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The Chinese dream is over for western luxury brands in China: Time for a reality check

Affluent Chinese customer - DunhillChina has recorded the most number of closures of luxury stores between July 2016 and July 2017, the latest report by the investment research and management company Bernstein shows. The report, titled “Store Wars,” based its findings on Bernstein’s tracking of about 7,000 stores referring to 36 luxury brands including big names such as Burberry, Saint Laurent, and Céline. Burberry and Dunhill had the most store closures in China of all the brands during that period.
China has seen 62 net closures of luxury brand stores during the surveyed period, the largest number observed by Bernstein among all significant geographies. The firm viewed the trend as a revision of the over-expansion, in previous years, of luxury brands into the Chinese market.

The rapid development of the country’s luxury industry fueled by affluent Chinese consumers has given luxury brands unrealistic projections of retail sales in the past. This over-estimation, according to Bernstein, has led them to aggressively open retail stores in China that exceeds consumers’ real purchasing power. The same situation occurs in the Middle East region, another area where luxury consumption is rising fast.
Globally, the number of the net store openings by luxury brands has also for the first time run into the negative territory. The report said most brands have more or less closed some of their stores in the department stores, a traditional channel that accounts for about one-third of these brands’ global sales.

Chinese consumers have demonstrated some remarkedly different purchasing behaviours from that of the West. According to Pierre Gervois, a leading expert about wealthy Chinese travelers’ shopping behavior, and founder of the prestigious STC magazine “Western luxury brands have been warned since 2010 that their projections about affluent Chinese consumers were grossly exaggerated.” “Brands refused to acknowledge that their future Chinese customers would buy in overseas stores – and in particular in the United States- rather than in domestic stores, both for tax reasons but also because of the poor customer service in their Chinese stores”, Gervois added.

Another distinguishing habit that sets Chinese luxury consumers apart from Westerners is their huge interest in buying luxury items online. Over the past year, an increasing number of luxury brands have embraced the e-commerce marketplace and launched stores with the country’s top two players, Alibaba and JD. Moreover, big names like Louis Vuitton and Gucci even opened their own Chinese e-commerce stores to ensure their offerings meet the expectations of Chinese consumers. And then there’s the nature of luxury itself, the meaning of which is different to younger consumers from what it was to their forebears.

Another concern that Western brands cannot officially recognize in China, is that a growing part of affluent millennials Chinese are moving from government-censored social media (We Chat, Weibo…) to Facebook and Twitter throughout an increasing use of VPN’s. That makes much less relevant their communications campaigns on Chinese networks.

Source: JingDaily Blog / Jenny Zhang / Ryan Yu

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Bloomingdale’s leading the way in marketing to affluent Chinese tourists

Bloomingdale's - Shanghai Travelers Club magazineWe have all seen these cheezy advertising campaigns made by department stores or western brands trying to attract Chinese tourists in the last years: Be assured that affluent Chinese tourists were also smiling…  But it is going to change. Exit the low quality shopping publications targeted to Chinese tourists that ended in the hotel rooms trash bins. U.S. and European Luxury brands and high end retailers start now to advertise seriously with affluent Chinese tourists.

Although luxury sales in mainland China have still remained in slowdown mode in 2015, and Hong Kong has recorded a significant slump as well, Chinese spending remains a potent force in the global luxury industry, propping up growth rates in developed markets worldwide.
This week, Hermès reported a 22 percent increase in global sales in the second quarter, with sales in Japan leaping 33 percent—a figure attributed in large part to an influx of big-spending Chinese tourists attracted by a weaker yen and easier travel. On a global scale, Chinese travelers are spending lavishly: a recent Global Blue report found that Chinese tourist spending jumped 87.8 percent in June, while spending on leather goods in Europe grew by an even more staggering 93.7 percent. Year-to-date spending growth sits at a whopping 110 percent.
These numbers contrast sharply with the situation in mainland China and Hong Kong, one that is particularly striking in formerly triumphant Hong Kong. Last week, Burberry reported a “double-digit percentage decline” there for the three months ending in June, while sales of Swiss watches in the former British colony were down 21.2 percent in June, despite 3.3 percent growth worldwide.

These numbers further support the trend that growth is following Chinese tourists abroad, and brands need to keep up with their changing location preferences for travel—engaging outbound shoppers before they leave China and when they arrive overseas. Recent stats also illustrate the ever-shifting tides of Chinese travel patterns. Whereas Japan was, just a few years ago, faced with a Chinese tourist slump (caused in no small part by Sino-Japanese political tensions), the country is seeing a wave of Chinese arrivals and spending, owing to cooling attitudes toward Hong Kong and South Korea’s currency fluctuations and MERS outbreak.
Amid these rapid and unpredictable changes, what is clear is that brands need to have plans in place to quickly jump on opportunities, and ensure they’re able to reach and influence the Chinese outbound consumer wherever he or she happens to be in the world.

“Luxury retailers like Bloomingdale’s have well understood the importance of targeting affluent Chinese tourists”, said Pierre Gervois, CEO of China Elite Focus and Publisher of the Shanghai Travelers’ Club magazine, a high end publication in Chinese language for High Net Worth Chinese global travelers. “Bloomindale’s and the Shanghai Travelers’ Club magazine have launched a very creative marketing and PR campaign this spring showing actual Chinese customers and what it feels like to shop at the iconic Bloomingdale’s store in NYC.” Gervois added. This campaign has generated a considerable attention on Chinese social media and is the first ever campaign focused on the Chinese customer and the overall shopping experience in a U.S. luxury retailer. An example to follow for the industry.

Source: Jing Daily / The New Chinese Tourist / Chinese Tourists Blog

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