The Chinese Luxury Shopper Decline
Last year, the main area of growth for major luxury brands was the Chinese market. Customers looking for high-end goods would often purchase these whilst on holiday, with new stores being opened as a result. Michael Kors elected to open a new store in Shanghai in January 2014 and a second branch in Beijing is being opened in March this year. Louis Vuitton reported a high number of Chinese customers using their Parisian stores, and as a consequence advertised for staff fluent in Mandarin – a requirement seen elsewhere in New York, too. Yet changing market conditions have led to a decline, with a significant slowing of the market.
Within China itself, high-end shoppers are reportedly spending less. In addition, Chinese shoppers appear to be less willing to travel on shopping breaks, visiting fewer international destinations and thus spending less money in the luxury market. According to research, 2014 saw a decline of more than 25% in the number of Chinese tourists visiting Singapore, leading to less spending and investment. Brands such as Gucci, Burberry and Richemont all reported their own declining sales within China and Hong Kong for 2014 as well. It’s significant that the period of relative prosperity and expansion into mainland China coincided with the international economic downturn. Now, under very different conditions, luxury brands need to reassess their strategies for approaching the Chinese market.
For many companies, this means turning to the USA and removing some of the boundaries of geography which have previously dictated sales strategy. Companies are finding themselves forced to adapt in order to be able to meet the rising expectations of their potential customers. Moreover, the 2014 study by Bain & Company on the China Luxury Market found that a group of potential customers are put off by incoherent messages given by companies, especially in relation to politics. Falling out of favour with the Chinese customer, a significant player in the luxury market, could have disastrous consequences for brands keen to consolidate their sales figures.
The study by Bain & Company also states that the Chinese consumers are currently the fasting-growing group of purchasers for luxury goods, meaning that it is important to encourage their repeat custom. Research found that Chinese customers might spend as much as three times more on the international market than they do at home in local shopping outlets. Now, rather than looking at Chinese markets as a self-enclosed entity, it seems important for luxury brands to remove boundaries and to look at their consumers on an international level. Tourists are a strong influence within the American luxury goods market. If Chinese tourists are inclined to spend heavily whilst travelling, there is significant scope for sales in this area.