OPEN APP
Home >Opinion >Columns >China’s love of luxury could get reset by its common prosperity
Listen to this article

Common prosperity, the policy directive du jour of President Xi Jinping, won’t banish luxury goods from Chinese malls. But it will usher in a new era where watches are encrusted with fewer diamonds and logos no longer embellish jackets and jewellery. Earlier this year, Beijing laid out a proclamation to build an “olive-shaped" society with a more equitable distribution of wealth. That’s been followed by regulatory crackdowns on tech firms and the online education sector. While state planners have long talked about the Chinese population being moderately prosperous, Beijing’s single focus is to steer the country away from a winner-takes-all economy.

Much of the rhetoric around common prosperity is centred on better health care, growing household incomes, increasing benefits and using taxes to calibrate income distribution. It’s not an environment conducive to flashy buys. Luxury groups, bolstered by five years of surging demand in China, will need to reassess their aesthetics, products and marketing.

Luxury is likely to be characterized by more subtle designs and less ostentation. Already some young Chinese shoppers are pausing their passion for luxury, according to research by LookLook, an insights group that surveyed in September 100 Chinese women under 40 who spend at least $10,000 a year on top-end goods. They are primarily holding back in anticipation of travelling abroad again. But one in 10 said they had been influenced by the government’s stance against excessive shows 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 mood, those houses with more discreet designs, such as Prada SpA, and Kering SA’s Saint Laurent and Bottega Veneta, look well placed. Alessandro Michele, creative director of Gucci, is already adjusting his trademark maximalism to appeal beyond the brand’s millennial fanbase. Recent collections have been more understated. But further work may be needed to align with China’s new zeitgeist: The Gucci name and logo are still very much in evidence. Getting the tone right matters to parent Kering. In 2019, Gucci accounted for about 60% of sales.

But there are other ways the industry needs to adapt. If China’s policy induces anxiety at the highest echelons but expands the middle class, that could drive demand for entry-level handbags, costing around $1,000, rather than those that cost at least 10 times more. Brands will need to “really look after the first-time buyer as well as the billionaire," says luxury adviser Mario Ortelli.

Small leather goods could get a boost, as well as affordable treats such as beauty and fragrance. That would be good news for the global cosmetics giants. Pandora AS, best known for its cheap charms, enjoyed strong growth in the wake of the anti-corruption campaign. LVMH Moet Hennessy Louis Vuitton SE’s flagship Louis Vuitton brand, with its distinctive monogram, is vulnerable to any move away from instantly recognizable labels. But this could be offset by its product range, which starts at the relatively affordable Neverfull bag, for example. LVMH also generates a quarter of its sales in the US, where consumers are still snapping up Rolex watches and Moncler coats.

The flipside of the new mood is appealing to a more ‘woke’ Chinese consumer. Brands will need to hone marketing techniques like collaborating with key opinion leaders (KOLs), live-streaming on shopping platforms and using virtual KOLs. They’d also have to think of running their own shows online. The social e-commerce market is estimated to be worth $186 billion this year, according to HSBC analysts.

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

Brands are trying different offline formats, too. Prada, for instance, got creative and took over a local market in Shanghai to wrap basic food items in the company’s packaging. Local audiences loved it. Other brands are tapping social issues. To do this well, they’ll have to ensure they have their fingers on the local pulse.

Perhaps the current mood will see Chinese shoppers turn away from global labels to homegrown luxury. Handbags are likely to remain the preserve of European houses, but local players such as Cindy Chao are gaining traction in jewellery. Chinese brands are also making headway in beauty and fashion, according to LookLook.

Such shifts are unlikely to show up in immediate results, but a covid resurgence and a slowing Chinese economy may well do. At least that gives the world’s luxury behemoths time to reinvent themselves if stealth wealth rather than bling becomes China’s hottest look.

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

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout