Gucci's new success in China: WeChat, e-commerce & sales, how is Chinese luxury market doing
- emma3095
- 30 juin 2017
- 5 min de lecture
As the world's third largest luxury goods market, the consumption of luxury items in China is ranked first. Because of the country's unique political and economic system, and a consumption conception that is different from that of mature markets, the luxury groups have payed more and more attention to Chinese market, and adopted a more radical localization strategy at the same time.
The most obvious manifestation of this radical localization strategy is that, during the past two years, ‘fresh meat stars’ ( the Chinese Internet language for young stars) who represent millennials, have quickly replaced the star representatives of last generation as the spokespersons for international luxury brands in China.
The international brands usually have strict control on marketing activities, especially when it comes to the spokesperson and face choices which are usually related to the brand identity. However, their Chinese branches have now relatively more responsibilities and greater autonomy. This fact reflects a higher localization of the overall fashion industry in China.
On the annual luxury summit held by Financial Times in Lisbon, Portugal on 14th and 15th of last May, the general manager of Kering SA (KER.PA), Jean-François Palus, said that the group has already replaced the traditional e-mail with WeChat for internal communications.
This month, according to the quarterly financial results released by Tencent Holdings Ltd. (0700.HK), by the end of March, the total monthly active accounts of WeChat China and WeChat International have reached 938 million, an increase of 23% compared to the same period of last year, which makes it the biggest application in China.
Last month, the Wall Street Journal posted an article about the sales of luxury goods in the Chinese market accelerating through WeChat. However, the two largest e-commerce platforms, Alibaba's Tmall and Jingdong kept a distance. This sign is also unique to the Chinese luxury market, because the problem of fake commodities has been winding the Chinese e-commerce platforms. But WeChat is a social media tool, its users usually have an intimate relation rather than a direct commercial relation with the app. In addition, the brands can also try to establish closer relationships with their customers through pushed articles on public accounts. This is very important for the luxury industry because it puts aside the e-commerce business channel.
After recognizing the importance of sociability in the Chinese market, Alibaba recently tried strengthening its sales platform and financial instruments with social media functions, but the effects were not so convincing. Some of the attempts even had a negative effect. For example, the ‘campus diary incident’ has raised a lot of criticisms.
In addition to using WeChat as a daily communication tool, Jean-François Palus also mentioned that, one of the most eye-catching brands of the group, Gucci, has a Chinese billionaire’s daughter as its employee at the flagship store in Beijing. He explained that, in China, if you want to have a good relationship with wealthy customers, you must be a wealthy person yourself. Because in China, the way of taking care ofVIP customers is very different. These customers have a very frank attitude about their wealth. Meanwhile, Jean-François Palus also talked about the influence of Feng Shui ( ancient Chinese theories concerning the interactions between environmental factors and health, wealth or luckiness and so on).
In the financial report released at the end of April, Kering SA said that the group will open up a Gucci e-commerce business in the Chinese market this year. Previously, this business was operating mainly for North America, Western Europe and other mature and developed markets. In the report, Jean-Marc Duplaix, the chief financial officer of the group pointed out that the luxury market has improved significantly, but not for all brands. Thus, now is the perfect time to seize the Chinese consumers and the shares of local customers in mature markets for big brands. Jean-François Palus emphasized this point and added the situation has became more difficult, coupled with the economic slowdown. The capture of market share will rely on severe competition rather than collective natural growth brought about by the overall economic growth.
As of the end of the first quarter, the total amount of Kering SA’s revenue has reached 3.574 billion euros, increasing by 31.2% compared to the same period of last year. Luxury goods increased by 34.0% to 2.417 billion euros, the departmental retail and wholesale sales by 37% and 20% respectively. The comparable sales of Gucci, the group's largest brand, went up by 48.3% which is the highest growth rate in the past 20 years. The predicted average rate is 21.4%.
In summarizing the current characteristics of Chinese consumers, Jean-François Palu said that Chinese consumers have become very mature and demanding, so the brand must adapt.
These changes are not noticed by the luxury industry alone. The fashion groups from Hong Kong and Taiwan which were relying on geographical advantages or channel expansions have noticed them as well.
In August 2016, Daphne International Holdings Limited rankly stated in its report that the Chinese consumers are more sophisticated than they used to be, mainly because of the fact Chinese consumers were traveling a lot and acquired more knowledge and experiences. Coupled with the process of urbanization, smart phones, and the penetration of other innovative technologies, etc., the consumer behaviors are changing faster than ever before.
The Belle International Holdings Ltd. (hereinafter referred to as Belle Group) shares the same feelings. The Belle Group said in its latest annual report that, China's economic environment has changed dramatically, that the high-speed growth bonus period has ended, although the process of releasing the consumption potential can still be expected to continue. But the polarization of middle class-driven growth is obvious, the traditional channels, marketing, and brands are facing new challenges. Sheng Baijiao, the CEO of Belle Group admitted that although these changes were expected, in the real transformation there are too many factors that must be taken into account. This fact has eventually led to the high-speed decline of the group's traditional footwear business, which in turn led to the plummeting stock prices. The market value of the group has shrunk by half, and the group is facing privatization.
However, some companies have benefited from these changes. The annual report of the trend apparel retailer, IT Limited (0999.HK) shows that, the group’s business in mainland China for the first time exceeded Hong Kong's one, reaching 3.4133 billion and 3.2491 billion Hong Kong dollars respectively. In addition to the obvious upward and downward trends, what is more important is that the profitability of the two markets are quite opposite. The expanding in the mainland market has great potential, yet the high costs and the continuing closure of the stores in Hong Kong has led to pressures and losses.
Since the second half of 2016, China's luxury market continues to warm up again. However, this fact failed to stop the overall downturn in Chinese market. The data from the China's National Bureau of Statistics for the past four months show that, the growth of China's fashion market is still slowing down, falling into the single digit growth zone. The fashion industry research, consultation and investment agency, No Agency predicts that, the Chinese public fashion market growth has already gone down and that in 2020 there will be a high possibility of downward risks. The current trend of bankruptcy and closure of stores in the US market is expected to appear in the Chinese market. However, the agency also points out that, due to the increasingly serious polarization, the rich are still constantly seizing the wealth, so there is still room for China's luxury goods market. After two years of recession, with the devaluation of the RMB, a turning point has appeared in 2016, the Chinese luxury market will usher into a steady growth with mid-single digits.
By: Tang Xiaotang
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