The big dilemma luxury brands in China are facing right now

6 Nov 2018

Rapid economic development and wage growth has seen China’s luxury market become possibly the most competitive in the world. With luxury consumption on a continually upward trajectory, many international brands covet a foothold in this huge market – but not all of them know how or where to start. Major technological advancements in recent years, especially with the rise of Mainland-exclusive platforms, also mean that incoming brands face tougher questions about how to truly adapt to the Chinese market.

The flip side of a booming market, however, means that luxury items in China are now seen as commonplace and (relatively) affordable. Younger generations who have seen a steep increase in their disposable income have more access to luxury goods than the generations preceding them – and they aren’t afraid to flaunt their designer purchases. This mentality has also seeped through to the rising middle class, who often feel the need to purchase luxury products as either a social marker or to satisfy their vanity. Luxury brands, therefore, are no longer a symbol of the privileged upper classes; as such, many of them have hit a fork in the road: luxury brands hope to expand their customer base to grow profit, but doing so means that established brand positioning – which, in the luxury world relies on only a select few being able to afford these products – might be diminished.

As China’s leading online retail platform, Tmall remains at the cutting edge of both technology and the customer journey. Yet many luxury brands have been reluctant to embrace it, with only Burberry, Armani and Hugo Boss the only three international luxury labels to date who have opened official Tmall stores. One could naturally assume that any brand which has invested in a Tmall store would have seen huge benefits in return. And both online and offline, advancements in AI have also provided greater depth to the customer journey. So how should luxury brands engage with technology while preserving their status?

It’s not exactly news that many retailers have thrived in the online world – but success often comes down to how well a brand adapts to ever-changing conditions. Cosmetic giant MAC, for example, who enjoys substantial market share in China, has seen the average age of its customer declining year on year. MAC adjusts its customer journey both online and offline to ensure it aligns with what its younger customer base responds to. Research conducted by the cosmetic brand found that customers prefer spacious stores, sales assistants who assist but don’t hover, and POS efficiency. As a result, MAC have introduced mobile POS systems into stores to streamline the payment process. Each member of the sales team has a POS device on hand to decrease queue times and improve the efficiency of payment, which in turn increases sales. This is a good example of incorporating AI into physical retail, but the same approach might not necessarily work for every brand, with many today relying on online platforms and integrated technology to ensure continued growth.

While the customer journey is one element of what sets luxury brands apart, many customers would probably prefer a ten-minute online shop rather than spending up to hours in a store. China’s vast territory also means that luxury brands simply cannot have a presence in every single city. But distance doesn’t stop people from buying luxury products. What brands need to consider is how to best fulfil the needs of consumers in more remote areas, and how to leverage online platforms to deliver brand messages to areas where there they don’t have bricks-and-mortar presence.

Technology and luxury brands can coexist and be mutually beneficial, but it depends on brands finding the right solution for the local market, and using technology – where appropriate – to maintain brand equity.

It’s not exactly news that many retailers have thrived in the online world – but success often comes down to how well a brand adapts to ever-changing conditions.

By Rachel Zhou
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Sinclair