Hungry for fashion, technology and all-things-luxury, China’s insatiable appetite for shopping and its incredible purchasing power is a stranger to no one. The 1.3 billion people-strong nation is always cited as one of the biggest retail destination of the world, sitting in close competition with the US and European states.
Though the last few years have seen quite a bit of retail downfall and store closures, the consumption heat seems to be picking up again. With several new global brands entering the market, and the pre-existing ones announcing expansion plans, it appears that a strong and steady retail rebound is on its way in China. Research reports from major consulting firms also corroborate this change. Bain & Company’s projections for 2018 state a 20-22 per cent growth and the Boston Consulting Group believes that China will account for 70 per cent of the world’s luxury growth by 2024!
RETAIL REBOUND UNDER PROGRESS
Many studies have been conducted to find the reason behind the downfall and what is steering the rollback. The most obvious reason was that brands opened up stores too quickly without studying the shopper’s habits, and thus forgot about e-commerce. A rookie mistake, since online retail has a stronger adoption in China than in any other country. The consumers are accustomed to seamless omni-channel servicing and hassle-free digital payment system. This was disregarded by brands that ran mindlessly after the Chinese consumer, who is not just well travelled but expects personalisation in everything from marketing to conversation.
Another factor that worked against European brands was that the Chinese often prefer to buy their luxury products from its source destination. A notion that has both- a romantic and a very logical economic reason behind it as well as a fear of buying into China’s infamous fakes market.
International brands missed an important China opportunity but corrections are in full swing! Fashion e-tailer JD.com has partnered with Saint Laurent to manage in China launch and has invested in London-based Farfetch. Alibaba is launching its own luxury platform (Burberry is already on board) and has announced several efforts to remove branded fakes from its platform. Tod’s became the world’s first high-end brand to launch a luxury product exclusively on social media site WeChat’s Mini program and Hermès opened a pop-up store on the platform.
Having understood their shortcomings well, retailers are now building a rounded out bricks-to-clicks infrastructure and even launching exclusive collections and curated sizes for the Chinese buyer.
Thanks to better stores and optimised pricing of products, people (approximately 62 per cent, according to a report from Chinese outlet Fortune) bought their luxury goods from China itself in 2017. This is also because of the rising touristic popularity of Hong Kong, Macau, and Shanghai as travel retail destinations.
PREMIUM SUPERCEDES LUXURY
An important trend coming to the surface is the rise of ‘premium’ brands. While in the past, it was known that the country has a penchant for recognizable high-end traditional brands, it seems like while they continue to do, they are not a majority growth driver in the market. A collaborative report from EY-Parthenon predicts that ‘premium’ will have the highest segment growth rate from 2016-2020, posting 6 per cent , as opposed to 3.4 per cent for ‘luxury’.
This trend isn’t that surprising if you’re looking at the global market where wearing a mix of high-low brands is the most covetable look du jour! Throughout the world, it is becoming a common practice to wear sportswear garments with glam accessories or vice versa. Even EY-Parthenon described the Chinese luxury customers as sharp ‘mix and match’ shoppers, mixing high-end fashion with lower-end premium products – a Prada bag with Lacoste sneakers – for example.
A key reason for smaller to mid-range brands beginning to bloom are of course millennials and the Gen-Z that is going abroad and interacting with different markets. Despite their huge purchasing power and digital dominance, typical luxury brands struggle to connect with them, and this has allowed premium players like Diesel, Guess, Tommy Hilfiger, and Calvin Klein to take the lead.
Apart from premium players, local brands and retailers in China are also beginning to gain ground; thanks to the popularity of intermixed fashion. Emerging brands in the region are doing everything from hosting experiential fashion presentations, opening museum-like-stores to building strong online communities to attract China’s wealthy youth.
To illustrate, EPO Fashion Group, one of the most prominent players on the domestic scene, posted US $ 554 million in sales last year and just added a menswear brand, to its now 5 brand strong portfolio. Their womenswear label Mo&Co is stocked by admired retailers including Selfridges in London and Galeries Lafayette in Paris while the new men’s line counts London-based designer Xander Zhou as a consultant.
While players like Shandong Ruyi and Fujian Septwolves are busy investing in luxury brands abroad, there are plenty like EPO, Shanghai’s Dazzle Fashion (1,000 stores across the country) and JNBY Group (700 stores worldwide) as well as giants like La Chapelle Fashion, Youngor Fuguiniao, and Hailian battling for dominance in China’s high-street and RTW sooq.
THE NEW DIGITAL MARKET
The new generation of Chinese shoppers, no longer blindly follow brands. And even with a ban on Facebook, WhatsApp and the likes, the country’s demand for digital is like no other. As penetration of internet reaches smaller locales, this trend is only going to get stronger and must be kept in mind to lure Chinese shoppers.
For starters, it is no more enough for a brand to run with a ‘localize for China’ mind set; the goal should now be ‘lead from China’ to make an impact. Chinese fast-fashion brand Urban Revivo (a Zara look-alike) recently opened a store in London, which normally suggests that the brand might be looking to tap international clients but analysts believe that the expansion is mostly looking to serve Chinese eyes. The location creates a new gateway for travelling Chinese shoppers who can experience the marvels of omni-channel shopping away from home and take back the message that UR is a global brand worthy of recognition.
Completely digitizing supply chains is the future and smoothening loose ends in shopping experience is imperative to survive right now. It is no more enough to just have a WeChat account and talk to shoppers, which is only one of China’s unique social platforms like Sina Weibo or QQ. Retailers must understand the whole gamut of capabilities provided on these services to capture a comprehensive digital footprint.
Tailoring services like loyalty programmes, customer-service communication, optimization for Chinese search engines like Baidu, tapping local influencers for marketing to popping up store on WeChat’s brand zone – covering the whole length and breadth of it is expected from luxury brands.
China’s receptiveness to tech also means that they also lead the way for disruptive retail tech adoption of virtual reality (VR) and augmented reality (AR). According to Worldpay’s latest research, nearly 100 per cent of the people surveyed say they have tried AR or VR at least once, and more than half use these technologies once a week.
Additionally, it has been estimated that thanks to the country’s widespread use of mobile payment platforms like Alipay and WePay, China makes almost half of the world’s digital payments.
Another fascinating factor is that because their social media platforms are so well-integrated with shopping features, the Chinese are also most open to blend e-commerce with social media and internet-based entertainment services. Chinese retail led the retail apocalypse in 2017 but brands were quick to learn from their losses and if the corrections continue, a rapid turnaround is definitely visible on the horizon.