China’s luxury market is undergoing a fundamental shift, brought on by evolving customer dynamics, an influx of new, emerging luxury labels, an economic slow-down and ties to the GCC.

According to Bain & Company’s 2014 ‘China Luxury Market Study,’ the luxury brands in China must step up their game this year by adapting to new market conditions and customer expectations.

The customer segments are no longer clear-cut, with common behaviours observed across demographic groups; instead, there is an increased diversity of preferred brands, and exclusivity, quality and value for money without logos are becoming increasingly important: Bain’s survey of 1,400 Chinese consumers found that they are increasingly likely to switch between luxury brands, it said.

About 70 per cent of respondents said they like to try different brands and styles, which has led to greater brand diversification and established greater parity between aspirational brands and established ones in terms of demand and desirability. 

The survey revealed that nearly 45 per cent of respondents plan to buy more emerging luxury brands in the next three years.

Bruno Lannes, a Bain partner and author of the 2014 luxury study, said: “The field of luxury brands in China is breaking wide open. This creates a new window of opportunity for emerging brands.  At the same time, it is imperative that more established brands don’t grow complacent as China’s luxury market continues to evolve, or they risk falling out of favour with consumers.”

Luxury brands are no longer competing with only each other for a greater share of shopper spend; they are also contending with consumers’ increasing interest in luxury travel and experiences, such as spas and cruises. 

In Bain’s survey, about 55 per cent of consumers said they have spent on a luxury hotel or resort, and 80 per cent said they would increase their leisure travel, as opposed to shopping tours in the coming year.  

In this environment, exclusivity and fashion have been the ‘winners’ of the year – limited editions, fashion-focused portfolio and designer collaborations drove growth despite market headwinds.

“Brands’ future positioning and popularity within the luxury market hinges on their willingness to revamp concepts to serve the needs of the increasingly sophisticated and well informed Chinese consumers, while managing the growing diversity of sales channels, such as daigou,” said Lannes.

About 70 per cent of luxury brands bought by Chinese is now bought abroad or through daigou agencies; in terms of travel destinations, Korea and Japan have been the big winners last year.

Cyrille Fabre, a Bain partner in the Middle East and leader of the firm’s retail and consumer products practice in the region, said: “In the GCC and specifically in the UAE, Chinese tourists are a key segment of the luxury market. Even though they represent about 2.5 per cent of overall tourists, they account for seven per cent of the mall footfall and even bigger part of the spend.
 
“The consumption of luxury goods has surged by 11 per cent in the region. Although Q4 2014 and January 2015 were relatively slow, we expect the market growth trend to continue especially in the GCC with the opening up of new malls and luxury brands in the next five years.”

Looking again at the Chinese luxury market, Lannes has predicted some trends for this year, including younger, more sophisticated and knowledgeable shoppers who will seek to re-define luxury and more consumers pursuing the full spectrum of experiential luxury. 

The luxury brands should take several actions to maintain a competitive edge, including enhancing exclusivity and VIP experience; rethinking the approach to the more sophisticated and educated Chinese consumers; and rolling out omnichannel touchpoints.

“In this age of brand redefinition, luxury brands in China must shed traditional concepts and channels and follow where their customers lead, or risk losing them,” said Lannes. 

“This may be a challenge for many, but those that understand how to change with the consumer will reap the rewards,” he added. - TradeArabia News Service