Luxury sales are down in China due to a variety of factors: from the economic slowdown to the corruption crackdown, and even the changing tastes of the Chinese consumer. Luxury brands that relied on China sales to prop up their numbers are scrambling for solutions even as they are being forced to shut down stores. Is this the end of luxury’s dream run in China? What strategy should brands deploy to regain lost ground in China’s luxury market? CKGSB Knowledge spoke to Benoit Garbe, Senior Partner, and Nicolas Derville, Analyst, Millward Brown Vermeer, to diagnose what’s wrong with China’s luxury market and offer possible prescriptions.
Luxury brands have never had it this bad in China. For most of them, China is no longer the cash cow it once was. Multiple reports suggest that the luxury retail business in China is shrinking. The top 10 global luxury brands as per Millward Brown’s latest BrandZ report—a list that includes names like Louis Vuitton, Hermes, Gucci and Chanel—saw 6% of their total brand valuation evaporate in 2015, and China is partly to be blamed. Already the likes of Louis Vuitton, Armani, Prada and Chanel have started shuttering stores in China. But all is not lost and luxury can still make a comeback in China.
As the number of high net worth individuals in China increases, people are developing a taste for luxury. According to The Hurun Report, a magazine known for its annual “China Rich List”, the number of dollar billionaires in mainland China surpassed that of the US for the first time in 2015, with 596 to the US’s 537. As a result, luxury pastimes from the West, such as car shows, auctions, yachting and polo, are making their way into the country. Even services like finishing schools are flourishing. What’s interesting is that these so-called Western luxury pastimes are taking on Chinese characteristics.