Online channels may be essential to driving future growth in China’s luxury market, especially outside the major cities, but a physical presence in these is still seen as important for overseas brands.

“As consumers in lower-tier cities have limited opportunities to purchase luxury goods through offline channels, they are now turning to online channels,” Zhang Tianbing, Deloitte Asia-Pacific consumer products and retail industry leader, told China Daily.

That sentiment was echoed by Bruno Lannes, a partner in the Shanghai office of consulting firm Bain & Co, who added that the spending of millennials was an important factor.

Online luxury sales grew by 27% in 2018 to account for a tenth of the total and luxury brands are allocating up to 70% of their marketing budget to digital marketing platforms. Lannes noted, however, that much of this growth has been driven by the cosmetics category and that online penetration in other categories remains low.

For overseas brands, especially, some form of physical presence appears desirable. Harrods, the iconic UK department store now owned by the Qatar Investment Authority, has become one of the latest luxury brands to address this issue, with plans to open its first standalone site outside the UK in Shanghai later this year. 

“If you look at all of the reports, they say, quite categorically that all of the growth in the next five years is going to come from Southeast Asia. And is going to come from millennials,” according to Harrods MD Michael Ward.

“So we’ve got to go after that. It’s very important that you follow the money,” he told Retail Gazette. “We see continued growth of China, but we see a need to be a more permanent resident in China.”

That in itself will not be sufficient: any luxury brand operating in China has to take account of the different ways in which the retail environment is developing. For example, Jing Daily has observed how the intersection between contemporary art and fashion has been a successful way to reach younger high-end shoppers.

At the same time, online luxury experiences will evolve as the advent of 5G and faster internet speeds open up new options to help consumers make purchasing decisions. 

Sourced from China Daily, Jing Daily, Retail Gazette; additional content by WARC staff