China is one of the world’s oldest civilisations, dating back 1500 BC (Before Christ) and around 3500 years Before Consumerism.
It is also a country steeped in ancient traditions – from the iconic dragon to the lucky number 8 – which are very much alive today. When China staged the Olympics in 2008 the opening ceremony was held in Beijing on the 8th day of the 8th month, starting at 8 minutes and 8 seconds after 8 o’clock.
Yet despite these strong and often superstitious links to the past China can still change and adapt at lightening speed – leading to the most amazing economic revolution of all time and a colossal demand for luxury brands in China today.
China’s growth miracle
In just ten years between 2000 and 2010 the Chinese economy tripled in size. Known officially as China’s Growth Miracle, it was the fastest expansion of any major economy in history.
Picture the opening ceremony at the London Olympics in 2012, with the Industrial Revolution bursting through our green and pleasant land, showing chimneys, factories, mass production and mass consumption changing the face of Britain in the late 1700s. The Growth Miracle has had – and continues to have – the same impact on China.
New power stations, new factories and new cities have been built, complete with shopping malls and football stadiums. People have moved en masse from the countryside into the city, drawn like moths to giant neon flames by new jobs and higher wages. By 2030, one billion people will live in cities in China. That’s three times more than in the US.
But the epicentre of the Growth Miracle is not found in bricks and mortar, but in the creation of a new, affluent middle class which is hungry for iconic, Western symbols of status, power and wealth.
Before the Growth Miracle there was effectively no middle class in China. Today, it is rapidly becoming the largest middle class nation on the planet, with all the disposable income this brings.
According to Mckinseys:
- Before 2000, just 4% of households in Chinese cities were middle class.
- By 2012, that figure had soared to 68%.
- Over the next ten years, McKinsey predict there will be 630 million middle class people living in cities across China. That’s nearly half of the entire population.
The rise of luxury brands in China
The link between the rise of the middle class and the rise of luxury brands in China is perfectly mapped out in the sales data.
By the end of 2009 the luxury market in China was worth US$9.4 billion. By 2012, China had become the world’s largest market for luxury brands. And by 2020 China’s luxury market will be worth US$99 billion. That’s ‘buy, buy, buy’, as they say.
The brands that have benefitted so far from this ‘spend, spend, spend’ in China are the same names that ooze luxury and wealth in high end places all over the world, from Monaco to Madison Avenue and now Bond Street to Beijing. Just like their counterparts in New York and London, affluent Chinese are buying Chanel perfumes, Rolex watches, Louis Vuitton handbags, Giorgio Armani clothes and Cartier jewelry.
These five classic brands hold the number one slot in their categories in China.
The key words here are ‘so far’ – because retail in China is evolving and fragmenting all the time. It used to be the case that a luxury brand with an established international reputation could enter a new market like China by simply finding the right retail location, in the right part of town, and thanks to a noisy launch party, some advertising, high footfall and word-of-mouth the brand was up and running.
At the start of China’s economic boom, consumers in cities like Beijing or Shanghai went to the luxury brands, drawn by their status, rather than the luxury brands had to go and find the market.
Changing times ahead
But the tables are turning across the retail landscape in China, and life is now getting far more challenging and intricate for marketing teams operating in this part of the world – especially those responsible for classic luxury brands.
If people bought luxury brands just because they had lots of money, China would be an easy place to do business – because the data shows the Chinese are set to get richer and richer, with three hugely powerful consumer groups developing by 2020;
- Value Consumers – 307 million. Strategic planners take note. This segment is getting smaller and smaller in China.
- Mainstream Consumers – 400 million.
- Affluent Consumers – 60 million.
Credit Suisse has calculated that over the next five years the number of millionaires in China will go up by 46% – to just under 50 million people. So there’s plenty of people with plenty of money. Perfect for brands like Cartier and Chanel, right?
Well, it would be if China perfectly matched the US or UK model for example. But it doesn’t. The age of the affluent consumers in China, the role of online shopping in a country this big, the importance of social media in a traditional, people-based society and the need to develop relevant, local messages in China are all reshaping how luxury brands operate in this market.
Take age. In China the people buying luxury brands are much younger than in Europe for example. In China they are aged 18 to 50. In Europe, they are 40 and over. McKinseys calculate that 80% of the people buying luxury brands in China are under 45. That compares with just 30% in the US.
For some luxury brands entering China or looking to grow market share here age is a problem. Younger, affluent consumers are increasingly turning to niche brands – such as Jimmy Choo, 3.1 Phillip Lim and Sophie Hulme. Retail experts are talking a lot about “individuality”, “a thirst for newness” and a shift away from “visibly branded goods.” In China the days of cash-rich, consumer clones appear to be fading – when everyone has a Louis Vuitton bag, or a Ralph Lauren Polo Shirt, and the logo is the first thing (and sometimes the only thing) you notice.
Carrying out the research for this piece I was struck by a quote by Angelica Cheung, the editor-in-chief of Vogue China, who said: “A new class of Chinese consumers is ready to spend money on quality and style without showing it on their sleeves.”
“A new class of Chinese consumers is ready to spend money on quality and style without showing it on their sleeves.” Angelica Cheung, the editor-in-chief of Vogue China.
The age of consumers links hugely into the next challenge facing luxury brands in China today; online. Opening a store in the right part of town is a must, of course, but in a country as vast as China it is increasingly just one part of a successful strategy.
Mobile key behind the luxury brand market in China
In 2015, e-commerce – especially on mobile platforms – was the key driver behind the luxury brand market in China. One major Chinese fashion retailer said customers who buy online spend five times as much as those who only shop in-store.
And recent research carried out by Microsoft shows 81% of high end consumers in China use the internet to make their decision to buy.
China’s young, affluent consumers share a lot of information about products and brands via email and social media before they decide to buy or not. This peer to peer connection and credibility is often far more important in China than advertising messages directly from the brand.
So when the brand does reach out to these affluent consumers directly, it works best when the content and the communication is intelligent, high quality and bespoke. The more personal and less branded, the better.
China’s young, affluent consumers share a lot of information about products and brands via email and social media before they decide to buy or not
One global brand seeing real success in this space is Burberry, which is staging fashion shows online, streamed live through the local Weibo platform. These shows connect local bloggers with the content and the audience, creating online connections with young, affluent consumers in a way that feels modern, relevant and ‘cool’. Which brings us to how important it is for luxury brands to develop relevant, local messages in China.
Brands moving into China from the US, the UK and Europe can’t afford to rely on their existing campaigns and strategies. Their reputation as an established classic or a new, more discerning brand can be imported, but distinct and authentic connections must be made on the ground.
That’s why Hermes created its ‘Shang Xia’ brand in China, Louis Vuitton send personalised cars to customers at Chinese New Year and Starbucks (ok, so we’re talking more mainstream that affluent, but the principle is the same …) sell moon cakes in their coffee shops in China.
The new challenges facing luxury brands in China demand two major responses; intelligent and creative local content that feels bespoke for people in China, and media campaigns that truly understand where and how the new consumers are using content, especially online. Get the approach right, in a market this dynamic and wealthy, and the rewards are great.
Addition+ is headquartered in London, and has an office in Beijing. We are constantly helping brands enter or grow market share in China using our technology, our human curation of data and our local knowledge and expertise in the Chinese market.
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