Competition for China’s Luxury Market Heats Up as Spending Cools

on February 19 2015 | in Trends | by | with No Comments

Michael Kors, Jet Set, Shanghai, fashion show

China’s luxury market over the last few years has seen explosive growth and sky-high expectations, but as Chinese consumer confidence wavers, brands have to change their strategies to keep up.

China’s economic growth is slowing, and though more Chinese are seeing their disposable incomes rise, they are not spending like they were previously. According to South China Morning Post, China’s economy is expected to grow 7 percent, which pales in comparison to the growth rate over the last 20 years. That means middle-class Chinese are being more careful with their spending as they no longer believe their wealth will grow as rapidly as before.

The Chinese middle-class is no longer buying items based on status, but rather based on ease of purchase, value, and the desire to find new and unique products.

China’s internet population recently surpassed 649 million people with 86 percent, or 557 million, accessing the internet on a mobile device. And it’s not only the youngest generations shopping on their smartphones. Unlike in the US, where many people first accessed the internet on a laptop or desktop computer, the vast majority of internet users in China first accessed the web on a mobile device.

The brands that have embraced mobile commerce properly are seeing huge success. Mainland China’s leading flash sales site, VIPShop, noticed that women under 35, the brand’s key demographic, were browsing and shopping primarily on their smartphones. By optimizing its website for mobile and offering limited-time flash sales targeted at the smartphone using women under 35 demographic, VIPShop saw a huge increase in sales on mobile devices. In 2013, only 15 percent of the company’s sales were through mobile. Last year, sales through mobile devices had grown to 60 percent of the website’s total sales.

However, ease of purchase is just the first step. Chinese consumers now want the newest fashion and unique looks too.

Fast fashion brands, such as Zara, H&M, and Uniqlo, have been edging in on luxury brands’ territory for some time in China, and it has forced luxury brands to adapt to compete.

The fast fashion influence means that Chinese consumers want access to wider product lines, and they want them on time.

Clothing manufacturer TAL, which works with some of the industry’s top brands, including Burberry, told South China Morning Post that they often see new contracts that impose penalties for orders being even one day late.

The success of Tory Burch, Michael Kors, and other midrange brands in China is largely due to offering lower prices and larger product lines in China, similar to the fast fashion brands.

The strategy hasn’t worked so well for Gucci, however. The company recently parted ways with its creative director Frida Giannini in order to regain its reputation as an exclusive, trendsetting brand. Though Giannini had grown sales by almost two thirds during her time in charge, Gucci’s attempt to attract more customers in the mid-luxury market sector robbed the brand of its allure as an exclusive luxury product.

With the competition for the remaining luxury dollars heating up, the brands that have embraced mobile commerce and Chinese shoppers’ desire for new and unique products at a good value will have the most success.

image source: michael kors

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