Luxury brands: don’t worry about china, don’t worry about your game

Key points to remember:

• China now has 16 cities that are each home to more than 10 million people. In contrast, the United States has zero (New York City has 8.8 million), Europe has three, and India has six.

• The middle class in China is expected to double by 2040, adding a significant amount of luxury customers to the market.

• Luxury brands should care less about China’s long-term market prospects and more about creating relevant market propositions for Chinese consumers.

Reading the recent headlines from China, which include a crackdown on celebrities and fan culture, a recent KOL backlash around Rolls-Royce, a militant boycott of the Beijing Winter Olympics, and China’s slowing GDP. country over the past quarter, I can see why the future of its meteoric growth in the luxury market might look shaky. In fact, some reviewers have said luxury brands should prepare for the worst.

I always recommend separating market noise from its direction. While some headwinds are real and may impact the development of some luxury brands in the short term, China’s long-term outlook remains intact. It should be remembered that over the past decade there have been numerous occasions when the Chinese luxury market has been delisted – only to emerge more robust than ever.

So, to allay the fears, let’s take a closer look at the country’s long-term opportunities. First, there is urbanization. China now has 16 cities of over 10 million people each. In contrast, the United States has zero (New York City has 8.8 million), Europe has three, and India has six. Surprisingly, some of these Chinese megalopolises hold an economic power comparable to that of entire countries. Shanghai, for example, has the same GDP as Belgium, and Guangzhou’s economic output rivals Denmark.

These megalopolises have grown, urbanized and developed faster over the past 20 years than in any other region of the world. Meanwhile, if you look at the number of skyscrapers, China leads the world in absolute numbers and new developments, with 56 projects completed in 2020 compared to just ten in the United States. This unprecedented momentum will fuel economic growth for years, if not decades, to come.

But it is not only the size and dynamics of Chinese cities that are remarkable, but also the rapid increase in the quality of life. Of the 100 most livable cities in that of the economist recent ranking, ten are in China, including Suzhou, Beijing, Shanghai, Guangzhou, Shenzhen and Tianjin. This indicates a remarkable development over the past two decades, not only in population growth, but also in the growth of the quality of life. These factors are often underestimated when judging the outlook for luxury markets.

With household incomes between $ 15,000 and $ 75,000, China’s middle class is expected to double by 2040, adding a significant amount of luxury customers to the market. Many analysts are content to look at the current size of the market when considering short-term development, but omit future and more fundamental market growth prospects.

Once travel and quarantine restrictions are relaxed, we can expect many Chinese to travel overseas again and spend money on luxury brands in Korea, France, Italy or the States. United, to name a few popular destinations. However, Hainan’s meteoric growth, with its huge tariff exemptions, will offset some of this loss in luxury income, and we can expect other developing duty-free regions to fuel the growth prospects of the country. local luxury in China.

And with the growing importance of Chinese Gen Z customers, luxury is expected to receive a new boost over the next decade, as it is the richest, most optimistic, and most consumer-oriented generation. to have never entered the market. Chinese Gen Z have never experienced a crisis and are much more willing to spend than previous generations. However, and this should be of more concern to incumbent luxury brands, the Gen Zs have different expectations.

First, they like technology, so luxury brands will have to come up with more technological solutions. Louis Vuitton’s recent entry into the headphones, smartwatch and speaker markets should be the first indicator of this shift in expectations. Tesla’s success has largely come from Gen Z and Millennials, who want a “tech” car rather than a traditional car – and that has completely changed the dynamics of the premium car market. And Volonic’s recent launch into the luxury tech space, which Robb Report called “a new wireless charging station that costs as much as your smartphone – and it may be worth it”, is yet another indicator that the luxury landscape leans heavily towards technology. .

Second, they are much more open to domestic luxury brands, regardless of category. Even in cars, Nio’s success shows that Chinese premium and luxury brands are no longer just a distant possibility; they are a reality. Therefore, competition in luxury will intensify considerably and Chinese luxury brands will gain huge traction by 2030. I wouldn’t be surprised if two of the top ten luxury brands in 2030 are Chinese – and maybe the half by 2040.

Third, the development momentum of Chinese social media platforms is unprecedented. Most Western brands have struggled to keep up with the pace of change in China. Therefore, they risk falling behind the few leading brands in this space. With China holding nearly 50% of e-commerce shares and now that most buying decisions (up to 95%) are made online today, falling behind can put a company’s future at risk. business. Meanwhile, even seemingly simple tasks, such as choosing the right key opinion leader, can ruin a brand’s reputation, as the recent Rolls-Royce example points out.

So what can we conclude from all this? I would say luxury brands should care less about China’s long-term market prospects and more about creating relevant market propositions for Chinese consumers. And that means addressing the fundamentals, strategies, portfolios, and pricing of the brand. And for digital, their mentalities must switch from playing for fun to playing to win. Now is not the time for complacency. The winners will not be determined by short-term market noise but by decisive action. In other words: don’t worry about China, watch your game.

Daniel Langer is CEO of the luxury, lifestyle and consumer branding company Equity, and Professor of Luxury Strategy and Extreme Value Creation at Pepperdine University in Malibu, California. He consults some of the world’s leading luxury brands, is the author of several luxury management books, a global keynote speaker, and conducts luxury masterclasses in Europe, the United States and Asia. To follow @drlanger