In China's premium sector, one size doesn't fit all
Nielsen - Mar 16th 2017, 09:17
Compared with just a few years ago, when eager consumers lined up outside a growing base of burgeoning high-end retail stores, today’s luxury market across China and Hong Kong is much more compressed. Despite the shift, however, the luxury sector is still one of opportunity—even if sales don’t come as easy as they once did.
As with any market, understanding customers, their needs and their path to purchase is essential from a brand and retail engagement perspective in the luxury segment. In a tighter retail environment, these considerations become even more critical. So how can luxury brands and retailers stand out when consumers are no longer lining up for their products? Above all else, a recent Nielsen study found that three traits matter most to luxury shoppers:
high quality, uniqueness/exclusiveness and heritage.
At a very high level, premium brands need to focus on, and tap into, what luxury means to consumers across different markets. Mainland Chinese consumers, for example, like to show off and illustrate their social status. For them, luxury brands are a way to capitalize on these desires. Comparatively, consumers in Hong Kong buy luxury items because they value their high quality and as a way to reward themselves. But it’s not enough to simply know the over-arching preferences based on where consumers live, but rather, brands and retailers must have an in-depth understanding of their target customers, in order to meaningfully engage with them and create the right sort of “buzz” around the brand.
For example, while heritage is one of the three key traits that consumers look for in luxury brands, it’s less of a consideration among young shoppers than older ones. So, while 61% of Chinese Baby Boomers value luxury brands that have long, established heritages, this metric drops to just 37% among Chinese Gen Z consumers. Because the traditional notion of luxury including brand heritage is less important for younger buyers, the luxury market is now more open than ever before to brand “disruption” from newer/niche brands—as long as they successfully engage with, and inspire, these younger consumers.
Luxury shoppers, particularly younger ones, in China and Hong Kong are also open to trying new brands—another trend linked to the notion of market disruption. In a market where brand loyalty is low, newer entrants have an equal opportunity to entice eager consumers—and shift the traditional order of the landscape in the process. In China, 31% of luxury shoppers say they like to try new brands, slightly more than the 22% of Hong Kong shoppers.
Luxury shoppers also pay more attention to product details than the brand itself. This is particularly evident among Gen Z consumers in Hong Kong (46%). So, it’s essential for brands to focus on generating exclusive and customized experiences for their customers in order to stand out and drive the brand buzz that will keep targeted consumers excited, engaged and coming back for more.
When it’s time to make a purchase, brick-and-mortar remains the primary channel for luxury shoppers. For Chinese shoppers, overseas purchasing in physical stores is key (56%). Comparatively, Hong Kong consumers are more likely to buy in-store locally (47%). While both groups spend relatively low amounts online (due to concerns around authenticity and inability to touch the product), this channel remains an essential touch point in the all-important brand/product research phase.
Looking ahead, there are plenty of reasons to remain optimistic about the luxury market. In fact, the majority of mainland Chinese consumers say they plan to spend more on luxury goods this year than in 2016 (with Gen X and Millennials particularly bullish). Additionally, only 2% say they plan to spend less. In Hong Kong, the environment will likely remain more challenging, as only one-in-five luxury shoppers say they plan to spend more in 2017.
While luxury shoppers won’t likely increase their online luxury shopping this year, younger shoppers (as noted in the chart above) represent a growing opportunity in the long term. And in that regard, retailers and brands will need fully developed omnichannel strategies to capitalise over time. Online retailing is a must, in the longer term, for brands and retailers in China, as 41% of luxury shoppers say they will consider purchasing from online channels in the future. In comparison, just one in five (19%) of Hong Kong luxury shoppers say they’ll consider shopping online in the future.
Regardless of channel preference, the luxury market continues to have wide appeal across mainland China and Hong Kong and poses growth opportunities for brands and retailers—if they get it right. The key for retailers and brands is to understand the subtle nuances that exist among the broad pool of luxury shoppers and to make sure to engage with them both online and offline. And as online grows in terms of commercial influence, companies will need to surpass the expectations of their target consumers and evolve with them as their tastes and desires change. Failure to do so may cause customers to choose an alternative brand that better meets their needs.
Copyright © 2017 The Nielsen Company (US), LLC. All Rights Reserved.
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