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Enter the Dragon: Luxury retailing in China

Luxury Retailing in China

The last few years have been more than a little eventful for the multi-billion dollar luxury retail sector in China. 2015 saw the arrest of several well-known senior figures in the retail world under the anti-corruption campaign led by Xi Jinping, which combined with a decline in the stock market and in the number of luxury goods being imported, caused a significant ripple through the luxury sector. However, despite the notable dip in sales and profits since 2014¹, sales of luxury goods have begun to recover.

Today, China accounts for around 30% of the global luxury market², but this figure is predicted to rise to 50% by 2020 as the country continues to move towards a consumption-driven economy.

Market opportunities

With more than 1.3 billion residents³, China is the most populated country in the world and with more than 213,000 millionaires in Beijing and 166,000 millionaires in Shanghai, there are plenty of luxury product sales to be made. Recognising the opportunities that the country presents, many major luxury brands, such as Burberry and Tiffany, are already reporting rising sales while others are developing strategy to take advantage of the growing demand for top-end products and service.

Multiple layers

However, as China is far from a single, unified market, retailers need to take a multifaceted approach in order to successfully integrate into each market. Many luxury brands are choosing to focus on their retail strategy in the major cities, such as Beijing, Shanghai, Shenzhen and Guangzhou, where there are growing populations and increased media connections. Consumers in urban areas also tend to have greater disposable income at around 33,616 Yuan (approx. £3,900), compared to those in rural areas who have an average of 12’363 Yuan⁴ (approx. £1440). Nevertheless, this gap is narrowing thanks to the Chinese Government’s effort to ‘pursue the integrated development of urban and rural areas’⁴. This further opens the net of opportunity for retailers who must understand the different markets within the country, and implement different layers of strategy based on the differences between them, if they are to be successful in each.

The importance of mobile optimisation

China is a mobile driven market. Currently, around 80 percent of luxury brands in the country can now be purchased online⁵ and with the number of mobile sales rising year on year, and expected to account for 61% of all e-commerce sales by the end of 2017⁵, it is more important than ever that luxury brands ensure that their entire retail experience works seamlessly across all devices and screen sizes.

Online strategy

Despite the consensus that luxury retailers have been slightly slower to adapt to the constant innovations in the digital retail landscape, an online strategy which leverages social network, communications and payment functionality is essential for luxury brands to succeed in China.

Social media is having a growing influence over purchases. Chanel and Burberry are already using social media for targeted content marketing, informing their eager customers of new arrivals and trending stock.

Payment processing

Safe and convenient payment processing is a key concern for Chinese consumers. WeChat began as a messaging app, and many brands such as Coach are already using it to distribute promotional coupons to existing and potential customers. Recognising the potential, the creators developed WeChat Pay, which has evolved into a platform for the entire customer journey and there are reportedly almost $50 billion in payments processed each month. Therefore, understanding and leveraging WeChat Pay should be an important part of any online operational strategy.

Personalisation and a connected retail experience

With so many residents in one country, it is of no surprise that personalisation is valued extremely highly, both in terms of products and service. This is particularly true in the luxury market where consumers are prepared to pay a significant premium to obtain exclusive products and services⁶. Reputation and honour are exceedingly important and so it vital that brands align with way that Chinese consumers which to present themselves.

The concept of unified commerce is still very new in China, but there is little doubt that such experiences can deliver the personalisation sought by consumers. In order to be successful, brands need to harmonize their goods with their service, providing the highest quality across all elements of the consumer journey from the initial enquiry through to following up the purchase with exceptional aftercare.

Partnering with global experts

Although the potential for the luxury retail market in China is huge, how businesses and in particular retailers, operate in China is very different to many other countries. Complex business processes and market access limitations and a capitalist economic infrastructure are just some of the hurdles that need to be overcome. Therefore, many brands are choosing to partner with companies who have the knowledge and experience that can help navigate the process and support their global expansion.

With years of experience working with many of the world’s leading luxury goods groups and brands across the globe, we have the knowledge and skill to offer the right support to retailers looking to explore the possibilities offered by the growing luxury market in China. Our retail management solution, Yourcegid Retail, already being used in stores across 75 countries, helps luxury brands to deliver the highest quality shopping experience.

Download our free insights paper

This blog post provides just a brief look at the challenges and opportunities offered by the luxury sector in the world’s second largest retail market. To assist our friends and partners further, we have created an insight paper into luxury retailing in China, ‘Taming the Luxury Tigers’ which is now available to download here.

 

References
¹http://marketingtochina.com/luxury-market-china-changing-2016/
² http://www.chinadaily.com.cn/world/2016-11/07/content_27297920.htm
³http://www.worldometers.info/world-population/population-by-country/
⁴ http://www.chinadaily.com.cn/business/2017-01/20/content_28010029.htm
⁵ http://www.thediamondloupe.com/articles/2017-01-03/predictions-chinas-luxury-retail-market-2017
⁶ http://marketingtochina.com/what-do-consumers-want-from-luxury-brands-in-china/
15 May 2017
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