Reaching China’s Millennials an Ongoing Challenge For Luxury Brands

October 17, 2014/0/0
Home / Our Insights / Business & Finance / Reaching China’s Millennials an Ongoing Challenge For Luxury Brands

It’s been a tough year for some of the world’s largest luxury companies. Prada’s profits slipped by one fifth in the first half of 2014, while Gucci’s second quarter sales fell 2.4 percent, and LVMH sales grew just 3 percent in the second quarter — just half of analysts’ predictions.

Many of these companies place the blame partly on China’s sluggish economy and wariness over ostentatious shows of wealth due to the strict anti-corruption crackdown. Just a few years ago, China was a gold mine for luxury brands looking to easily woo newly minted spenders with logo-ed goods that garnered status and respect in the Mainland.  However, the luxury market looks quite different now than it did in 2010. This is a conundrum for those looking to tap a still young and enticing China luxury market.

According to David Dubois, Assistant Professor of Marketing at INSEAD, when socio-economic factors stabilize, luxury consumption tends to shift from conspicuous to inconspicuous. Indeed, a recent Nielsen survey found that consumers labeled as “overseas luxury consumers” said that self-differentiation and demonstration of taste, as well as better quality, design, and brand heritage, were drivers of luxury purchases This sentiment is particularly high in Tier 1 cities like Beijing and Shanghai, where brands like Louis Vuitton and Gucci are seen by many millennials as their “mother’s brands,” a shift that has left ample room for smaller, niche luxury brands to occupy the market in recent years.

However, reaching these millennials is no small task for niche brands, and takes sustained effort.

First, although brands cannot fully control what is being said about them online, it’s crucial to establish a proactive presence via local social media and online platforms, in addition to operating official Chinese-language brand sites. Nearly 60 percent of respondents in the Nielsen survey said that online platforms were their main source of information about luxury brands, and 50 percent said they regularly consult official brand sites. Brands cannot rely solely on their names alone, as young consumers now have a deeper understanding of luxury goods and more sophisticated consumption patterns than ever before.

Second, luxury brands need to extend their China strategies to brick-and-mortar stores to capture these consumers when they travel overseas. The point is to sell a story, experience, and a lifestyle through the product. According to Frederic Godart of INSEAD, Chinese luxury consumers now look for aesthetic value over status, and stylized buying over status-driven buying. As such, luxury sales to millennials, based on quality, utility, and experience are expected to grow, boosting segments such as children’s toys and clothing, hotels and cruises, wine and liquor, and automobiles. Brands expected to benefit from this growth include Comme des Garçons, Helmut Lang, and A Bathing Ape – all of which combine uniqueness with craftsmanship.

To stay ahead of the game, brands eyeing Chinese millennials should continuously observe and research their consumers and monitor social media, using predictive analytics to identify new and emerging trends in this viral, fast-moving, and ever-changing market.