The world’s leading luxury companies are vying for the likes of affluent businesswoman Diana Wang in an attempt to expand in China, their second-largest market.

Wang, an investor and owner of a fashion brand bearing his name, is based in Shanghai. He enjoys collecting fine jewellery and frequently shops at Cartier, Tiffany, and Chopard, among other stores.

As China’s post-pandemic economic recession dries up the buying power of the once-aspirational middle-class that for years generated the bulk of their revenue growth, she is also what luxury companies refer to as a VIC, or very important client.

Wang was present at a gala dinner held by Tiffany last month. Tiffany, which is owned by LVMH, the largest luxury conglomerate in the world, also introduced its newest line of high-end jewellery, along with private sales appointments for a small group of customers.

“Luxury brands offer you this event experience, this personal experience and it makes you feel privileged,” Wang told Reuters. “It’s a big part of what makes me want to buy the brand.”

The absence of a robust recovery in luxury demand subsequent to China’s reopening after the epidemic has alarmed investors and exacerbated concerns regarding the industry’s future.

While Richemont’s shares have dropped by 24% since July, LVMH’s have dropped by about 17%. Burberry likewise reported low double-digit growth this week, citing a downturn in luxury purchasing in China and around the world.

Relying on the 5% of luxury consumers who, according to HSBC analysts, account for more than 35% of their sales in China, firms are concentrating on selling fewer, more valued items in order to overcome this.

A tried-and-true tactic for luxury brands worldwide, providing this small group of clients with benefits like meet-the-designer events and exclusive access is one that they haven’t used as much in China, where large-scale events meant to increase brand awareness and pique the interest of potential customers in luxury goods were more common.

China’s domestic luxury sales doubled between 2019 and the start of 2022, with some brands reporting year-over-year growth rates of 40–60%. According to Jacques Roizen, general director of consultancy at Digital Luxury Group, middle class consumers accounted for “more than half” of this development.

High-end stores, such as Chanel, Cartier’s parent company Richemont, and Gucci’s parent company Kering, are now compelled to compete for the discretionary spending of those fewer, wealthier consumers who are still eager to treat themselves due to the real estate crisis and record-high young unemployment.

“It’s not only about advertising and communication,” said Jean-Marc Duplaix, chief financial officer and deputy chief executive of Kering, referring to company investments to woo shoppers across the spectrum globally. “It’s more broadly about how we engage with customers.”

Encouraging Chinese VICs to feel valued is essential to that interaction.

According to Wang, Tiffany made sure a celebrity was seated at each table at the Shanghai event. Designer Donatella Versace had a private dinner at the historic Bund for roughly 40 guests recently. Versace, owned by Capri Holdings, is currently being acquired by Tapestry for $8.5 billion.

Additionally, Gucci, Chanel, and Dior have reserved additional shop space in Shanghai for their most affluent customers.

“We pay a lot of attention to the details and the anchorage to local culture,” said Cartier Chief Executive Cyrille Vigneron. The brand will hold its annual entrepreneurship awards for women in Shenzhen in May.

Since Louis Vuitton recently opened a pop-up bookstore and cafe in Shanghai with a billboard in the local dialect and launched a Mandarin-language podcast, executives at competitor LVMH are also eager for that local edge.

As they focus more narrowly, luxury businesses are nonetheless excited about the potential in China, which analysts Bain predict will account for nearly 40% of global luxury sales by 2030.

Additionally, a lot of luxury corporations claim they are here to stay, in contrast to foreign financial institutions and businesses in other industries that are withdrawing from China as geopolitical tensions grow and “derisking” trumps prospective market prospects.

“We think medium and long-term development potential remains strong,” said Eric du Halgouet, executive president of finance at Hermes, whose Birkin handbag is a coveted hallmark of wealth.

According to luxury consultant Mario Ortelli, a number of luxury companies are growing their global presence in order to hedge their bets on China. In addition to China, there have been a lot of openings and celebrations in South Korea, Japan, and Thailand this year.

“But you still need to invest in your biggest market and one that is an engine of growth,” Ortelli said. “The only way for luxury companies to protect themselves is to make your brand as desirable as possible so you are the last one that a cost-cutting customer will stop buying.”

Even VICs, like Wang, say they are considering the worth of the luxury items they are purchasing more carefully as China’s economic growth falters. But for merchants, that’s not necessarily a negative thing.

“We will think twice or three times now before spending more money than usual,” Wang said. “Though I wouldn’t say we will stop buying, it’s become a habit now.”

(Adapted from NewsWav.com)

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Strategy, Uncategorized