Is China really the future for luxury?

You cannot escape the mention of China in the luxury and travel retail sectors today. It seems to be all we can talk about.

There are good reasons for this. China’s performance since the pandemic has been spectacular. Retail in the country recovered fast: Revenge spending delivered excellent results in the region for many luxury brands, at a time when traditional leaders such as America and Europe were still closed for business.

On top of that, the spectacular performance of Hainan has made the island, and China itself, the talk of the town in travel retail.

But there are cracks in this perfect fa?ade of hope and recovery.

Like Hainan itself, China is a market with many pitfalls and challenges for luxury brands

We have already seen some luxury brands are delaying committing to Hainan due to the “feeding frenzy” going on there at the moment. Rapid growth and rapid spend create uncertainty and that is not what luxury wants. Premium brands want a market where they can guarantee shoppers and their brand’s image. They want the right people on the ground and the right control over delivery. This is not always easy to ensure in the Chinese market.

There are wider issues too. Breaking into the duty free market in China in any meaningful way requires partnership with a state-approved business. The state itself presents challenges, with more and more of a focus on keeping Chinese money in China, which could be bad news for international megabrands looking to make their mark.

Then there are the consumers themselves. These shoppers are big-spenders and want exclusivity which matches with their personal brand. They are also very digitally savvy and can turn on a brand in the blink of an eye if displeased by a storm on social media. We have seen this happen a number of times to big names including Burberry and Dolce & Gabanna.

All of this means that, like Hainan itself, China is a market with many pitfalls and challenges for luxury brands. I would not, for a moment, suggest that China should not factor in luxury brands’ plans going forward, but the time has come to turn our eyes to the wider world as well.

In Asia alone there is potential for exciting new markets, with the likes of Vietnam already cited as a potential location for the “new Hainan”. But if we look further afield the same is also true – and this takes us into more stable and reliable luxury markets. It is important to remember that as late as November last year, China was only the third largest market for luxury, with sales of $52 billion, compared to $68 billion in Europe and $74 billion in the Americas.*

Europe is the spiritual home of many luxury brands

While these markets are currently mourning the loss of big-spending Chinese shoppers, they are not down and out. Domestic spend will rebound in these areas just as it did in China and Chinese travellers will take to the skies once more as the pandemic continues to abate.

Europe is the spiritual home of many luxury brands, with cities like Milan, Paris and London. These in turn are home to established luxury shoppers who will not all be travelling to China to get their products in the future. America, likewise, is investing heavily, with new malls already on the horizon despite the challenges of the last year.

A focus on digital, omnichannel and experiential retail will be needed to keep up with current trends, but these are established luxury markets and – like a luxury item – are worth investing in.

The potential and power of China is clear. It is on track to be the world’s biggest luxury market within five years if Chinese shoppers do not start travelling again*.

But they will. China is certainly a future for our sector, but it is not THE future. There are established markets in Europe and the Americas and untapped potential across Asia and the Middle East. If this last year has shown us anything, it is that you cannot rely on just one plan – we all need a truly global outlook if we want to thrive.

*Bain, 2020 Fall Luxury Report