The changing profile of Chinese luxury consumers

In recent years, a significant number of high fashion brands have blamed China for lackluster sales growth. Prada, for instance, recently reported a decline in first-half net revenue and net profit, blaming weak sales, at least in part, on a pull-back in luxury spending in China. Burberry and Richemont – parent to Cartier and Chloe – have similarly struggled “as mainland Chinese consumers scaled back spending on luxury goods amid Beijing’s anti-corruption campaign and cooling economic growth.”

And as reported last month, Chanel International BV, the Dutch holding company that is part of the Chanel empire, saw a 9 percent drop in sales in 2016, with a turnover of $5.67 billion. In this instance, analysts similarly looked to spending in the Far East – or more accurately, a lack thereof – as a culprit.

And yet, Reuters recently revealed that Chinese customers are ordering more than 500 $168,000 Mercedes-Maybach cars each month, making China by far the biggest market for Mercedes-Benz models in the world. That figure – which Hubertus Troska, a Daimler board member (Daimler AG is Mercedes’ parent company) responsible for Greater China, confirmed last week – has remained constant in China over the past several years, serving to defy reports of China’s cooling luxury market.

Interestingly, as Troska said at the Frankfurt car show this past week, “We are seeing more than 500 [models] sold a month. And if you see the prices, which we have no control over, some customers are paying above list price.”

Such spending is in line with what McKinsey reported last year as a trend in spending: “Chinese consumers are increasingly trading up from mass products to premium products: we found that 50 percent now seek the best and most expensive offering, a significant increase over previous years.”

But while consumption appears to be back on track in China (as indicated by luxury car sales, at least), why is China-specific spending on the industry’s most celebrated big fashion brands still falling? Well, there seem to be several factors at play, not least of which is a general increase in competition. Roughly 20 years ago, when Louis Vuitton, Gucci, Chanel, Hermes, and co., first set up shop in China, they “had the much-coveted first-mover advantage in a market that was just starting to come into its own,” according to CKGSB Knowledge.

Since then, more Western brands than ever before have become available to Chinese consumers – by way of e-commerce sites and/or brick-and-mortar stores. LVMH-owned Louis Vuitton, for instance, maintains and operates its own stores in the country, whereas some of the other brands under its umbrella stock in the Far East by way of third party retailers like Lane Crawford.

In addition to big names, though, Dr. Tina Zhou of Fortune Character Institute, a luxury research consultancy based in Shanghai, told the New York Times recently that Chinese consumers – in a shift away from visibly branded goods to more discreet status symbols – have looked to lesser known names. As a result, “niche high-end brands, as well as bespoke products, are becoming new drivers of luxury consumption,” according to Zhou.

This has, she says, “hurt the sales of many brands with strong name recognition,” while strengthening other – less ubiquitous – companies. China Daily’s Elizabeth Wu echoed the notion recently, stating, “Chinese consumers are no longer picking up a flashy Louis Vuitton bag and now prefer niche luxury brands.”

Nick Cakebread, managing director at marketing and communications firm BBDO/Proximity Live in Shanghai, further confirmed this, saying, “While you still have, and will likely have for many years to come, large groups of luxury buyers attracted to the big luxury brands, we now see a large and growing group of consumers who are shunning these brands in favor of niche players.”

But these so-called “niche” brands do not necessarily mean unknown labels. Cakebread says they include conglomerates’ non-flagship brands. “LVMH is now expanding and marketing Loro Piana, Givenchy, Celine – which was seen as more niche brands – to the Chinese consumer who may have moved on from Louis Vuitton.”

Also on the rise: Native Chinese brands.

Just a decade ago, international brands were the only ones synonymous with quality in the minds of Chinese consumers, while local brands were not even in the running. This is no longer the case, according to a recent study put forth by Millward Brown, the British multinational market research firm. In fact, for the first time, Chinese consumers are actually looking locally for qualityproducts.

Per Millward Brown’s BrandZ Top 100 Most Valuable Chinese Brands report, “The uncertainty consumers in China once felt toward domestic products is gone. Local brands are challenging and beating the global competition, and consumers increasingly believe they’re comparable.” The report, which was released in March, goes on to note, “For the first time ever, Millward Brown research shows local Chinese brands are equal to international brands in Brand Power – the BrandZ measurement of brand equity – meaning they are now in many ways equally competitive.”

As for what has brought about this new approach to luxury spending, many factors are at play. It is safe to say that the Chinese government’s crackdown on corruption, which followed from the conclusion of the 18th National Congress of the Communist Party of China in 2012, has played a significant role in transforming consumer tastes and, as a result, creating the rise and success of more subtle luxury brands.

“Luxury consumers in China are now more conscious when it comes to showing their wealth these days. They don’t want to be seen with an obviously expensive watch or carrying the latest designer monogram handbag. Instead, if they do buy luxury they look to brands which are less conspicuous. This has been a boon to ‘stealth wealth’ brands,” per Cakebread.

A new sign of wealth in China – which has been reflective of a Western movement, as well – is not ostentatious logos, although, that may be swiftly changing in the West with the recent resurgence of vintage-inspired Gucci and Louis Vuitton monogram-covered garments and accessories. In the Far East, it is a focus on quieter luxury. With this in mind, the truly wealthy are, according to Cakebread, opting to “distance themselves from the Chinese ‘new rich’ that have traditionally bought those brands associated with big logos.”

This means that while they may still prefer travel in their Maybachs, these consumers are much more likely to be stepping out in discreet garments and accessories.

Chinese luxury shoppers

CPP-LUXURY iOS App