China’s continued dominance in global luxury
After a tough year in China, Swiss luxury brands faced a new setback this week when Switzerland’s National Bank dropped its minimum exchange rate policy in a move that’s expected to increase export prices. In response, luxury powerhouse Richemont announced that it is considering price increases of 5% to 7% for its Swiss watches to counter the surging Swiss franc. Although such price increases were a virtual non-issue for cash-flush Chinese consumers five years ago, brands must now contend with very different market conditions — which now center around the whims of the cost-conscious middle-class shopper.
China’s notoriously high import tariffs have shaped the way that mainland Chinese shop and travel, as this consumer base is highly aware that luxury goods can be anywhere from 20 to 80 percent cheaper outside the mainland. It’s par for the course for Chinese outbound tourists to bring an empty suitcase to fill with duty-free goods for family and friends or prizes from luxury outlet malls. Those who can’t travel abroad have long leveraged the multitude of daigou agents on Taobao to get their hands on items from overseas at a steep discount compared to local malls.
With gift-giving, big-spending government officials taking a back seat to the middle-class shopper in the wake of Xi Jinping’s ongoing anti-corruption crusade, Swiss luxury brands no longer can rely solely on price increases to diminish the international impact of the SNB’s recent policy shift. China’s emerging luxury consumer has shown that he or she will simply move on to new brands rather than paying outlandish prices.
As new Chinese luxury consumers enter the market and increasingly look to discover new brands, it’s irrational for legacy luxury players to expect this demographic to keep paying an ever-increasing premium just because they’ve done this in the past. This opens an opportunity open for mid-range brands and non-Swiss luxury watch brands like Bremont (UK) and Glashütte Original (Germany) to increase their overtures.
A new Bain study argues that an omnichannel approach fusing digital technology with traditional retail is one of the best ways for brands to respond.
The global consulting firm’s annual study on China’s luxury market released this week provided further evidence that tastes and purchase platforms have been diversifying as the mainland market shrunk by 1 percent in 2014. With an approximate value of 115 billion RMB (around US$18.5 billion), the market’s decline wasn’t just caused by China’s anti-corruption campaign and economic slowdown, but also by rapidly evolving consumer preferences. In a survey of 1,400 Chinese luxury consumers, it found that they’re become increasingly interested in niche brands and experiential luxury while searching for ways to avoid China’s import tariffs—which often include buying outside the country or through third-party agents.
The survey results add to a growing body of evidence showing that niche brands are on the rise in China, finding that Chinese luxury consumers became more likely to switch between luxury brands in 2014. It states that 70 percent of respondents like to try different brands and styles, while 45 percent said they plan to buy more emerging luxury brands in the next three years. This is a trend we’ve been seeing for quite a while now, as multi-brand boutiques proliferate across China, department stores stocked with niche labels expand across the country, and trend spotters from Beijing to Shanghai recognize growing individualism in fashion tastes.
adapted from Jing Daily