Kirstine Newton
Kirstine Newton 27 April 2021

Luxury Brands Should Embrace the ‘Next Normal’ in Post-Pandemic China

With China’s domestic luxury expenditure soaring, luxury brands in the UK must recalibrate their strategies, taking action to “navigate the now”, plan for the recovery, and shape the future.

The coronavirus pandemic has sent most of the world’s luxury spending into a tailspin and China is the only major economy expected to show growth this year.

Back in 2018, Chinese consumers took more than 150 million trips abroad, with purchases outside the mainland accounting for over half of China’s luxury spending that year. The excitement and authenticity of buying a brand in its country of origin is an integral part of the travel experience, plus the obvious benefits of tax-free shopping.

Nevertheless, the standstill in international tourism is accelerating China’s domestic spending for a few reasons. Luxury goods have become more affordable in China since 2018 when the government reduced VAT from 17% to 13%, plus the Chinese yuan has weakened.  

Furthermore, there’s been a crackdown on daigou, literally translated as ‘buy on behalf’, where luxury goods are purchased abroad for resale in China.

Domestic purchases are expected to account for 26% to 28% of the global personal luxury goods market by 2025 and China's swift rebound from the economic disruption and continuing global travel restrictions, look set to further increase the level of spending on luxury goods taking place on the mainland. 

A New Approach for UK Luxury Brands

This is all well and good, but an important driver of luxury spending in the UK has come to a halt. The abolishment of tax-free shopping at the end of 2020 has had a devastating impact on duty-free retail, at a time when the return of affluent international visitors is critical to post-Covid recovery. Deplorably, we anticipate only a gradual ramp-up in international travel, even after the restrictions are lifted.

UK luxury brands clearly need a new approach and to recalibrate their strategies to compete in a future market - strengthening their digital and omnichannel penetration, and engaging more deeply with shopping-starved consumers across China’s mainland.

Moreover, Procter & Gamble’s chief brand officer Marc Pritchard advised recently “If you want to see the future, look to China, where there is transformation happening. The market flipped a few years ago from the old brand building model to a digital ecosystem, from bricks and mortar to ecommerce.” 

Digital is Now Centre Stage

With approximately 989 million internet users within China at the end of 2020, digital marketing has become more powerful than ever to reach Chinese consumers, so putting digital at the centre of a brand’s operating model is vital and stepping up personalisation efforts even more so.

However, reaching Chinese consumers is difficult, challenging and fraught with complications due to high entry points, access to Chinese tech and data, understanding of local regulations and most poignantly, ad fraud. 

How to Reach Chinese Audiences

The Runway Media product uses Chinese technology and Chinese data to reach Chinese audiences. The agency has boots on the ground in China and traders all over the world, so brands can be serviced in their own time zone. Most importantly, brands are insured against ad fraud and can be guaranteed to never pay for a post bid fraudulent impression.

Whilst Chinese consumers still remain the biggest growth opportunity for the luxury sector, categories have seen differing growth rates, with leather goods and jewellery leading the way, followed by ready-to-wear clothing and shoes, beauty, and watches. 

Mid-to-late 2021 will see a cooped-up world desperate to explore life’s richness again and luxury brands should exploit this global desire.

Chinese consumers are sophisticated, demanding and accustomed to a high standard of service in stores; the emphasis, then, should be on creating a personalised digital experience of the same quality and an exceptional mobile experience to engage with potential purchasers, wherever they are.

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