Avery Booker | 24 August 2015
One thing that often gets lost in the mix of articles asking “Is Luxury Dead in China?” is the fact that the world’s largest luxury conglomerates have quietly been working to buffer themselves against the fluctuations of the Chinese domestic luxury market while making sure to benefit greatly from the rise of the outbound Chinese tourist-shopper.
In addition to reconsidering pricing strategy, exploring e-commerce, and closing or refurbishing underperforming stores, one of the most effective moves taken by massive luxury groups is boosting their smaller portfolio brands in China. What this means is rather than holding costly, largely pointless events or investing in traditional ad campaigns in mainland China, perhaps it’s best for major conglomerates to let their “big logos” move forward on inertia and put the real effort behind “newer” brands.
In the remainder of 2015 and into 2016, it will likely be groups with portfolio brands that straddle a wide spectrum that best weather the China storm. But what’s also important is cleverly promoting these smaller brands in China to spur local purchases while ensuring outbound tourists don’t forget them on the road.
Over the past couple of decades, LVMH has benefited greatly from solid demand for its flagship brands Louis Vuitton, Christian Dior, Givenchy, and Fendi among China’s newly wealthy. Although LV’s star is fading within China, LVMH is immensely savvy at quickly pushing other brands in the market.
Of these, Fendi has most recently been strongest, with its Peekaboo line seeing massive popularity among affluent Chinese female consumers, driven by fashion bloggers’ Weibo and WeChat feeds and the “cuteness” of its Bag Charm line. Meanwhile, LVMH portfolio brands Céline and Loewe have also steadily grown in popularity among younger shoppers–untouched by the anti-corruption campaign and more flexible and open in their choice of brand than the “post-70s generation.”
LVMH also has relatively low exposure in the tough jewelry and watch segment, and continues to benefit from the continued draw of its Bulgari brand among Europe-bound Chinese tourists. LVMH-owned watchmaker Hublot maintains an occasionally strong presence via high-profile celebrity endorsements, yet does not rely heavily on the Greater China market (which accounts for only around 7 percent of company sales). And while not strictly in the LVMH orbit (being privately owned by Bernard Arnault), revived brand Moynat is seeing interest rise sharply due to popularity among Hong Kong- and overseas-based Chinese luxury bloggers and Instagrammers.
Kering has experienced shifting sands in China but remains well positioned to handle the current fluctuations. Although Gucci has struggled with pricing strategy in China (and had a high-profile sale in May to clear inventory), it’s likely that new creative director Alessandro Michele will attract a new look by affluent younger Chinese consumers. (As was the case for Kering-owned Saint Laurent, whose successful brand revamp over the past three years has kept it an “it” brand for Chinese shoppers worldwide.)
And while major Kering brands like Brioni and Stella McCartney have yet to fully take off among Chinese shoppers, accessible jewelry brand Pomellato (which remains relatively exclusive, owing to a small retail presence of one store and two Lane Crawford points of sale) has a chance to crack the adventurous-affluent consumer segment. Meanwhile, the continued popularity of Alexander McQueen–particularly among overseas-based Chinese shoppers and outbound tourists–and Balenciaga means Kering should be well insulated from China’s current economic environment.
Of the “big three” luxury groups, it’s probably heavily watch-and-jewelry-weighted Richemont that will have the hardest time within mainland China in the near future. However, owing to the massive strength of evergreen portfolio brands like Cartier, Richemont will continue to benefit from the worldwide ubiquity of Chinese shoppers and growing diversification of young, independent shoppers.
Although male-centric Richemont brands like Vacheron Constantin, Dunhill, and IWC (formerly rock-solid beneficiaries of China’s luxury “gifting” culture) may struggle in the Mainland, portfolio watch brand Baume & Mercier could be in the right place at the right time. Although the Swiss mid-range segment has been hard-hit over the past year, more male consumers in China are purchasing accessibly priced Swiss watches for themselves (rather than for gifts), and Baume & Mercier sits across the right price-points to see modest yet steady growth in the years to come.
Richemont also has a chance to tap the greater spending power of young consumers with portfolio brand Lancel, which ticks all of the right boxes: relatively affordable, brightly colored, and with a relatively small retail presence in China. But it’s the strong brand awareness and popularity of Chloé that may help Richemont the most in the near term. Chloé’s Drew line remains an it-bag in China through solid media coverage and sustained appearances on celebrity and blogger social media accounts.
One commonality shared by the major luxury groups–and one point that smaller brands can learn from–is an ability to quickly pull different levers based on China’s current luxury environment. If Chinese shoppers within China have stopped buying logo-heavy items or prefer to buy online or via mobile, don’t fight the culture, move with it. What’s clear is that the old way of breaking into the China market–opening stores and plastering ads in magazines and billboards–isn’t going to work as younger, digitally savvy consumers take the place of the formerly dominant gift-giving shoppers of yesteryear.