China’s Luxury Retail Boom & its Impact on International Brands

Apr 25, 2022 | Blog

Chinese consumers are loving luxury retail. In 2020, as countries closed their doors to travelers, Chinese consumers used their international tourism budgets for luxury retail therapy. In 2021, that habit accelerated by 36% to $73.6 billion, according to CNBC. While the spending did slow down later in the year to pre-pandemic numbers, the country is still on track to become the world’s retail luxury leader by 2025, surpassing the US, adds CNBC.

One of the reasons? The population that’s doing the shopping.

Who’s Shopping for Luxury Retail in China

One of the key reasons the Chinese luxury market is bound to grow is because the number of high earners in the country keeps growing. The average income almost tripled between 2010 and 2020, and the number of people headed to reach upper middle-class incomes is projected to grow further by almost 70%. Even more exciting? 50% of people who bought luxury fashion in 2021 did so for the first time. 40% of these first timers haven’t even reached their 25th birthday yet. Just like the general population, they will likely earn more as the years – and their careers – progress. Since they’re so young, brands who win their loyalty have many years to enjoy a great return on investment. But can non-Chinese brands enjoy this boom too?

China Sends Mixed Messages to International Brands

Entering the Chinese market on your own can be very confusing. Let’s explore some of the considerations you need to take into account, then look at what could help you succeed.

That Time China Caused European Luxury Stocks to Drop

As more citizens grow their income, the Chinese government announced plans to step in, increase taxes for high incomes and high purchases, and redistribute this wealth for better economic equality. While it sounds good, the results weren’t great for European luxury brands. Together, their stocks lost $120 billion within two days of that announcement in 2021.

This potential tax challenge is just one of the uphill battles for international brands hoping to rely on the Chinese market for their own growth. There’s also a question of whether Chinese consumers would buy from them at all.

China Encourages Citizens to Buy from Local Brands

In addition to redistributing wealth, China is also doing its best to create a culture that keeps money, and the financial power it provides, within its borders. In other words, it’s encouraging citizens – starting at a young age – to buy from local brands and prioritize products that emphasize China’s uniqueness.

It’s working. The population seems to prioritize local brands. However, international brands still have hope, because when the borders are open and Chinese consumers travel abroad, they love shopping at internationally recognized brand name stores… and that’s something the government isn’t ignoring, either.

China Also Provides Business Benefits for International Brands Opening Shop in the Country

This is where it gets confusing. The same country that is now talking about charging extra taxes, and causing European luxury retail stocks to drop, is also the country that’s been providing business benefits, including tax reductions, to international brands that open shop in China, in a desire to get more of them to do so.

To help you become one of those brands, let’s look at three international brands that focus on this market and see what they’re doing.

3 Examples of International Brands that Succeed in the Chinese Market Anyway

Succeeding in China might not be easy, but these brands prove it’s possible.

Burberry Understands it Takes a Village

When Burberry first entered China, it knew it didn’t understand the Chinese market enough to serve it well. Therefore, it let locals lead the way – in big part, by franchising the brand to local businesses.

Once it gained better insights and the brand name gained local trust, the company upped the work it was doing in-house to strengthen relationships with Chinese customers, among others, via local social media platforms and brand-owned stores.

BMW Creates Long Term, Local Partnerships

In 2003, BMW created a partnership with a Chinese organization, which helped the company manufacture BMW cars in China and establish the brand as one of the leading luxury car brands in the country. Over the years, BMW’s share of the partnership has grown. It now holds 75% of the shares, but its commitment to the partnership is still strong. In early 2022, BMW announced the extension of the partnership for 18 more years, while also indicating it will continue collaborating with the provincial government, as it has done until now.

Pampers Succeeds When it Understands Chinese Customers’ Needs

While Pampers isn’t a luxury brand, its success story represents a vital element of succeeding in China. Way back in the 1990s, Pampers tried selling diapers in China without understanding how Chinese parents potty train their kids, and how that impacted their dislike of Western diapers. When sales weren’t great, the company reduced prices, but Chinese customers still didn’t trust it.

Only in 2006, when the messaging shifted to a research-based claim that diapers equal better sleep, and better sleep could drive better cognitive development, sales skyrocketed. Why? Because Pampers finally understood what actually mattered to Chinese parents.

Want to Succeed in China too? Pay Attention to Cultural Differences When Strategizing Your Marketing

As the Pampers example proves, brands can’t assume that what worked in the west will work in China. Even if a campaign worked well somewhere in Asia, it might not work well in China. Simultaneously, brands can’t just make a few tweaks and think they’re ready to go. Instead, they must customize messages to Chinese needs, and maybe even create them from scratch, just for local customers.

When you do that, you need to take the cultural, historical and political landscape, as well as its heritage and the heritage’s impact on this landscape, into consideration. This, of course, doesn’t mean adding some traditional Chinese motifs, like dragons, to your branding and calling it a day. That won’t necessarily speak to contemporary customers. You need to develop a deep understanding of local customers’ motivations and needs.
For example, men buy makeup in China, just as some men buy makeup in the US. But in China, it’s not about gender fluidity – it’s just another way to improve yourself, like building muscles or getting a degree. The messaging needs to be totally different to speak to local customers.

But differences can be more invisible sometimes – say, when what’s considered a “small” or “medium” size is different in China, or when hand gestures can have completely different historical contexts than they do in the west.

That’s why it’s important not to do it alone. Partner with local organizations, or companies that have experience successfully localizing in China, and keep open communication lines with your local audience.

Importantly, keep the respect and embrace of this rich, unique culture front and center even when you market elsewhere in the world. The internet has made the world a small space, and staying culturally sensitive to this significant market even in faraway geographical areas will go a long way in building trust with your Chinese audience.

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