You’d never know that Chinese consumers were, just 40 years ago, unable to purchase something more glamorous than a swatch of drab colored cloth. These days, luxury shopping is a big business in China, and it’s not just wealthy consumers buying sophisticated brands. Middle class consumers spend a great deal on purchasing luxury goods as discretionary income goes up.
At present, Chinese shoppers represent 32% of the global luxury industry, and this is set to increase. Consumer demand is there. However, selling luxury in China isn’t a given, and still faces certain challenges. Firms are having to adapt in their social media strategy and targeting different age and income markets in order to meet them. This isn’t new, but the fact that foreign luxury brands still find China a challenging space to compete is interesting, and speaks to the fact that marketing channels and consumer preferences are constantly shifting.
Challenges to overseas firms in China’s luxury space
Some overseas luxury companies have found that China is a difficult market to penetrate, mainly because different marketing methods are required in order to establish consumer trust. Shoppers may be less familiar with brands that fall outside of the forty bestselling brands, and at the same time, are interested in interacting with brands via different formats, such as through videos, websites and games.
Lack of brand awareness beyond the major luxury brands represents a barrier to success in China. As a result, experts have recommended that luxury brands set up a large flagship store in China. The use of Chinese celebrities has also helped to reach customers, although some researchhas found that there can be too much localization (tailoring to the tastes of a specific location) in marketing, as customers want to feel like they are part of a global brand. There’s a fine line making customers feel welcome and creating trust in a particular brand while at the same time maintaining the brand’s global image.
Social media has become an essential digital sales channel in China. Social media is particularly useful in targeting particular types of users as well as enabling users to build a buzz around a brand or product. Brands need to engage with consumers and provide entertainment as well as information, as part of a more complex marketing strategy. Providing information to consumers can help to educate consumers about various products, particularly in a country in which older generations lacked access to luxury markets.
Consumers are able to search for a product using social media, and frequently use social messaging platform WeChat as a preferred app. Many luxury firms selling to Chinese consumers have found that using WeChat stores is extremely effective. All of the top leading brands have WeChat accounts in China. WeChat also allows for the creation of mini programs, which several brands used last year. For example, Gucci created a sticker gaming and gift card e-shop, Burberry set up a program to schedule off-line service appointments and Dior created a gift card program.
Chinese firms buying overseas luxury brands
For their part, Chinese domestic firms are taking on a strategy of using acquisitions in order to gain expertise, buying large shares in well-known overseas luxury companies. In making acquisitions, Chinese firms gain marketing knowledge and improve their customer reach. They also gain access to powerful brands that are globally known, and can bring the brands back to China to sell to luxury hungry consumers.
Chinese firms have continued to purchase overseas companies in order to expand their empires and extend their capabilities. Recently, Chinese firm Fosun bought a majority stake in Lanvin, a Parisian fashion house, and in Wolford AG, an Austrian textile maker. Shandong Ruyi purchased a controlling share in Bally, a luxury shoe maker. Lanvin had experienced management and financial difficulties, and was seeking new sources of investment. JAB Holdings, which owned Bally, has been selling off a number of its luxury investments.
It is hoped that Chinese investment in these foreign brands will breathe new life into them, although there is no guarantee that it will happen. For example, Fosun’s involvement in high-end Italian menswear label Raffaele Caruso has been limited since its purchase of the brand in 2013, resulting in little presence in China. To build up interest in a brand in China from a low base takes a strong marketing strategy and money. This is something that luxury firms, both foreign and domestic, have to face.