Posted On 2016/01/17 By In Business, Branding, Consumer, News, Luxury, Shopping With 550 Views

Luxury Retailers must understand this Shift among Chinese Consumers

Understanding the shift in focus related to how Chinese consumers are defined is among the main challenges luxury retailers with big exposure to Asian markets must overcome if they are to ensure returns from a market into which they have invested heavily.

Burberry, Gucci and LVMH are just three of the brands that have suffered from the slowdown which has gripped the world’s second-largest economy over the past 18 months leading to weakening demand for luxury items.

“Chinese consumer spend has become diffused across continents, platforms and myriad indirect sales models,” Brian Buchwald, co-founder and chief executive of consumer intelligence group Bomoda, told IBTimes UK. “Brands must now invest in data and business intelligence to track this behaviour, target this consumer, and then build lifetime value post sale. This is no easy feat but fortunately surmountable.”

On 14 January, however, Burberry posted better than expected third quarter figures, as it reported sales grew 1% year-on-year to £603m (€799.7m, $868.8m), while like-for-like sales for the period were unchanged on the year and up from the 4% decline registered in the previous three months.

The positive results came as South Korea and China returned to growth, while demand in Japan remained strong. However, in Hong Kong, which along with China accounts for between 30% and 40% of the group’s global revenue, sales tumbled 20% year-on-year.

The sharp decline in sales in Hong Kong coupled with the persisting volatility in the Chinese stock market prompted a number of analysts to paint a rather gloomy picture for retailers of luxury items.

“The short-term outlook for luxury is uncertain with China macro issues a key sector concern triggering weak global stock markets that can also have a knock-on effect in trading,” Barclays analyst Julian Easthope said earlier in January.

Buchwald, however, suggested China had all the requirements to remain a profitable region for luxury brands, provided they target consumers based on their nationality, rather than on a particular geographical area.

“If the retailer is nimble enough to shift their focus to a mindset centered on Chinese nationality rather than geography, investment can profitably continue,” he said.

On a wider scale, the shopping habits of Chinese consumers could also have an impact on the sales of luxury items in countries such as Japan and South Korea.

“There is a certain symbiosis between China-based marketing and merchandising, and overseas sales in locations like South Korea and Japan,” said Buchwald. “In fact, it is very much what is driving those markets.”

Asked whether Chinese customers could buy consumer goods abroad rather than in China if luxury goods retailers were to scale down investment in the region, Buchwald admitted that was a possibility but there was little evidence of it as yet.

“Brands have not done enough to close the loop to understand the correlation between individual China investment decisions and overseas sales,” he said. “Certainly it is there and offers tremendous impact. However, big data is still early in this space. And very little has been done thus far to tie overseas purchase behaviour with marketing investment on the mainland.”


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Sources:

Article: IBTimes / Image: Jens Schott Knudsen

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About

Stefan

Stefan (from Austria, Europe) has been living, studying and working in China since 2010. Stefan has worked on several research, publication and consulting projects focusing on the China Travel Market. He holds three Masters degrees and is an expert on China Outbound Tourism, Marketing and Social Media in China. Stefan works with BMG on the Global Ready China Seminars as well as the Global Ready China News and related projects. He also has teaching engagements in the areas of eMarketing and Tourism Strategy.

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