In the past couple of years, there has been a big structural shift in China and Alexandre Ricard, Pernod Ricard’s incoming chief executive officer, hit the mark when he said, “China is becoming a normal emerging market.”
An accelerator to this shift or change is the Chinese government’s recent austerity push which is causing luxury brands to alter their image. President Xi Jinping’s push against political corruption has resulted in lower sales of luxury items in China. In 2013, luxury spending increase by just 2 percent, compared to the rate of 7 percent in 2012, according to the Bain & Co consultancy.
Beijing, which once held the highest position for luxury sales in China, dropped to No 3 during the first quarter of this year. Sales of fine leather goods and watches have also decline.
Stephen Urquhart, CEO of Omega Watches, notes how the crackdown has affected the behavior of the average luxury consumer. “We are seeing certain watches, some very expensive ones, that are selling at a discount. People are afraid to buy even for themselves in order to stay low-key,” Urquhart said.
Urquhart also stresses that it is important to focus on second and third tier cities, as well as China’s first-tier cities. “China is not just one or two cities. Beijing and Shanghai are important. But other cities are much more mature than people think. I am amazed to see that the retail environment in other cities is not at all backward; on the contrary, it is very advanced,” he said.
Now, companies are skirting their associations with super-rich extravagance, stressing factors like quality and authenticity over opulence when marketing their products. According to Rebecca Wang, a senior client manager with an Italian bespoke suitmaker, says that the trend reflects larger changes in consumer taste as well as China’s current political climate. “Chinese consumers are much more sophisticated, and much more rational today, as many of them are getting closer to Western cultures through working and studying,” Wang said in an interview with China Daily. “Meanwhile, luxury purchases are no longer transacted only by the super rich. The rising middle class has its own tastes and pursuits.”
Despite the overall slowdown on luxury purchases, interest in women’s fashion brands has increased dramatically, according to the Bain study. Since almost 70 percent of Chinese women now work away from home, what was once a male-dominated market is gaining an increasingly feminine appeal.
“Chinese women have very strong personalities, and normally they buy for themselves, not to give as gifts,” said Marco Gobbetti, chief executive officer at Celine SA. Gobbetti’s company has “not been too affected by the slowdown,” according to China Daily.
Other luxury brands expect to find stability in China’s lower-tier cities, which the McKinsey Global Institute projects will host 45 percent of China’s middle and upper class by 2022.
More from ANALYSIS
Social media has changed the way individuals interact with each other and gain information about the world, but some of the biggest …
How to deal with the big yet complicate business of fragrances: let’s think outside the bottle! Ask any woman about fragrances …