luxury brands and consumers via meaningful and engaging storytelling.
What do Hermès handbags, Patek Philippe watches, Supreme skateboards, and Nike sneakers have in common? In the pandemic-ravaged year of 2020, they all became integral for online arms of auction houses — including Sotheby’s, Christie’s, and Phillips — that wanted to acquire new customers.
The ties between luxury and art auctions have always been strong. Christie’s is owned by François-Henri Pinault, who also owns Kering. Meanwhile, Phillips has made a foray into watches and jewelry after LVMH president, Bernard Arnault, owned the auction house for a bit around the 2000s. And after having moved a lot of their bidding online, auctioneers have seen one audience that has continued to overlap both luxury and art since COVID-19 began: young and wealthy Chinese.
“The number of Chinese clients bidding online has tripled compared to 2019, growing faster than anywhere else in the world,” said Josh Pullan, the managing director of Sotheby’s global luxury division. He then added that the number of online luxury sales to Chinese buyers multiplied times twelve over the past year.
With China’s importance in the luxury market growing, there could be more opportunities in this area than in the past. Here, Jing Daily assesses the booming trend of luxury auctions and discusses how auctioneers should further engage with the market in 2021.
Luxury works as an entry point to auctions, luring new clients to enjoy the rush of bidding. And recent months have seen one of the most high-profile Chinese luxury consumers adopt the habit: top handbag and jewelry influencer Mr. Bags. Formally known as Tao Liang, the luxury-loving star started bidding on rare Chanel and Hermès bags and soon told his nine million social followers about it.
Last November, he posted a vlog of him experiencing a live auction for the first time. While eyeing a Chanel Shanghai doll clutch, he took his viewers through the full experience at Poly Auction: visiting the presale exhibition, taking the paddle, sitting while masked, competing with a phone bidder, and finally, winning the bid at 275,000 yuan ($42,560). “I’m so so excited!” He yelled to the camera once the auction hammer fell. A month later, another vlog showcased him bidding on three lots, each of rare Hermès handbags, at Christie’s. His bid for Hermès Birkin 45 in elephant gray won at HK$80,000 (around $10,300).
On the spectrum of luxury consumption, Chinese consumers have begun to move from conspicuous to post-consumerismover the last two decades, according to Dr. Kelly Meng Parnwell, the program director of luxury brand management at Goldsmiths, University of London. While recognizing the rise of Chinese luxury bidders, she told Jing Daily that “this is more of an evolutionary process than a revolutionary change.”
With 40,000-plus notes on Little Red Book, luxury auctions have become more accessible to those luxury lovers. And the rise of emerging initiatives like Sotheby’s Buy Now platform — which the company will roll out in Asia in later 2021, offering fixed-priced items such as modern, vintage, and memorabilia sneakers — should only further boost the market’s organic growth. Another example is the online and offline “luxury week” sale series that Christie’s has tailored for potential clients who like buying both luxury and art.
But auctioneers hope that new clients like Mr. Bags will eventually turn their eyes toward other categories. That’s because, despite market buzz over the growing number of auctions, luxury sales still only account for a small proportion of auction houses’ revenue. For instance, the critically acclaimed artist Chang Yu’s Sanyu was sold at Christie’s for over $22 million, 50 times more than the world-record handbag auction sale.
“The auction houses are scaling in terms of the number of auctions, but not yet money,” said Christine Bourron, chief executive of the art market research company Pi-eX, to the New York Times. The London-based company’s research showed that auction efforts in luxury have yet to make substantial contributions to earnings.
Leaning towards China
Auction news rarely breaks into mainstream news, but the end of 2020 saw a slew of records set at luxury and streetwear fashion auctions in Asia. Late last November, Christie’s Hong Kong set a world auction record for a handbag when a Himalaya Hermès Kelly sold for $437,330 (HK$3,375,000). Sotheby’s and Christie’s said there was a lot of interest from Hong Kong and Mainland bidders for the game-worn Michael Jordan sneakers that broke world records at $560,000 and later at $615,000.
Aside from the crowd-pleasers where Chinese bidding interests align with the rest of the world, some auctioneers have noticed that China has particular preferences in certain categories. When asked if Chinese buyers prefer luxury auction items, Graeme Thompson, the worldwide head of jewelry at Phillips, said that “Burmese Rubies and Colombian emeralds are the most sought after by Chinese buyers. Also signed items by Houses such as Cartier, Van Cleef and Arpels, and Bvlgari, which accounted for over 40 percent of our Fall auction in Hong Kong.”
When it comes to watches, Chinese buyers have a particular taste for modern styles such as Patek Philippe and Rolex, unlike the vintage styles preferred by many European and US clients, as Jing Daily learned from Christie’s. Richard Mille and the independent watchmaker F.P. Journe are also in demand in Asia.
But demand has also grown in less traditional categories. Sotheby’s Pullan said that after the young Chinese collector Carson Guo had acquired the world’s only complete collection of Supreme skateboards in 2019, many young Chinese collectors started targeting emerging categories like sneakers, skateboards, and Hip Hop memorabilia.
“Sneaker and streetwear culture is a major force in China and Asia,” added Brahm Wachter, Sotheby’s director of e-commerce development. “We see that as a strong sign that the region will become a big player in the market in the future.”
To reach China’s wider audience, Christie’s tried to borrow luxury’s recent favorite strategy: working with KOLs for livestreams. Their collaboration with the Little Red Book KOL @linlinlinlu (30k followers) last November on the topic of the latter’s collection of Hermès and Louis Vuitton items drew hundreds of viewers, though a far cry from luxury brand’s tens of millions in social engagement for a single campaign.
According to Parnwell, auction houses should attempt to build special connections between consumers and luxury brands through storytelling. In 2019, the online Sotheby’s sale featuring items from Berluti was a good example of this approach, she noted. Part of the dedicated marketing material explored the past of the iconic shoemaker Olga Berluti and how she made a pair of bespoke shoes for Andy Warhol.
“It isn’t just the brands that have an historical story to tell, the previous owner of an item may also add another layer to this story which makes the item more interesting, and potentially more valuable,” she said. “By narrating more meaningful, engaging stories, and fostering an emotional connection, auction houses can educate consumers about the history and provenance of their auction items.”
Will Post-Pandemic Retail Be Online Or Offline?
Retailers can expect a strong return to their physical stores once tens of millions of consumers have been vaccinated.
In the third quarter of 2020, online sales in China increased by 27 percent, while offline sales declined by 4 percent.
Retailers that want to thrive in the post-COVID-19 environment must adopt efficient, consumer-centric services and invest in technologies that boost the omnichannel experience across all platforms.
There is much being made of the post-pandemic shift to e-commerce. However, not everyone believes that this consumer shift will push online shopping ahead of offline over the long run. In fact, some retail executives believe offline sales will slowly start to surge again.
“We believe the comeback [in] brick-and-mortar will be gradual,” said Fabrizio Freda, president and chief executive officer of the Estée Lauder Cos. Inc. to WWD. “Brick-and-mortar acceleration takes much more time because it takes not only the technical reopening but takes the consumer confidence to buy in brick-and-mortar… this will only come back more gradually.”
Retailers should expect a strong return to physical stores once governments have vaccinated tens of millions of consumers. Accordingly, in 2021, consumption patterns will change again, and new opportunities and movements will shape the collective identity.
Brands recognizing these shifts ahead of time will be better equipped to beat out competition from small-format stores, which have strengthened customer relationships by emulating the DTC model. Now, let’s look at some of the steps that retailers need to take to reinforce their weaker sales channels and keep customers returning to their stores.
Nielsen highlights how the trend of online to offline (O2O) shopping has been accelerated during the COVID-19 pandemic, showing that, in the third quarter of 2020, online sales in China increased by 27 percent. Meanwhile, offline sales declined by 4 percent. Moreover, China also recorded an impressive online category expansion, as consumers began purchasing far more than just personal care products via online platforms.
CNBC reports that Alibaba and JD.com set new records during the 2020 Singles Day shopping event by hitting around $115 billion in sales across their shopping websites. However, not all retailers achieved this same level of success.
Therefore, companies that want to take advantage of the O2O trend should invest in visual recognition algorithms, AR-powered gamification software to boost customer loyalty and engagement, artificial intelligence (AI) chatbots that respond to customer inquiries, and data analytics systems to assist with personalized purchasing recommendations.
During the pandemic, consumers changed their routines. And nowadays, luxury buyers expect businesses to integrate more health and safety measures.
Agile retailers have responded to this shift by incorporating innovative technologies, such as contactless curbside pickup, indoor positioning system technology, AI-enabled, smart-shopping carts, and radio frequency identification (RFID) technology, which helps with product tagging.
However, the vast majority of offline retailers still need to adopt efficient, consumer-centric services, such as buying-online-and-picking-up-
Curbside pickups and click-and-collect strategies are particularly useful, as they reduce shipping costs and boost in-store purchases. New research by Joann Peck and Terry L. Childers shows that “individual and environmental touch-related factors increase impulse purchasing.”
As such, various Chinese retailers have boosted unplanned purchases by offering tactile experiences. For example, Ford partnered with Alibaba.com’s Tmall Vehicle to offer shoppers a “Super Test Drive” service. Alibaba is also offering tech-enabled features to customers, so they can virtually try on cosmetics and apparel before making purchases.
Meanwhile, the Alibaba-owned department store Intime and Japanese multinational personal care company Shiseido are training their sales consultants to use livestreaming, boosting their in-store marketing efforts.
“We need to merge online and offline to get people to buy more,” said Shiseido’s CEO, Masahiko Uotani, in an interview. “Beauty products are different from others in that human touch is very important, so we need to think about a structure that allows that. There’s a lot we can learn from what’s going on in China.”
For many businesses, the showroom model has been perfectly suited for the post-COVID-19 environment. Pop-up stores bring in higher engagement, are 80-percent less expensive than traditional stores on average, and represent a safer option than conventional stores.
Unsurprisingly, China is already using new technologies to enhance the showroom model and promote pop-up shopping experiences. Storefront CMO Stephanie Kidder says that pop-up stores fit the Chinese market perfectly because they deliver “a unique, limited-time-only experience,” and they create desirability through a sense of exclusivity.
“This match made in heaven between Chinese consumer culture and the pop-up phenomenon is one of the reasons why pop-up stores have been on the rise in China,” said Kidder. “In fact, the compound annual growth rate of pop-up retailing has exceeded 100 percent since 2015, and estimations tell us that by 2020, over 3,000 pop-up stores will have been launched in China.”
With Shoppers Unable to Travel, Burberry Brings the (Virtual) Store to Them
- Burberry’s virtual Ginza store is a smart use of content commerce to reach consumers unable to visit in real life.
- The effort successfully weaves in content through a video collaboration with actress Elaiza Ikeda created by partner ELLE Digital Japan.
- While tailored to Japanese audiences, Burberry’s shoppable virtual flagship is a concept that can be adapted worldwide by any brand.
While vaccinations against COVID-19 are progressing around the world, international tourism remains largely off-limits for the time being. With this in mind, Burberry decided to step up its digital initiatives to bring one of its leading stores directly to the consumer. The British luxury brand recently partnered with ELLE Digital Japan to launch a virtual replica of its Ginza flagship in Tokyo, giving fans of the label a chance to digitally browse and buy the company’s spring 2021 collection.
According to Burberry, the virtual store, which is open for “visits” through April 18, takes visitors on a tour across the three stories of the Ginza boutique. The ground floor offers signature bags such as the Olympia, the Pocket and the Lola, while the first floor features womenswear and the second floor stocks menswear and outerwear.
Adding an additional element of content commerce to the mix is a video collaboration with ELLE Digital Japan, which resulted in five short films featuring actress Elaiza Ikeda sharing styling tips that are viewable at different touchpoints throughout the “store.”
While the virtual flagship does not break much new ground from a technology perspective — the experience is akin to a 3D walkthrough on Zillow — it nevertheless represents another step in Burberry’s content-commerce strategy and could be a harbinger of what’s to come from other luxury brands. As we’ve seen in China, even when the coronavirus pandemic is brought largely under control, consumers will be slow to return to physical stores, particularly those who have embraced the convenience of luxury e-commerce.
Burberry’s shoppable virtual store manages to approximate a glamorous trip to Ginza and may satisfy curiosity and offer a dose of escapism for those who have never been, not unlike the those 3D Zillow, which have provided a welcome distraction from lockdowns, while also enabling purchases of homes physically sight-unseen.
And while Burberry’s virtual Ginza store is tailored to Japanese audiences, it provides a model that can easily be replicated globally, highlighting the scalability and shopability that defines effective content-commerce campaigns. Essentially, nothing is stopping Burberry from rolling out a virtual Regent Street flagship and a content collaboration with British partners. Already in China, Burberry has worked with Tencent to open a hybrid physical-digital store experiment in Shenzhen, where the Chinese tech giant is headquartered, and has deepened the relationship with the announcement of a partnership with its blockbuster game Honor of Kings. [Update: The gaming collaboration was abruptly called off by Tencent on March 25 amid a growing controversy over the positions of foreign brands on cotton sourced from Xinjiang.]
With the world’s top luxury brands now becoming far more comfortable living in the digital world, whether through virtual skins (also by Burberry), virtual idols, virtual sneakers, or even debuting new collections in virtual formats, these futuristic content-commerce strategies are here to stay.
China Cancels H&M
What Happened: H&M is being canceled in China. In an unprecedented move, the fast-fashion retailer has been removed from e-commerce platforms, including Taobao, Tmall, JD.com, and Pinduoduo. Even the second-hand marketplace Xianyu has erased any mention of the company. Telecom giant Huawei has banned H&M’s app from its downloads, and its products have disappeared from livestreams hosted by the celebrity anchor Viya. These actions follow public outcry after the company announced it ceased supplying its cotton from the Xinjiang region, embroiling it in one of the biggest examples of China’s cancel culture to date. (more…)
These Global Brands Are Conquering The Virtual World
Brands that master the singular characteristics of the virtual world can even engage with passive followers while developing positive consumer perceptions.
Louis Vuitton and Burberry immerse the shopper in an alternative reality, where the most pleasurable experiences are enhanced, and shopping becomes an extension of themselves.
Christian Dior used VR headsets to offer luxury shoppers a peek into the Paris fashion shows.
Not long ago, the virtual world was a go-to setting for dystopian science fiction films. But in today’s post-pandemic reality, where consumers demand physically-disconnected & emotionally-connected interactions with brands, the virtual world offers limitless possibilities to luxury houses.
For now, there is a tremendous opportunity for luxury brands to define what a luxury experience should look like in the virtual world. And brands that master the characteristics of the virtual world will engage even passive followers and develop positive consumer perceptions.
Luxury powerhouses Louis Vuitton and Burberry are already designing memorable experiential interactions. These brands immerse the shopper in an alternative reality, where the most pleasurable experiences are enhanced, and shopping becomes an extension of themselves.
Another example is Christian Dior. The French Maison used VR headsets to offer luxury customers a “behind-the-scenes peek into exclusive fashion shows.” And according to Certona, selected shoppers were invited to test the company’s VR headsets and view the haute couture collection in Paris from a Christian Dior boutique on a different continent.
But luxury powerhouses aren’t the only ones building individualized experiences through VR and AR. China’s automotive industry is using VR to create safer and more enjoyable experiences. Toyota has designed the TeenDrive 365 VR simulator, which helps teenage drivers stay safe on the roads, while Jaguar Land Rover has equipped some of its dealerships with VR headsets.
Fo its A Walk in Their Shoes campaign, the ethical brand TOMS Shoes used VR headsets to take fans on an emotional journey. The adventure follows a TOMS customer to Colombia, where he interacts with a child who benefits directly from his shoe purchase.
The IKEA Immerse app empowers consumers to design and experience their furniture configurations via virtual living and kitchen room sets. Likewise, the Taobao Buy app creates an “AR-infused shopping experience” where real-world images are blended with 3D images, according to VR Scout.
According to Vice and Alibaba’s official figures, an hour after its first launch day, 30,000 people tried its AR shopping program, Buy+. And while Alibaba’s triumph in this realm is remarkable, the success some luxury brands have found with similar initiatives is even more impressive.
Burberry has become the model for in-store brand VR experiences. Its concept store, opened in partnership with Tencent in Shenzhen, shows the incredible potential virtual reality holds in retail. “Thanks to the exclusive partnership with Tencent, Burberry takes interactions from social media and introduces them into the physical retail environment,” says Marketing to China.
Burberry also partnered with Tencent Games for the online game “Honor of Kings.” The British luxury Maison agreed to create elements of Burberry’s house code for use in the game’s virtual world. “Adding virtual products into existing online game environments offers a bespoke experience that aligns with the consumer’s existing lifestyle,” says a Burberry press release.
But this collaboration is not the first time Burberry used gamification to connect with younger demographics. In October of 2019, the British retailer released its own game called B Bounce, followed by Ratberry in December of 2019 and B Surf in July of 2020.
L’Oréal Group has also gotten into the virtual idol hype. The French beauty conglomerate launched a two-dimensional character named Mr. Ou: “a 24-year-old, Chinese-French entrepreneur who cares for the environment and works within the beauty industry,” according to BoF.
Meanwhile, The South China Morning Post explained how SuperElle launched two virtual fashion models: the edgy Sam and the feminine Liz. Elle readers can use their mobile cameras to interact with AR versions of the virtual models.
On the other hand, Louis Vuitton has been busy designing virtual clothes for the game “League of Legends,” as well as its digital trophy case for the League’s annual esports finals.
Along these lines, there are other notable entries in the virtual world. For example, Unmatereality has been working with luxury brands to create gamified experiences. Unmatereality is currently working with ADA — a 3D, interactive gamified fashion and social media platform designed by Alexia Niedzielski, Elizabeth von Guttman, and Andy Ku, a Korean gaming guru.
ADA lets gamers select luxury interiors and their avatar’s style, and they can dress their idols in high-end garments and share their shots on social media. They can even buy the selected designer outfits for themselves.
Drest is another new luxury gaming platform designed by the former editor-in-chief of Porter & Harper’s Bazaar, Lucy Yeomans. “In Drest, you play a professional stylist, compete in challenges by dressing up human avatars, and receive feedback from a digital community,” says Orian Bar, a contributor to The Psychology of Fashion. “As you play, you can level up your title from wardrobe intern to Nano influencer. Also, the app features real-life designs [to] users through a one-click shop from Farfetch.”
Since luxury brands are always looking for novel ways to connect with consumers, the virtual world simply cannot be ignored any longer. As such, we foresee additional luxury players entering the virtual arena and coming up with personalized offers that entertain and speak to consumers.
Gaming Keeps Tencent Green in Q4
Internet tech giant Tencent saw its growth slow slightly at the end of 2020. But solid performances across its core businesses led to a full-year revenue increase of 28 percent over 2019, reaching $73.9 billion. A fourth-quarter lift of 26 percent contributed $20.5 billion.
Tencent, founded in Shenzhen in 1998 and listed in Hong Kong since 2004, saw its four main divisions — social networks, online games, online advertising, and fintech/ business services — all perform at similar levels, but an extra focus on global gaming and social video could fuel future growth.
Chairman and CEO of Tencent, Ma Huateng, said in a statement, “We extended our leading position in the consumer internet space with enriched content and innovations across our products, while making notable progress in international expansion, starting with games.”
The company also invested in its communications and social platforms — such as Weixin, WeChat, and QQ — which connect more than 1.2 billion users, mainly in China, and give luxury brands and marketers access to valuable demographic targets.
In the final quarter of 2020, the take from online games hit $6 billion, up by 29 percent. Within that, international gaming revenue soared by 43 percent to $1.5 billion, as cloud gaming worldwide has become a colossal $150 billion market, attracting 2.5 billion players.
Smartphone games, such as Peacekeeper Elite, Honor of Kings, PUBG Mobile, and recently-launched titles such as Moonlight Blade Mobile have been the main driver for Tencent. Revenue from this segment (including smartphone games revenue attributable to Tencent’s social networks business) reached $5.6 billion in the quarter, more than three times that for PC client games.
A partnership with Nintendo has also extended Tencent’s home entertainment offerings to consoles. By the end of 2020, it had distributed over one million Switch consoles and published a dozen popular Switch titles in China.
Video permeates social networks as well as games and is considered the future of immersive experiences. Tencent says, “Users are increasingly uploading personal videos, and sharing them with friends, in Weixin Moments and chats.” Through a new service called Video Accounts, users can also share videos publicly, while brands can broaden their audience reach and drive transactions via links to Mini Programs.
Luxury brands, for example, are increasingly using Mini Programs to connect with consumers, and with Weixin Pay, annual transaction volumes from Mini Programs more than doubled year-on-year in 2020.
Other business segments performed as follows:
Social networks: up 27 percent to $4.3 billion, mainly driven by digital content services, including a consolidation impact from gaming leader Huya’s live broadcasts, music and video subscriptions, and in-game virtual item sales.
Online advertising: up 22 percent to $3.8 billion, thanks to rising demand from advertiser categories such as education, e-commerce platforms, fast-moving consumer goods, and the consolidation of advertising revenue from Bitauto. Social and other advertising revenues grew by 25 percent to $3.13 billion, an increase that primarily reflects advertiser demand for Weixin Moments inventory and customized in-app ads on mobile networks.
Fintech and business services: up 29 percent to $5.9 billion due mainly to growth from commercial payments and wealth management services as both transaction volumes and values increased.
Sizing Is Killing Your Brand
- Returned items have traditionally hit the fashion industry hard (half of US shoppers are currently over-purchasing). That number could be much higher in China as retailers offer free or generous returns policies.
- For many international brands entering the market, working closely with TPs is a must, so they select the right size ratios for their fans — especially for lingerie brands that specifically rely on perfect fits to keep consumers on board.
- Livestreaming offers an interactive space for consumers to ask presenters and hosts questions that often relate to size. As viewers are used to telling the seller their height/weight, smart-sizing tools tend to fall short in China.
Imagine this scene: A courier arrives laden down with shopping bags, but instead of taking in the goods, the receiver asks the courier to wait around as they try on the items. Afterward, the garments that don’t fit simply get handed back as returns. This scenario is common enough across China (and other countries, too) but is a costly concept for brands to accommodate.
“They’re called Bracketers, ordering larger amounts more frequently and sending back what they don’t want. They can be a brand’s most loyal clients outside China. But in China, they may ‘bounce’ to the next best deal,” explains Josh Gardner, the CEO of Kung Fu Data and a trade partner who works with brands.
Given that online shopping is second-nature to Mainlanders (where one in four purchases are digital), it follows that returning goods is as well. He continues: “They treat the living room as the new showroom and expect white-glove service. Chinese consumers always order more than one size, especially from foreign brands, and with local Chinese brands, higher returns may be driven by issues of trust or quality.”
Returned items have traditionally hit the fashion industry hard (half of US shoppers are over-purchasing, according to a global study). That number could be much higher in China as retailers offer free or generous returns policies. The top reasons for sending items back are the wrong size, fit, or color.
Some Western retailers have been attempting to resolve fit issues by investing in tech, particularly since the lockdown boosted online sales by cutting consumers off from physical fitting rooms. The German startup Fit Analytics has worked with Asos, North Face, Puma, Patagonia, and Calvin Klein, and Marks & Spencer recently invested in specialist fitting technology by Texel to cut down returns.
Other active companies in the sector include Switzerland’s Meepl, which helps the e-tailer Zalando match consumer body measurements with off-the-rack garment data. And this month, the US-based company 3DLOOK raked in $6.5 million in investments for its instant human body measuring technology.
Yet, China’s advanced technology conglomerates have been slow to address the issue in an expensive wilderness for brands that aren’t adequately localizing their sizes in China. Here, Jing Daily looks at what brands can do to address this issue.
Working with trader partners
Given that mainstream platforms in China are not addressing the sizing issue beyond AI-selection preferences, Gardner suggests that trade partners can help ensure sizes are communicated transparently to consumers. Truthfully, you can never do too much in this area. But these directives must be correctly applied before a brand launches in the market.
He states that size/fit, price point, and quality are the three top worries for brands in China, and “sizing/fit is the main issue.” Gross return rates for brands could average around 30 percent, with many seeing as much as 60 percent, depending on the price range — especially if no other local initiatives are launched.
“We do this as part of onboarding,” he says. “We test product sizes and materials claims with our operations team and have clients send samples of their full range to measure fit. Also, we always have a sizing chart that matches Western sizes to Asian equivalents. Typically, an S from Italy is an M. Or an American M is often an XL.”
Then, it’s about “over-publishing” your data, so consumers understand your fit as much as possible online, with assistant shoppers and advisers making sure browsers understand what they are buying. “We try to catch as many people making mistakes as possible before they put goods into the cart.”
How brands are coping
For many international brands entering the market, working closely with TPs is a must, so they select the right size ratios for their fans — especially for lingerie brands that specifically rely on perfect fits to keep consumers on board. British lingerie retailer Agent Provocateur tells Jing Daily it works closely with its partner for sales: “But we also review feedback received across the channels we trade on to ensure we are meeting customer demands.”
Not only does it sell on a wide number of online platforms, including Tmall, Little Red Book, and WeChat — while also launching on JD.com and Poizon this year — but it also has offline access to customers through Lane Crawford. Moreover, there are steps in the design process that can ensure a better fit.
The brand has an “AP global customer in mind” when designing collections, but special fit and size efforts are being made to address different consumer frames. “We are expanding our ranges to suit the China market, from an increased offering of A-cups and smaller back sizes to more padded styles of demi bras and introducing shorts into nightwear.”
Local intimates disruptor Neiwai outlined the parameters for its sizing, too. They include: “the structural characteristics of the steel-rimless bra, the current sizing demands of the Chinese underwear market, and the needs and feedback of our customers,” a senior designer states, adding that they are constantly updated.
Neiwai’s Zero-Sensitive collection and its “half-size system,” which interchanges top and bottom sizes, both cater to China’s growing and diverse consumer base. “Our non-sized bras have allowed us to see a new entry point in the bra size system since last year,” the brand adds. “The use of highly-stretchable fabrics to accommodate different sizes and figures resolved consumers’ concerns in size selections.”
The role retailers and tech plays
Known for its pioneering tech, AI, and facial scanning, China has been slower to tackle returns issues. Shenzhen-based Tozi Technology, an AI body-measure platform, has teamed up with a Japanese textile conglomerate to tackle sizing (despite Japan’s 3D Zozosuit measuring suit having failed to go mainstream). Identifying how a consumer wants clothes to fit is not straightforward, and knowing that might not be immediately profitable.
Yet, both Alibaba and JD.com offer customers seven days right-of-return but charge additional fees from brands when returns are processed (there’s often a transaction fee on both the front and back end.) The China-based arm of Canadian retailer SSENSE insists that customers in China pay for their own returns, and despite this having a positive environmental uplift, it has felt netizens’ wrath via negative comments on platforms like Little Red Book.
“Lower return rates mean less revenue for these platforms,” Gardner notes. “If you have to sell a product twice because of a high return rate, they can double their transaction fees and take rates on a single store. What is better for the brand and the buyer is often not better for these platforms.”
Companies adopted livestreaming long before the COVID-19 outbreak, offering an interactive space for consumers to ask presenters and hosts questions that often relate to size. As viewers are used to telling the seller their height/weight and asking for the right size, smart-sizing tools tend to fall short in China.
For Gardner, correct sizing increases loyalty — a luxury necessity — and he acknowledges that livestreaming is pivotal in resolving this issue: “We do a lot of in-house livestreaming, since we want return rates to be as low as possible. The goal is to show as many dimensions of fit as we can and lower returns. Brands are highly incentivized to do this.”
Sizing issues on China’s social
China’s social platforms have offered respite where consumers can vent about incorrect sizing issues. Recently, many KOCs (Key Opinion Consumers) have addressed how they size themselves by posting informative videos on Weibo and Little Red Book, showing shoppers exactly how to avoid incorrect sizing online.
Rises in sportswear and “drop” frequency for products like sneakers make them especially prone to returns, thanks to variances in sizing and fit across brands (even within a brand’s collections). This issue has trended on Little Red Book, where you can find 150,000 UGCs on the key phrase “shoes: which size?” International names most associated with this theme include Adidas, Nike, and Vans, among others.
Chanel’s “weird sizing” has been raised on the platform, while UGCs complaining about how Max Mara doesn’t have a size XS for its Teddy bear coats can often be found on the site. Smaller sizing can have its advantages, though, and some consumers have found savings by purchasing children’s clothing. While this has obvious health concerns for some, luxury leader Moncler’s name has popped up here and is favored by naturally slimmer consumers who can fit into less expensive winter coats from kids ranges.
COVID-19 has upended brand strategies, complicated potential store openings, and turned homes into fitting rooms. For brands that want to go purely digital or new DTC start-ups, correct sizing will come into play even more than before, and there will be plenty of room for tech and AI developments. Until the day that Tmall can send out a suit for at-home measuring, China, like elsewhere, has to grapple with returns. But for the sake of the environment alone, it is time for the sector to make some serious investments in sizing.
Register: How Popular Culture Has Redefined Luxury in China
Register today to join Jing Daily and Sotheby’s on Thursday, April 8 at 10am EST / 3pm GMT for a live webinar exploring “How Popular Culture Has Redefined Luxury in China”.
The discussion will be moderated by Enrique Menendez, Editor-in-Chief of Jing Daily, who will be joined by Contemporary artist Daniel Arsham, editor Ted Gushue, and Yuki Terase, Head of Contemporary Art, Sotheby’s Asia. Together, the panelists will explore the intersection between luxury and popular culture, looking to the unique tastes of Chinese cultural consumers and how they have established a new utopia for luxury.
In our discussion, we’ll explore:
- How does popular art carry through to what we today call popular culture?
- How has the definition of luxury changed over the years?
- What are the specificities of the Chinese luxury market? How does the industry adapt to the new paradigm?
- What is the winning marketing strategy for luxury?
- How does an auction house evolve to meet today’s demands?
Daniel Arsham, artist
Arsham is a New York based artist whose work explores the fields of fine art, architecture, performance, design and film. Raised in Miami, Arsham attended the Cooper Union in New York City where he received the Gelman Trust Fellowship Award in 2003.
Ted Gushue, Editorial Director, Type 7
Gushue leads Type 7, the official Porsche magazine dedicated to Architecture, Design, Exploration, and their intersection in the car world. His editorial works have appeared in GQ, Esquire, The New York Observer and many other outlets around the world.
Yuki Terase, Head of Contemporary Art, Asia, Sothebys
Yuki leads Sotheby’s auction and private sales of Contemporary Art in Asia. In 2020, Yuki achieved the strongest annual total for the category in Asia’s history. Over the years, she has also spearheaded many white-glove sales with an innovative curatorial approach exemplified by the phenomenal success of the dual sales with street fashion master NIGO® and #TTTOP.
Enrique Menendez, Editor-in-Chief, Jing Daily and The Popular Times
Menendez is a journalist who has worked for publications across Shanghai, London, and New York. Menendez specializes in B2B reporting on luxury in China and the intersection of popular culture and luxury.
Thursday, April 8
10am EST / 3pm GMT
What the World Needs to Learn From Chinese Content Commerce: Part One
In this five-part series, Jing Daily looks into the lessons that every brand should learn from the evolution of content commerce in China since the start of the Covid-19 pandemic in early 2020. We will publish one piece every week, with the full series to be made available for download as a PDF.
The year 2020 posed a historic challenge for brands across the consumer spectrum, upending marketing budgets and plans set months in advance and sending revenue plummeting as consumers in key markets remained housebound during extended lockdowns. By the end of the first quarter of 2020, economies and corporate bottom lines around the world had been hit hard by the coronavirus pandemic, shutting down any chance of a normal year.
As Covid-19 spread through China and then the rest of the world, marketing and event plans instantly became irrelevant, leaving leadership teams with no choice but to go back to the drawing board. For many, though, it was already too late.
This was clearly the case in the luxury industry. According to a Bain & Company study released in November 2020, the core personal luxury goods market contracted last year for the first time since 2009, recording a 23 percent drop at current exchange rates — the largest recorded decline since the consulting firm began tracking the industry.
In most major markets, the loss of international tourism and belt-tightening by local consumers sent luxury revenue plunging. In Europe, where the luxury industry is heavily dependent on spending by tourists, regionalconsumption in the sector fell by nearly 40 percent in 2020, while the Americas dropped 27 percent and Japan saw a 24 percent decline.
Hey Big (Revenge) Spender
As it was in the aftermath of the Global Financial Crisis (2007-2009), China emerged as a rare bright spot for the luxury industry, as the central government moved rapidly to bring the coronavirus under control with strict lockdowns that affected more than half of the population. As China began reopening throughout the second and third quarters of 2020, the rest of the world was caught in the throes of a worsening pandemic, leaving Chinese citizens deprived of the opportunity to travel overseas, where they typically spend billions on luxury goods every year. As a result, Chinese consumers made far more high-end purchases domestically in 2020, fueling a major rebalancing of the industry in the process (and sending companies scrambling to adapt).
In 2020, the mainland Chinese luxury market was the only one in the world to finish the year in the black, rising by an estimated 45 percent to 48 percent. According to a December 2020 report from Bain & Company and Alibaba, the result was that China’s overall share of the global luxury market nearly doubled to 20 percent, up from 11 percent in 2019. Even though a broad recovery of the global luxury market is expected by 2023, potentially affecting China’s current 20 percent market share, the country remains on track to become the world’s largest single luxury market by 2025.
China’s dominant position in luxury during 2020 was helped along by the gradual return to normalcy in the late spring and summer. As brick-and-mortar outlets reopened, consumers leapt to satisfy pent-up demand by way of “revenge spending,” and by July brands such as Loewe, Louis Vuitton and Prada were able to organize substantial in-person events.
Meanwhile, soaring demand for Swiss luxury watches saw exports to China rise by 17 percent between January and November 2020 (while other markets dropped), making it the world’s top export market for Swiss luxury watches for the first time.
But a recovery in China’s luxury industry and other related markets such as beauty, health, and wellness cannot simply be explained by the surge in “revenge spending” and a meaningful (but still limited) number of brand events. Rather, a major contributing factor was the speed with which brands pivoted — and consumers responded — to digital content-commerce marketing strategies.
In late Janaury 2020, as the extent of the coronavirus epidemic came to light and much of China shut down, life for newly housebound consumers moved largely onto the cloud. In the weeks and months that followed, hundreds of millions of Chinese had to adjust to a new, at-home and online normal, from remote work to relying heavily on food delivery apps to spending hours glued to their smartphones for entertainment.
China’s coronavirus restrictions were announced right before the eve of the Lunar New Year, after many Chinese had already traveled to their hometowns for the country’s biggest holiday. Thus, entertainment and marketing quickly shifted to formats conducive to those stuck at home with little else to do but watch streaming programs, browse e-commerce platforms, and scroll through their social media feeds.
In a move that has by now become familiar to television audiences around the world, the popular talk show “Day Day Up” (天天向上) changed to a “cloud-based” format with hosts broadcasting from their living rooms instead of studios. In the weeks that followed, audiences tuned into livestreamed runway shows during fashion weeks, and influencers could be seen participating remotely in online events, cosmetics tutorials, and virtual product releases rather than attending the usual sponsored cocktail parties or exhibitions.
For any brand, reaching consumers stuck indoors for weeks at a time meant putting any plans for physical marketing or events at brick-and-mortar locations on ice, and instantly switching efforts to entertaining online content that could hold the audience’s attention and facilitate online purchases.
Cloud living endured even as China reopened up during the summer, with many consumers showing a continued willingness to engage with brands online and make big-ticket purchases via platforms such as Tmall Luxury Pavilion, which added many luxury names including Cartier, Balenciaga, and Gucci Beauty in 2020. All indications point to this as a long-term trend with major marketing implications in terms of what consumers buy and how they do it. The current appetite for e-commerce livestreaming, community group-buying, health and wellness, and a comfortable “homebody lifestyle” balanced with cravings for new experiences are here to stay.
Driving Revenue In Tough Times
Entertainment is the common thread that binds many of these trends. As brand licensing expert Steven Ekstract noted in December 2020, “E-commerce works best when consumers are entertained while they shop, so content has really driven commerce.” But emotions come into play as well. “Brands that are fun and that entertain create greater emotional connections with consumers, who will buy more of those brands’ products as a result,” said Ekstract.
In early 2021, China saw a resurgence in reported Covid-19 cases in areas around the country, and the government responded by ordering local lockdowns as needed and issuing a nationwide call for citizens not to travel during the Spring Festival period, upending the usual plans for family reunions for many. Many Chinese once again returned to “cloud living” to stay connected with friends and families during this time.
Any brand facing the prospect of a challenging 2021 can learn a great deal from the Chinese market and the techniques and strategies used by brands to drive revenue during tough times. These strategies reflect the effective application of content-commerce, or the merging of brand-created content that entertains consumers and provides them with a clear and seamless path to purchase.
We have designed this series as a primer on how China is winning at content-commerce, and what brands, retailers, and tourist destinations in the West can and should learn. Whether through brand-funded shows, e-commerce livestreaming, collaborations, or brand films, many companies in China have succeeded at creating effective content-commerce through trial and error. But in 2021, the well-oiled machine that is content-commerce in China will transform from a nice-to-have to a must-have for any company worldwide.
Has Fur Finally Had Its Day in China?
What Happened: China has secured its 50th fur-free retailer, Les Enphants. With over 1,000 stores across 30 provinces and 204 cities, it is China’s biggest children’s and maternity wear brand and now joins the growing list of names in China refusing to work with fur, such as luxury leaders Icicle, Ji Cheng, and DONSEE10.
Companies like Prada, Michael Kors, and Gucci have all joined the international Fur Free Retailer scheme to date, now numbering over 1,500. Since 2012, ACTAsia, a non-profit working for sustainable social change in China, has been promoting fur-free fashion on the Mainland.
The Jing Take: Although fur is popular in China (primarily as trims or accessories), attitudes are changing. A recent ActAsia survey of 5,400 consumers across six cities expect fur-free to be the next trend, as 71 percent of customers said they would prefer fashion items from fur-free brands.
This latest signee follows the release of a report called Toxic Fur: a Global Issue. Its two years of research demonstrates that many fur products sold in China may contain potentially hazardous chemicals, which could adversely affect human health and the environment. This news is especially relevant for parents who may now choose to bring children up without fur. With Gen-Z consumers already rethinking the material, could this latest move mean that moms and pops too will be joining the fight against fur?