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Why the future is bright for the luxury market in China

by Antoaneta Becker
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Chloé Reuter, founding partner and CEO of luxury consulting business Gusto Luxe, on the present and future of the luxury market in China, going digital, and why UK brands need to prepare for the return of Chinese travellers

Strict travel restrictions and quarantines, harsh lockdowns and political tensions, not to mention the absence (until mid-August 2022) of direct UK-China flights, have led many British luxury brands to question their investments and long-term opportunities in China. At Gusto Luxe, we are frequently asked “should we still bother?” My answer is always a strong “yes”.

China’s robust economic foundation, combined with its rising middle class and luxury-hungry Millennials and Gen Zers, provide the necessary conditions for luxury to keep thriving. According to Bain & Company, domestic sales of luxury goods in the Chinese Mainland increased 36% year on year to almost RMB 471 billion (£57.5 billion) in 2021. Millennials and Gen Zers account for over half of luxury spending in China, and that number will keep rising.

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This has been evidenced by the quick recovery in the aftermath of the recent lockdowns in cities like Shanghai; the long lines outside Hermes, Dior and Chanel are testament to people’s desire to purchase luxury goods, despite the challenges brought on by the pandemic in their personal and business lives.

China still presents the biggest opportunity for premium and luxury brands, and though there are an increasing number of fantastic Chinese brands across many premium sectors, foreign luxury is still seen as the “real” luxury. The maturity and sophistication of consumers in China today means that there is an appetite for new brands and experiences. Smaller and niche brands, whether in fashion, tech, beauty or travel, have the opportunity to leverage social media – particularly user-generated content-driven platforms like Xiaohongshu — and build communities of fans in ways they could never have done before.

With China’s border largely closed since March 2020, it’s more important than ever to have a robust and flexible China strategy. Travel restrictions mean that luxury consumers are not yet back to travelling to Europe and the UK, but the appetite is there, as evidenced by the recent strength of luxury duty free sales in Hainan, where about 95% of duty free sales in 2021 were personal luxury items such as luxury brand cosmetics.

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So what do luxury brands need to know about the China luxury market in 2022?

  1. Get ready for the return of travellers: The UK is high on the wishlist for Chinese travellers as soon as travel between the two countries gets easier. In the meantime, you can stay on people’s radar by raising awareness and creating desire for your brand and the destinations you sell in. On the ground, how ready are you to provide a seamless and great experience for their return, for example Mandarin-speaking sales staff or mobile payment options like WeChat and Alipay?
  2. Common Prosperity strategy: Ensure that you are thinking about the implications of the Chinese government’s drive for “common prosperity.” Ask yourself: as a brand, what is your China-specific sustainability strategy? You may also need to think about how you would respond if there was a crackdown on luxury advertising or the introduction of taxes on luxury items that are seen to be particularly polluting
  3. Embrace China’s unique digital ecosystem: This is a key challenge but also your biggest opportunity. Carefully select which social media platforms to launch on, in line with your target audience. Luxury online penetration reached 19% in 2021 and is only expected to increase.
  4. Bridge the (knowledge) gap: Find partners in China who can help you navigate and understand the complexities and nuances of the market.
  5. Be crisis ready: You never know when a crisis will arise, and you may get sucked into something which has nothing to do with you, such as a celebrity scandal. Investing in a crisis playbook might be the best thing you do.

The key to success lies in constant evolution at China speed, whether that is product development, creative collaborations, embracing new types of influencers (virtual, even) and social media platforms. Brands must keep moving. The pace is faster than in any other market and the key is to build out strong local teams and find the right partners. The “codes” of luxury, well-formed and established in markets such as Europe and the US, are being rewritten frequently in China.

It’s more important than ever for those in the luxury sector to learn and appreciate the innovation China has to offer. Some clever brands are applying China learnings in retail and digital to their operations in other markets. We also need more people to engage properly with China and learn the language. Sadly, the number of students at universities in the UK studying Chinese is fewer than 1,000, and this number has decreased since I studied Chinese in the 1990s.

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China will continue to offer a huge and exciting opportunity for luxury brands. It’s for this reason that at Gusto Collective we have strengthened our offering in Europe. From a London office, we support our clients with strategic counsel, China briefings, crisis management, tech products (virtual influencers, AR, VR, and more), building communities of Chinese consumers in the UK. We work hand in hand with our talented teams in Shanghai and Hong Kong to help brands navigate – and thrive – in the world’s most exciting market.

I remain incredibly positive about the outlook for luxury in China.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research services can help you build knowledge and understanding of the Chinese market prior to investment.

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