By Jasmine Zhu, Luca Solca
The following is an edited version of a Bernstein report originally published on October 22nd, 2021.
This paper is published by BOF on November 11th, 2021.
For the luxury sector, the Chinese are the most important consumer nation, accounting for about 30 percent of total sales. By 2025, that number is expected to rise to 50 percent, according to Altagamma. However, key business decisions concerning the Chinese market are still often taken by Western executives in Europe.
Exhibit 1. The key business decisions are still taken by Western executives in Europe
Source: Company websites, Bernstein analysis
“Luxury has a culture of control and conformity,” says ESSEC Business School professor Denis Morisset. Indeed, even in today’s globalised world, most luxury brands still radically centralise key business operations at head offices in their home countries. China teams are often led by one highly-paid foreign executive who maintains tight control over a roster of local support staff. This suppresses incentives for innovation, slows decision-making, creates blindspots and ultimately results in common but costly mistakes.
1. Localisation gone wrong
Chinese consumers have specific expectations, leading many players to tailor their brand experiences to the market. Use of local digital platforms along with well-crafted local communications have generated tangible results. Over-localisation, on the other hand, reduces a brand’s ability to charm consumers, because part of the appeal of European luxury brands is their foreign cultural identity. Eliminating European content or making unsophisticated Chinese adaptations can damage appeal. Last year, Cartier released a Valentine’s-themed campaign that appeared to show a gay couple riding bicycles and wearing matching rings, but the caption adapted for the Chinese market read: “Father and son, bound by love, enjoying life’s journey.” The campaign received negative attention on Chinese social media, with one user commenting: “Trying so hard to conceal something has made something ordinary so weird.”
2. Lack of political sensitivity
Western luxury brands continue to decode Chinese culture through their own eyes, without effectively understanding growing nationalism and political sensitivity. Chinese citizens are proud of their country and its achievements, especially over the last 50 years, which have culminated in its attainment of superpower status. Not respecting cultural nuances or the dominant Chinese view on political matters, like territorial integrity, exposes a brand to attack. Back in 2019, Versace, Coach and Givenchy all famously released T-shirts with designs variously implying that Hong Kong, Macau and Taiwan were not part of China. The merchandise had to be withdrawn and apologies issued after a major public backlash. More recently, Burberry faced a major backlash over its decision to ban Xinjiang cotton, with Chinese celebrities and netizens protesting what they saw as an anti-Chinese stance.
3. Shallow depictions of Chinese culture
Brands that frequently use traditional Chinese symbols risk looking outdated and out of touch with today’s Chinese luxury clients. In the past few years, we have seen luxury brands overusing red and gold, and symbols such as double happiness characters and dragons as a way to nod to Chinese aesthetics. This reads as superficial and boring, and increasingly puts off Chinese consumers. Using traditional cultural codes may work for an older and more traditional target, but is increasingly seen as cliché by younger consumers.
4. Seeing China as one market
It is no longer enough to create a single China strategy. Tailored micro-strategies are required to respond to the diversity, complexity and regional peculiarities of the vast Chinese market. Headquarters and in-country management both need to take a more multi-dimensional view on everything from product development to distribution channels. Products or marketing messages that are well received in Beijing or Shanghai might not resonate well with consumers in Nanjing or Xiamen and vice-versa. Let’s not forget, 75 percent of wealthy Chinese consumers live outside the country’s top-tier cities, according to McKinsey. Brands can no longer afford to see China as a one-size-fits-all market and should consider restructuring their operations in the country around regional head offices to develop deeper local insight and better meet local demands.
5. Digital: too little, too slow
As recently as 2014, China’s digital market was still seen as rather basic. Today, it is the most innovative and diverse consumer technology landscape in the world. Nine out of 10 Chinese Millennials prefer in-person experiences to be digitally friendly when making a luxury purchase decision, according to McKinsey. While the likes of Prada, Hermès and Tiffany & Co have official accounts on WeChat, Weibo and Douyin, they still haven’t joined platforms such as BiliBili, Kuaishou or Xiaohongshu, hurting online visibility.
Exhibit 2: Prada, Hermès, and Chanel still haven’t made an official footprint on platforms such as BiliBili, Kuaishou, or Xiaohongshu.
Source: WeChat, Weibo, Little RedBook, Douyin, Bilibili, Kuaishou, China & I, Bernstein analysis
6. Still not omni-channel
Luxury brands grew large retail networks in China because, for years, this was seen as the only way to build customer relationships. Today, 82 percent of Chinese luxury consumers use a combination of online and offline channels before they make purchases. Brands must focus on integrating their physical flagships with digital touchpoints. Alas, for many luxury brands, stores and online channels are operated in different silos. Burberry is an exception to this. The British brand upgraded its flagship in Shenzhen in partnership with tech giant Tencent and now offers an experience that integrates e-commerce and social media into the store.
Exhibit 3…partly due to its refusal to embrace e-commerce
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