Stirring Dragon: The Rise Of Chinese Luxury Brands

November 26, 2018

Stirring Dragon: The Rise Of Chinese Luxury Brands

by Christophe Cais
Founder and CEO at CXG and Forbes Council member

The article below is originally published on Forbes, Customer Think and Inside Retail.

In 2013, the Chinese government sought to diffuse social tension by imposing a ban on TV and radio ads for luxury goods. This was meant to address the country’s widening gap between the rich and poor, although Beijing also claimed to be concerned about the effect these ads had on values and creating a “bad social ethos.”

By that time, the Chinese consumer had already become the world’s top luxury spender, snatching the crown from the Japanese buyer in 2012. This is unlikely to come as much of a surprise given the country’s massive population and its swiftly rising number of affluent consumers. According to a McKinsey’s 2017 report, Chinese shoppers spend more than 500 billion yuan (about $71.9 billion) annually on luxury goods, which accounts for nearly one-third of the global market. And Gartner expects this share to reach 40% by 2024.

What remains somewhat under the radar is China’s growing clout as a luxury brand's incubator, not merely a country of luxury consumers. With Chinese buyers embracing homegrown brands, the big names of Western luxury might no longer carry the same weight only a few years from now. Yes, China’s wealthy still loves themselves some Prada and Gucci, but they are starting to turn to local designers or foreign-based ones of Chinese descent whose work mirrors their roots and exudes a sense of national and cultural pride.

Many might scoff at the idea, but Chinese luxury brands are a reality and likely to become a force to be reckoned with sooner than we expect. Let’s take a closer look at how they are exploiting their advantages and slowly turning the tables on their established Western rivals.

Upgrade To Glamour

In recent years, we have seen China shake off its image of “cheap.” It’s almost inconsequential now that iPhones are assembled in China -- the country no longer needs this tenuous link to luxury fame. It now has brands such as Hisense, Huawei and Xiaomi, which are changing perspectives on “Made in China.” And these are only a handful of the Chinese companies that have become global players and helped create a new image for Chinese-made goods.Here’s another important development: Being Chinese has become glamorous. Local celebrities are replacing Western faces in advertising campaigns and even ousting the piping-hot Koreans.

International Brands Take Notice

If you have any doubt about the sway of Chinese luxury brands, just consider what the big industry names are doing. For a while now, foreign brands have been creating collections that embrace the local culture (especially for Chinese New Year), establishing a connection between luxury and Chinese heritage.

Global heavyweights are even launching local brands to incorporate Chinese aesthetics and traditions into modern-day products and increase their appeal for Chinese buyers.

The Edge Of Chinese Brands

With so much interest in their market, Chinese brands are using every advantage they have. For starters, they can now hire managers who have previously worked for international luxury powerhouses. In this way, Chinese companies get access to the codes of luxury, so to speak. They also invite foreign designers to create their collections, thus getting the international touch.

In another clear sign of their steady rise, Chinese luxury brands are opening shops next to top global players in big malls across Beijing, Shanghai and other key cities.

Perhaps more importantly, Chinese brands have an immediate access to the largest luxury consumer base, one that they know and understand very well. The result? Greater agility and relevance than Western counterparts. Local luxury players can make better use of the massive Chinese ecosystem created around Tencent’s platform WeChat, thus providing services their foreign rivals might have difficulty duplicating.

There is also the matter of capital, and that is plentiful in China. Fosun, which started out as a private equity outfit, became famous in France when it bought Club Med. It proceeded to invest in other international luxury brands and topped it all by launching Fosun Fashion Group with aspirations of rivaling Western luxury conglomerates.

The Nationalism Trump Card

As China becomes increasingly important on the international scene, its people are feeling a resurgence of national pride, and local luxury brands are reaping the benefits. London-based designer Yang Li summed it up quite well, telling Business of Fashion: “As the market becomes more developed, a greater sense of confidence in what it means to be Chinese is leading to a growing desire to communicate individualism, personal identity, and a Chinese mindset.” The shift to national brands is already underway, and tensions on the global scene might accelerate it.

Let me finish by noting that I have lived in China for eight years. I’m only saying this because I have firsthand experience of how quickly things change in this market. Actually, the speed of change is so fast that it never fails to surprise. I believe the battle for the affluent Chinese consumer has just started, and local brands have a solid chance of winning it.