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The luxury industry’s Chinese woes could be coming to an end as shoppers begin once again to buy luxury brands on home soil. But as the region starts to show promise, how can brands ensure they build on the momentum without making the mistakes of the past?

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Chinese shoppers were once the all-important ingredient for luxury brands, reflected in an almost decade long flurry of store openings in the region as consumers rushed to snap up the latest Burberry handbag. Between 2008 and 2011, there was a 42% spike in the number of luxury retail stores in Asia, compared with a 28% rise in Europe and 5% rise in North America, according to Lux Redux report by Boston Consulting Group.

But over the last two years the luxury bubble didn’t only burst, it exploded, sending brands in to a store-closing spiral in the country as China’s anti-corruption campaign (a crackdown on government corporate entertaining and gift-giving) and weak consumer sentiment took hold.

Now, however, the green shoots of recovery are starting to poke through, albeit not yet matching the rampant appetite of yesteryear. According to Fitch Ratings, the stronger sales were driven by a wealth effect from higher property prices, narrower gaps between domestic and international prices and a curb on overseas purchases. Burberry saw acceleration in Mainland China in the third quarter, with high single-digit percentage comparable sales growth. Similarly, LVMH saw “momentum” in watches and jewellery, while Coach reported its Greater China local-currency sales rose 6% in the fourth quarter of 2016. Swatch too spoke of "very good growth" in mainland China sales during November and December 2016, according to the report by Fitch.

In the drinks business, sales of Diageo’s premium brand Johnnie Walker jumped 19% in China, while net sales grew 22%, driven by strong growth in mainland China.

The country's growing middle class is also a driver of the momentum gathering behind luxury goods, as reported by Bain & Company's Luxury Goods Worldwide Study. The study found that the long-term outlook in Chinese luxury spending remains positive, thanks to "a large and growing middle class with more disposable income for luxury purchases".

Beyond personal luxury goods, Chinese consumers increased their spending in categories such as luxury cars, fine food, luxury hospitality and designer furniture, while holding steady in fine art, private jets, yachts and luxury cruises, and declining in fine wines and spirits .

But as the country’s three-year anti-corruption campaign comes to a close and spending is on the up, what do brands need to do to avoid being caught out by another downturn? According to research from Exane BNP Paribas and customer engagement specialists Contactlab, European luxury brands are struggling to adapt their digital marketing and customer engagement to the Chinese market and must work harder to localise their output.

“Wealthy Chinese shoppers have been key drivers of global luxury goods sales and account for 30% of global spend,“ Massimo Fubini, chief executive of Contactlab, said.

"However, the reality is that majority of European luxury brands do not understand the Chinese consumers. European luxury brands need a strong digital strategy and greater focus on how to interact with the digitally savvy and social Chinese shopper," he continued.

“This is a market where mobile is key, delivery in one or two days is expected as a standard, and the social media landscape is extremely personal. Chinese consumers favour online chat assistance and social elements such as brand and product reviews, as well as the option to pay via WeChat. It is important for brands to implement these features ad localise customer engagement in a way which suits the Chinese shopper.”

Online ecommerce is still relatively small among the global luxury marketing, accounting for just 7 per cent. And while luxury marketers are trying to figure how to connect the online and offline experience they need to think fast, according to eMarketer. The bulk of retail ecommerce will come from China by 2020, where sales are expected to reach $899bn this year, representing almost half (47%) of all such sales worldwide.

"Consumers in China are becoming more sophisticated and now make up a large part of world luxury market," Shelleen Shum, senior forecasting analyst at eMarketer told The Drum. "They are well-travelled, spend a significant amount of time online and are already used to purchasing items on ecommerce platforms such as Taobao and TMall and JD.com.

"In order to tap into this new target market, luxury brands need to adapt their strategies. An online presence allows brands to reach consumers outside of big cities such as Beijing where brick and mortar stores may not be present or easily accessible. It also allows the tech savvy consumers of today to learn about the brand, its products, style and share with friends."

Source: http://www.thedrum.com