I just got through speed-reading this article on McKinsey.com called, China Luxury  Report 2019 How young Chinese consumers  are reshaping global luxury. It is a very interesting read for anyone – especially marketers – who is interested in current trends in the retail industry.

For luxury brands in particular, the article is a must read because it pinpoints with total precision exactly where the purchasing trends for luxury products are going to be in the coming decade. From the sound if it, all roads are pointing to China. Luxury consumerism is at an all-time high in China and this trend is expected to become a norm. Buoyed by a strong Chinese economy, decades of successfully executed five-year plans and the financial savings that came from a relentless one-child policy in the country, the Chinese luxury consumer has never been financially better positioned to exploit and explore what the world of luxury has to offer. If a brand is not competitive in China in the coming decade, if they can’t get a strong and solid foothold in that market, they are, for lack of a better word, going to be in deep shit. That is, if the McKinsey report has interpreted the research correctly.

So what are the takeaways from this article?

1. Brands have to be digitally savvy in order to capitalize on young, affluent Chinese Consumer’s entry into the market.  If you are not dominating in the digital space and you are a luxury band trying to be relevant in China, you are playing to lose out of the starting bloc. 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.” Brands which will be successful in the Chinese Luxury market will have to have “a comprehensive presence across the digital ecosystem.” We are talking about all possible social media platforms including Youtube, Tik Tok, Wechat, Instagram, Facebook, Whatsapp and so on. Go digital or go home is essentially the name of the game.

2. Brands need to tap into the “Influencer” industry, find the right influencers for their products and invest in developing this relationship over time. The McKinsey report seems to suggest that Influencer marketing is going to be where it is at, more so that, say, tradional ads on TV or billboards and things like that. The current and next generation of Chinese luxury consumers are into listening to their peers.

3. The Chinese luxury consumer  – which is largely a rising Middle Class – is going to be dominant spenders with the most purchasing power in the world. Indeed, according to the report, 2/3 of global growth in luxury spending in 2019 came from China and this figure is expected to rise, not fall. China’s whole mantra right now is GROW, GROW, GROW.  And they are growing by leaps and bounds. Says McKinney: “That growth will be primarily driven by an explosion of upper-middle-class households, the population of which will rise at a compound annual growth rate of 28 percent from 2018 to 2025, taking the total number of people in China earning between $2,600 and $3,900 per month per household to 350 million. China’s affluent class (households earning above $3,900 per month) will almost triple to 65 million people during the same time period.” 

350 million people is a lot of people, a lot of consumers. Think about it: The population of America, that is, ALL the people who live in America is only 329.45 million as of 2019. (US Census Bureau). By 2025, there will be more affluent people in China who can afford luxury products than the entire population of the United States. This has got to be a marketer’s wet dream, I’m thinking. What do you think?

4. Young Chinese Millennials and Gen Z will have one of the biggest if not the biggest purchasing power in the world compared to their cohorts in just about every other country. And they are willing to spend big. According to McKinsey, this is due to China’s one child policy which has resulted in young Chinese having 100 percent access to their parent’s financial largesse – which Chinese parents apparently are only to willing to dole out on a monthly basis, often supplementing their children’s income up to 50 percent. Says McKinsey:  “The post-’90s consumers are the vanguard of China’s urban middleclass, a dynamic and digitally engrossed cohort that as the ‘single child generation’ are the recipients of an outsize level of familial support. Two thirds told us their parents support their luxury spend, with McKinsey Global Institute modeling suggesting that upper-middle-class Chinese families top up their post-’90s children’s bank balance by at least 4,000 RMB per month, or half their personal income. This financial cushion has a large impact on these young consumers’ willingness to spend, and spend big, on luxury.”

5. Brand will have an opportunity to “shape their taste” because these young Chinese consumers are new at luxury shopping and are not necessarily very well informed about the provenance of a lot of the luxury products they consume. Says McKinsey: “Instead of legacy reputations established over hundreds of years in Europe, these new luxury consumers are influenced more by what is happening right now, leaving ample room for brands with the right strategy to shape their tastes.”  Emphasis added. This is deep. Because if you think about it, it is very insidious in a way. The consumers probably won’t even realize that their tastes are being “shaped” by Western marketers and brands because in a way, they are “ignorant” of the motivations of marketers. The marketers are not going to broadcast that they are trying to “shape their tastes” of these young consumers because it seems presumptuous and condescending. At the same time, this has to be the goal of marketers for luxury brands. They have to take the lead. They have to mold the situation to suit their desired outcomes, always with a long view.  The young consumers are not supposed to know what is happening to them and how they are in a way being manipulated. They will think only of how they feel when they are in possession of what they consider to be “luxury” goods. It is a very powerful position to be in if you are a luxury brand in the West. It is almost like the Wild, Wild West.

But. Then again, a word of caution. Consider this from Jingdaily.com in China’s Middle Class Holds the Key to Luxury in China.

« An Ipsos report titled ‘Engaging China’s Affluent Consumers’ describes Chinese buyers as having advanced from ‘status-seeking through ownership of highly visible and recognizable brands to self-realization through experiences and knowledge about luxury brands.’ This implies that international brands wanting to engage China’s middle class will use creative strategies that enhance the buying experience. With connoisseurship and emotional factors influencing purchasing habits, marketers have to create brand stories that are engaging and unforgettable, and luxury brands should emphasize digital content since it brings value to the consumer’s life. »

So, it is complicated. Brands need to be careful. Don’t assume and don’t be too presumptuous.

6. Brands will have to invest in “personalizing” the experience for the luxury Chinese shoppers in order to retain them, get them to visit the stores for “in store” experiences, and build brand loyalty. “Looking to the future, luxury brands can tempt their young customers online by digitizing the intimate, personalized experience that attracts them to brick and-mortar stores.” According to the research, the young Chinese consumers of luxury goods crave personalization above all. And they prefer to shop at the store rather than online at the moment. This could change over time. But for the moment, it appears they are still more inclined to shop in store and this is a focus that luxury brands must have. They will have to invest in their brick on mortar from an architectural and design standpoint but also from a sales service standpoint because the consumers here love great service and they look at everything from the shopping bags, to the way the store looks, to how welcoming the sales person was when they visited the store. Brands must invest in giving customers a truly “luxury” experience including providing things like “distinctive shopping bags,” properly trained staff with “good sales service attitude,” store design and architecture that is interesting and enticing to the shoppers as far as their “in store” experience.

7. In addition to personalizing the experience, brands will have to be able to make these consumers feel “different” and “valued.” The Chinese luxury consumer is definitely complex and multifaceted and the extent to which a brand makes them feel special is the extent to which the brand will achieve success in this market.

8. Brands need to understand the complex Chinese culture and what drives Chinese shoppers to buy (or do anything at all) in order to succeed in this market. On the one hand, the Chinese are very group oriented rather than individual oriented culturally speaking. On the other hand the Chinese shopper is “value conscious,” susceptible to normative influences,” and “needs to feel unique.” Understanding intrinsically where to draw the lines and how to position products to this paradoxical target will be key to success in China. In addition, brands will have to understand they are dealing with a “new” China insofar as this generation of consumers is concerned. They are different from their parent’s generation which was perhaps more cautious and conservative. But of course, they are still fundamentally Chinese. So there is a lot of opportunity but also a lot of potential pitfalls. Note, for example, this quote from Jingdaily.com

“This demographic seems to offer an immense opportunity for international brands, but Western players remain conflicted about the segment, not knowing how to engage them. That’s because Western marketers don’t really understand China’s middle class, so cliches and misrepresentations are common. Interbrand states that, for decades, Chinese middle-class consumers had the same purpose: ‘study hard, work hard, and network hard in order to distinguish oneself from the masses and secure financial security for one’s family.’ But financial security is already widely available, and Chinese millennials have lived their entire lives in prosperity and with higher purchasing power. Consequently, their buying behaviors, priorities, and preferences differ from older middle-class consumers.”

9. The Chinese luxury consumer likes “Prestige Beauty Products” and “premium cars,” but not all luxury brands are equally revered in China. According to the article, they really seem to have a penchant for French brands first and foremost: Chanel, Louis Vuitton, Hermés, Guerlain, Cartier to name a few. They are also some brands in the UK, such as Burberry that is desirable in China. But brands have to be able to analyze objectively if they stand a prayer in this market before opening up a brick and mortar because otherwise, failure is almost guaranteed. Brands – even so called “luxury ones” have to test market and do surveys and use social media channels to gauge whether they should even seek to have a presence in China because the Chinese consumer seems to be very discriminating when it comes to adopting new brands that they are unfamiliar with. So while it makes sense to try to increase your competitive advantage by expanding into a market like China where you have so many eager consumers just waiting to be fed the next luxury good, it is best to look before you leap and do the research beforehand.

10. The Chinese Luxury Consumer pursues luxury products for social advancement and self differentiation. This very important this bit of information. According to the article, the Chinese consumer in the luxury segment see luxury products as a form of “social capital.” This means that luxury brand marketers will have to be skilled at showing these consumers exactly why and how their product will make them “better” than their friends and neighbors while at the same time letting them feel uniquely Chinese and an integral part of the group.

SOURCES

https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/how%20young%20chinese%20consumers%20are%20reshaping%20global%20luxury/mckinsey-china-luxury-report-2019-how-young-chinese-consumers-are-reshaping-global-luxury.ashx

http://homepage.fudan.edu.cn/heyanqun/files/2013/12/JBR.pdf