New research from Bain & Company finds changing market dynamics create new windows of opportunity for luxury labels that focus on design, fashion and exclusivity
As the global luxury market adjusts to a 'new normal' of lower, but more sustainable growth over the long-term, mainland China trails slowly behind, showing for the first time, a negative trend in 2014: negative 1 percent growth at approximately 115 billion RMB, according to Bain & Company's 2014 China Luxury Market Study.
According to the study, the region's luxury market is undergoing a fundamental shift, brought on by evolving customer dynamics, an influx of new, emerging luxury labels, and an economic slow-down. As a result, luxury brands in China must step up their game in 2015 by adapting to new market conditions and customer expectations.
Customer segments are no longer clear-cut, with common behaviors 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. Seventy percent 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 percent of respondents plan to buy more emerging luxury brands in the next three years.
"The field of luxury brands in China is breaking wide open," says Bruno Lannes, a Bain Partner and author of the study. "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 favor 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, 55 percent of consumers said they have spent on a luxury hotel or resort, and 80 percent said they would increase their leisure travel, as opposed to shopping tours in the coming year.
Looking ahead, Lannes predicts similar trends for the Chinese luxury market in 2015, including younger, more sophisticated and knowledgeable shoppers who will seek to re-define luxury and more consumers pursuing the full spectrum of experiential luxury. He recommends that luxury brands take several actions to maintain a competitive edge:
• Enhance exclusivity and VIP experience by ramping up VIP programs, customizing store format and product category/collections to maintain exclusivity, and focusing on targeting the right location and the right pool of consumers, rather than just aggressive store growth
• Rethink the approach to the more sophisticated and educated Chinese consumersthrough more fashion, design and exclusivity, and develop a regional strategy to better serve customers and provide a 'cross-border' experience
• Roll out omnichannel touchpoints that include channel extension to e-commerce platforms and digital campaigns on social media platforms, such as WeChat and Weibo
"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," says Lannes. "This may be a challenge for many, but those that understand how to change with the consumer will reap the rewards."
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