How Can Brands Court Chinese Consumers During This Time of Change?

The luxury market in China has been booming over the last decade, in large part due to the repatriation of consumption following the COVID outbreak that greatly accelerated the maturation of the country's luxury landscape. By 2021, the Chinese luxury market was valued at 275 billion RMB.

Due to the pandemic, the macroeconomic climate, and subdued consumer confidence, luxury spending in mainland China fell by 10 per cent in 2022. However, with China deciding to reopen starting from the end of last year, luxury companies and analysts are projecting a bright future for this market in the coming year and beyond. The Chinese luxury market is expected to grow rapidly at a CAGR of 5 per cent in the following years, reaching a value of 378 billion RMB by 2027.

In parallel with market development, the mindsets and behaviours of Chinese consumers are undergoing significant changes. China is becoming more sophisticated and challenging as a result of emerging young shoppers, digital transformation, and geographic expansion.

In light of this, KPMG China and DLG (Digital Luxury Group) jointly released a report titled Luxury Redefined: Building trust with Chinese consumers through authenticity and integrity in January of this year. Based on a survey of consumers from Mainland China and Hong Kong SAR, as well as interviews with luxury executives, the paper aims to highlight current trends in the Chinese luxury market.

On March 9th, Pablo Mauron, Partner and Managing Director China at DLG, and Willi Sun, Head of Advisory, Consumer & Retail at KPMG China spoke at a webinar discussing the report, delving into key market topics including omnichannel strategy, emerging technology, and sustainability, and how brands should be prepared.

The Shift in the Consumer Journey

The Chinese consumer goods market has been booming as a result of advancements in technology – such as social media, e-commerce, and digital infrastructure, which are also driving the transformation of the Chinese consumer journey.

“The role of Chinese consumer touchpoints is becoming increasingly blurry, and they can all act in a sense of demand generation, but also for transactional purposes,” Sun said at the start of the session. “From a luxury player’s perspective, how you mix and match your different online touchpoints and offline touchpoints is becoming more important.”

This trend can be seen in the changing role of online marketplaces, for example. Mauron refers to Tmall – China’s largest B2C e-commerce platform. “A Tmall flagship store – for most of the brands – is their biggest window in China, and will be visited by the majority of their consumers, both before and after they visit an offline store,” he explains. “Although the rise of e-commerce appears to have changed purchasing habits, it has also made the search function more convenient for users.”

This also implies that when developing online channels, brands should take an omnichannel approach. When it comes to e-commerce, many brands are overly focused on GMV and conversion rates. However, they must also capitalise on the potential of these channels in terms of driving awareness and desirability.

Mauron noted that in recent years, most brands have only taken into consideration the local market when deploying omnichannel experiences. As China opens up, Chinese consumers will return to the Western market, and brands will need to redesign their digital ecosystems to allow consumers to benefit from brand experiences and services everywhere, seamlessly.

The Emergence of Younger Generations

From 2014 to 2021, the Chinese luxury market had been growing at a CAGR of 4 per cent, with China's large population base serving as a key driver of growth. “As a part of the population base, the affluent Generation Z plays a significant role and will likely continue to play the most important role in the future,” Sun added.

According to the report, generation Z consumers are more willing to splurge on luxury goods than other consumer segments. 21 per cent of generation Z consumers surveyed are willing to spend more than 16 per cent of their annual income on luxury products.

However, this generation has very distinct spending behaviours, and is prompting brands to adapt. Generation Z is the segment that relies the most on social media as an information source for luxury, and the least on official brand channels.

“Social media is not just about a new way of communicating, but also about complementing brand messages from third-party audiences,” Mauron explained. “The voice of a third party really needs to be tiered across different types of voices – be it a celebrity, KOL or KOC – in order to make a massive impact on shaping Gen Z’s perception.”

All at the same, the emergence of new generations of consumers fuels other trends in the luxury industry, such as the use of new technologies (metaverse, NFT) and a focus on social issues such as sustainability.

Embracing the “New Luxury”

The evolution of the Chinese luxury market has also contributed to the growing maturation of domestic consumers. Not unlike that of Western countries and Japan, Chinese consumers' demand for luxury goods is gradually shifting away from “showing-off” and status reflection and towards the pursuit of quality and values. This shift will also lead brands to embrace the value of “new luxury”.

This webinar session focused on two consumer personas examined in the report: the “New Luxury” Pioneer and the Cultural Resonator. Despite the fact that these two personas represent only 2 per cent of the consumers polled, they showcase the most emerging consumer trends in this local landscape.

“New Luxury” Pioneers are drawn to new concepts and values, and they are also more likely to turn to contemporary brands that demonstrate environmental consciousness and social responsibility. The other persona – the Cultural Resonator – is a result of China's rise, with their national pride impacting their purchasing decisions. These customers seek emotional resonance based on Chinese culture, prompting Western brands to package themselves with a local element.

The greater demand for localisation and brand values shows that ‘luxury’ is being redefined. “This trend ties back to the Gen Z. Gen Z is adding new meaning to luxury. The ‘new luxury’ movement is continuously monitoring the Gen Z and various personas,” Sun commented.

Other topics covered in this webinar included the fan economy, CRM, travel retail, and more. To learn more about the trends shaping the Chinese luxury landscape, please watch the webinar replay below.