China’s love of luxury could be reset by its common prosperity

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Common prosperity, President Xi Jinping’s political directive of the day, will not ban luxury goods from Chinese shopping malls. But it will usher in a new era where watches will be encrusted with fewer diamonds and logos will no longer embellish jackets and jewelry. Earlier this year, Beijing issued a proclamation to build an “olive-shaped” society with a more equitable distribution of wealth. This was followed by regulatory crackdowns on tech companies and the online education industry. While state planners have long talked about China with its population being moderately prosperous, Beijing’s only goal is to move the country away from a winner-take-all economy.

Much of the rhetoric around common prosperity centers on better health care, increasing household incomes, increasing benefits, and using taxes to calibrate the distribution of income. It’s not an environment for flashy shopping. Luxury groups, supported by five years of strong demand in China, will have to re-evaluate their aesthetics, their products and their marketing.

Luxury is likely to be characterized by more subtle designs and less ostentatiousness. Already, some young Chinese buyers are putting their passion for luxury on hold, according to a study by LookLook, an analysis group which in September interviewed 100 Chinese women under the age of 40 who spend at least $ 10,000 a year on products. top of the line. They mostly hold back while waiting to travel abroad again. But one in ten said they were influenced by the government’s stance against excessive displays of wealth. Jia Lin, analyst at LookLook, said she was surprised to hear some of the young women wanting to keep a low profile.

Given the new vibe, houses with more understated designs, like Prada SpA, and Saint Laurent and Bottega Veneta from Kering SA, look well placed. Gucci Creative Director Alessandro Michele is already adjusting his brand maximalism to appeal beyond the brand’s millennial fan base. Recent collections have been more sober. But more work might be needed to align with China’s new spirit: the Gucci name and logo are still very much present. Finding the right tone is important to the Kering parent. In 2019, Gucci accounted for around 60% of sales.

But there are other ways the industry must adapt. If China’s policy induces anxiety at the highest levels but expands the middle class, it could stimulate demand for entry-level handbags, costing around $ 1,000, rather than those costing at least $ 10. times more. Brands will have to “really take care of the first-time buyer as well as the billionaire”, explains luxury advisor Mario Ortelli.

Small leather goods could get a boost, as well as affordable goodies such as beauty and fragrance. This would be good news for the global cosmetics giants. Pandora AS, best known for its inexpensive charms, has seen strong growth in the wake of the anti-corruption campaign. LVMH flagship brand Louis Vuitton Moet Hennessy Louis Vuitton SE, with its distinctive monogram, is vulnerable to any deviation from immediately recognizable labels. But that could be offset by its product line, which starts for example with the relatively affordable Neverfull bag. LVMH also generates a quarter of its sales in the United States, where consumers continue to fall for Rolex watches and Moncler coats.

The flip side of the new mood is appealing to a more “awake” Chinese consumer. Brands will need to hone their marketing techniques, such as working with key opinion leaders (KOLs), live streaming on shopping platforms, and using virtual KOLs. They should also think about hosting their own shows online. The social e-commerce market is estimated at $ 186 billion this year, according to analysts at HSBC.

China has a thriving influencer economy, but choosing and leveraging the right KOLs has become more crucial. This is because Beijing is moving away from fan culture and certain types of genre imagery.

Brands are also trying different formats offline. Prada, for example, got creative and took over a local market in Shanghai to pack basic groceries in the company’s packaging. The local audience loved it. Other brands exploit social issues. To do this well, they will need to make sure they have their finger on the local pulse.

Perhaps the current mood will see Chinese buyers shy away from global brands for local luxury. Handbags should remain the preserve of European houses, but local players like Cindy Chao are gaining ground in jewelry. Chinese brands are also making progress in beauty and fashion, according to LookLook.

Such changes are unlikely to translate into immediate results, but a resurgence of covid and a slowing Chinese economy could well do. At least, it gives the world’s luxury behemoths time to reinvent themselves if stealth rather than bling wealth becomes China’s hottest look.

Andrea Felsted & Anjani Trivedi are Bloomberg Opinion columnists covering the consumer and retail sectors respectively; and industrial companies in Asia.

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