The new appeal of the niche luxury brands for young consumer.
This is the story of how a new generation of Chinese consumers are powering the global luxury market, and the double-edged sword they present to the world’s leading luxury brands.
Set to be the engine of global spending on high-end shoes, bags, fashion, jewelry, and watches, China’s affluent upper-middle class presents an enticing prospect for the world’s designer brands.
Imbued with a confidence to spend underpinned by a lifetime watching new skyscrapers rise in tandem with their family incomes, these consumers are eager to tap luxury as a means of social advancement and self-differentiation.
This is so even in the context of the sharpest slowdown in China’s economy since the financial crisis, and with it a slide in demand for discretionary items such as new cars and mobile phones.
At the high end, negative impacts are evident in Hong Kong, where jewelry sales and imports of Swiss watches have slowed, but even in these categories demand remains relatively strong on the mainland.
Indeed, the luxury segment remains robust, amid a continuation of a trend in premiumization that has seen sales of premium cars and premium beer, as well as prestige beauty products, outperform the wider market.
Young Chinese consumers view ownership and affiliation with designer brands as a form of social capital; not just something to wear, but a lifestyle choice that marks them as part of a distinct and exclusive community.
That community is constantly being refreshed via a glittering stream of online content, keeping pace with which demands consumers are “always on,” immersed and engaged in a digital world that is nothing short of a way of life.
Research for the 2019 McKinsey China Luxury Report shows that the majority of these young consumers are fresh to market, presenting both a tantalizing opportunity and an implicit imperative for brands to stay current, or risk losing out to more digitally savvy rivals.
What’s more, while some fashion houses excel at various aspects of online marketing and commerce, even the most popular luxury brands have yet to establish a comprehensive presence across the digital ecosystem.
Consequently, opportunity abounds as brands seek to engage the attention of consumers in the world’s most lucrative and fastest-growing luxury market.
1: Chinese consumers are set to contribute almost two-thirds of global growth in luxury spending.
2: The post-’80s/’90s generations, many new to luxury, power the Chinese market.
3: Promoting iconic brand-product combinations is key
More than three-quarters of young Chinese consumers are thus most interested in buying iconic styles that are easily recognizable, with the trend most prevalent among the post-’65s/’70s consumers.
Indeed, the concept of a niche brand has multiple meanings across luxury segments, from one that exhibits unique design to those that are niche in the sense of being rarely seen on the street, or simply not available in mainland China.
In any case, China’s luxury market has yet to develop the widespread sophistication necessary to sustain demand for truly niche or boutique brands, as has been the case in the West.
Brand remains king when it comes to informing taste across all our surveyed generations, but is relatively less important for younger consumers.
For example, brand was the top reason for the last luxury purchase among
68 percent of the post-’90s consumers, compared with 94 percent of the post-’65s/’70s consumers.
What does it all mean for luxury brands?
The imperative for global brands is to become the leading form of social capital for China’s young luxury consumers, and stay there.
This demands an “always on” approach centered around a rapid cycle of new and refreshed product launches that intimately intertwine with ready-to-go viral media, including “sticky” nicknames and innovative campaigns. Newness and exclusivity could also be fostered through launching limited- editions, collaborations with KOLs and influencers, and hosting an annual calendar of special events, particularly around art and fashion.
China’s young luxury consumers are more interested in aspiration than heritage, making it imperative for brands to modernize their stories and deliver them through digital channels. Savvy brands should design an integrated marketing strategy that satisfies young Chinese consumers’ appetite for consuming media at every available touchpoint, whether they are online or offline, and whether they are travelling or staying in China. Local digital marketing teams should be empowered to make quick decisions and entrusted to experiment with the new media formats and channels favored by young consumers.
Since the majority of luxury purchases are made offline, brands should also reimagine the in-store experience. Catering to young consumers’ desire for personalization—to feel different and valued—is key, as is doubling down on the concept of the store as its own media channel. Brands would also be wise to invest in highly trained staff capable of maintaining one-to-one relationships with customers in and beyond store, in effect becoming their personal stylists, backed by customized narratives and personalized product recommendations powered by AI.
As our research has shown, there is unparalleled opportunity to tap demand for luxury among the affluent residents of China’s lower-tier cities, most of whom remain underserved by brick and mortar stores. Instead of over-expanding store footprint, brands should devise a targeted travel retail strategy that captures these consumers on the move – and follows them home. Having done so, sales staff can maintain a long-term relationship. with the consumer through astute use of WeChat and other social platforms. Light asset store formats like pop-ups are worth consideration for brands with sufficient sizzle. Reaching young Chinese consumers also requires a considered approach to e-commerce, one which cultivates a rich and consistent brand image on owned platforms, while making sharp choices over whether or not to reach for the eye-popping traffic on mainstream e-commerce platforms.
Finally, as young consumers blur the line between engagement and purchase, domestic and overseas, and online and offline, the new battleground for luxury brands requires fundamental organizational transformation. This requires not only winning in digital,
but also more seamlessly integrating business units across brands, functions, and regions.
Perhaps the most exciting aspect of China’s young luxury market is the scope of opportunity for digitally savvy brands to capture its ever-shifting zeitgeist, and the imperatives this provides for more established brands to stay on top of their game.