Feiyue Li, who serves as head of strategic planning and partnerships for LVMH China, combined his expertise to shed light on what the 3 digital challenges are for the luxury industry in China. She also revealed a strategic approach to conquering the e-commerce landscape in China.
Her insights revolve around addressing three critical global challenges: regulation, talent, and the operational framework. In this context, Li highlights key digital retail issues, such as the importance of adopting an agile platform and omnichannel strategy to effectively respond to market demands.
3 DIGITAL CHALLENGES OF LUXURY INDUSTRY IN CHINA: KEY ASPECTS
Feiyue Li’s observations about China bring to light three noteworthy aspects:
- High Online Penetration: China boasts a remarkable online penetration rate, with 33% for retail in general and a staggering 65% in the beauty sector. In simple terms, “online penetration” refers to the percentage of people or customers in a specific industry or market who use the internet or make purchases online. In the quoted context, it means that in China, 33% of retail sales occur online in general, while in the beauty sector, this percentage is a staggering 65%. This indicates a high adoption of online shopping in China, particularly in the beauty industry.
- Dominance of Tech Giants: China’s tech giants wield substantial influence throughout the consumer journey. These corporate behemoths extend their reach across all touchpoints, from initial customer engagement to search, product browsing, e-commerce, and clienteling. “Clienteling” is a customer management strategy primarily used in the retail industry. It is a personalized approach to building and maintaining long-term relationships with customers by providing them with highly customized and tailored service.
- WeChat’s Growing Significance: WeChat isn’t just a vital platform from a consumer perspective, where users search, purchase, and share. It also holds increasing importance for companies as it serves as the epicenter for clienteling and customer relationship management (CRM) activities.
3 DIGITAL CHALLENGES FOR LUXURY INDUSTRY IN CHINA: CHALLENGES
In the Chinese market, three key challenges loom large:
The regulatory landscape is shaped by two pivotal laws. The Personal Information Protection Law (PIPL) delineates the types of information available and accessible, while Cross-Border Data Transfer (CBDT) regulations impact business models, particularly concerning the storage and transfer of client data. Additionally, the Generative AI Service Management Approach adds further complexity, outlining security assessments required by the Chinese government for service providers.
Finding and nurturing the right talent is a formidable challenge. Digital native talent in retail must continuously update their knowledge and skills, particularly in data analytics and digital tools, to provide personalized recommendations and services. This applies not only to digital professionals but also to frontline retail advisors who need to excel across platforms like WeChat and WeCom. Furthermore, digital and tech talents must shift their mindset to prioritize user-centric approaches.
Adaptability is key in China’s ever-changing landscape. With rapid shifts in consumer behavior and market dynamics, even tech giants must revise their strategies. The market is increasingly price-sensitive and promotional, conditioning consumers to seek discounts. Therefore, brands in China must continually refine their channel strategies in sync with evolving platform dynamics.
LUXURY MARKET STATISTICS IN CHINA
In 2023, the Chinese Luxury Goods market has generated a total revenue of US$53.61 billion. It is anticipated that this market will experience steady annual growth at a rate of 4.06% from 2023 to 2028, as measured by the Compound Annual Growth Rate (CAGR).
The most substantial segment within this market is Luxury Watches & Jewelry, which accounted for a market volume of US$24.50 billion in 2023 (source: Statista).
In the first quarter of 2023, LVMH, a leading luxury conglomerate, experienced a substantial 14% growth in its sales across the Asia region. Notably, the Chinese market played a pivotal role in this impressive performance, contributing to approximately 80% of the company’s total sales in the Asian market.
The pricing dynamics of luxury goods in China have traditionally been influenced by import tariffs, which have historically made these products more expensive for Chinese consumers compared to their counterparts in Europe. However, recent developments, such as travel restrictions, have afforded luxury brands greater flexibility in determining their pricing strategies in the Chinese market. As a result, these brands have been able to adjust their pricing models, leading to a significant shift.
TRENDS IN THE LUXURY INDUSTRY IN CHINA
Simultaneously, there’s a growing trend known as “quiet luxury” that is gaining traction. This trend is driven by wealthier consumers who are relatively unaffected by economic downturns. These individuals now gravitate towards products that exude timelessness and elegance. Instead of ostentatiously showcasing their affluence, they place a higher value on superior craftsmanship and personalized customer service provided by “quiet” luxury brands.
These brands, exemplified by names like Brunello Cucinelli and China’s Icicle, are becoming increasingly popular due to their subtle and discreet branding strategies. Rather than prominently featuring logos on their merchandise, they cater to a clientele that seeks a more understated and sophisticated expression of luxury.
The Guochao phenomenon has steadily grown in popularity among Chinese consumers. The latter show an increasing preference for luxury brands that resonate with their cultural identity and reflect their appreciation for Chinese culture.
However, although domestic luxury brands are growing, they still struggle to establish strong brand recognition and value to compete with established foreign brands. And the Guochao phenomenon is most prominent in the mass market segment.
Interestingly, in the first half of May 2023, the China Luxury Brand Index highlighted Western brands as the most successful in a ranking. Ranking determined by factors such as content quality, reach and search volume.
In summary, Feiyue Li provides a comprehensive overview of the intricacies involved in tackling e-commerce strategically within the regional context of China, emphasizing the need to navigate regulation, nurture talent, and maintain agile operational models to succeed in this dynamic market. Experts and agencies that already work in China may represent a smart solution to enter the Chinese market faster and more effectively.
Long Advisory digital marketing agency in China
Long Advisory supports American and European companies in China through digital marketing. In fact, our experience has led us to believe that today, the best and most convenient approach to making your brand well-known in China is through a digital approach. Furthermore, thanks to our know-how, we know how to make your brand known to potential Chinese consumers. With the effective coordination of Long Advisory, your company will see a new rise in the largest market in the world: China.
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