The growing importance of Chinese millennials for the luxury sector

As we all know, millennials are people born between 1982 and 1997 and are – nowadays- considered to be a powerful group of consumers by brands all over the world.

If we look at  Italian millennials —  who are  still in search of  career  stability and therefore  often struggle with low wages – it’s hard to picture this category as an engine for the high-end market.

But looking at overall data, we can clearly see that millennials are very active in the luxury market. According to the “True-Luxury Consumer Insight” study carried out by BCG and Altagamma in 2017, by 2024 millennials are expected to account for 50% of total luxury expenditure. These figures are even more surprising when talking about  Chinese millennials: they are responsible for 33% of the global expenditure when it comes to luxury products, and this is expected in the near future (to 45%). (Source: “Worldwide Luxury Market Monitor”, Altagamma and Bain&Co 2017).

Chinese millennials need to be monitored because their influence will be crucial in the change of the geography of luxury. With the duty-free policy applied by the Chinese government from  July 2017  on the import of high-end products,  Chinese consumers will buy more and more at home: by 2025, Chinese shoppers will make 50% of their purchases in their country. (Source: Il Sole 24 Ore, November 2018).

Considering all these factors, its clear that brands need to market this specific segment of consumers: but what can a brand do to actually reach and attract them?

Fendi as a case history 

A successful example of this attempt is Fendi’s launch of its FF reloaded capsule collection last year.

In June 2018, this collection was presented with a huge event in Shanghai with the clear aim of attracting  Chinese millennials.  Considering that China is the greatest market for the brand right now – where it has already opened 20 shops – it was essential to find a way to communicate Fendi’s DNA in a modern way.

 

 

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The real protagonist of the event was the Chinese rapper Jackson Wang, author of the song Fendiman and the new ambassador of Fendi in China. For the first time in the history of a Chinese artist, the song — released for the event — was number one on iTunes in 11 countries, and the artist’s Youtube channel was seen by 6.4 million people in just one day: another confirmation of the importance and power of this type of strategy  for brands nowadays.

The rapper was invited to film the song in a video clip in Rome, on the rooftop of Palazzo della Civiltà Italiana, headquarters of the Italian Maison: “We brought Rome to Shanghai” said Chiara Monfardini, worldwide communication director for Fendi.

 

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But this wasn’t the first time Fendi did something specifically for this market.

In 2017, the brand presented the China Peekaboo Project.

Fendi commissioned six Chinese celebrities – Liu Wen, Guo Jingjing, Angelababy, Yang Lan, Liang  Yuanwei, and Tim Yip – to customize a special edition of the handbag designed more than 10 years ago by Silvia Venturini Fendi.

 

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The aim of the project was to showcase the compelling versatility of the Peekaboo as well as the alluring creativity and diversity of Fendi’s Chinese muses.

 

Sources for pictures:

https://luxexpose.com/fendi-presents-the-china-peekaboo-project/

https://esquiresg.com/fendi-partied-in-shanghai-and-debuted-jackson-wangs-fendiman-music-video/

Jackson Wang’s Instagram 

E-commerce in China: Tmall’s luxury pavilion sets the pace

Unlike other luxury goods markets, e-commerce plays a huge role in China, given that the market size of cross-border retail e-commerce sales there is expected to exceed $140 billion by 2021 (according to eMarketer).

China already accounts for about one-third of global luxury goods sales, and its share is growing. In general – according to Bain & Co –  in 2017 sales of luxury goods hit 142 billion yuan and Chinese shoppers accounted for 32% of the 262 billion euro global luxury market.

And these figures are expected to increase: China’s share of global luxury spending is seen reaching 44% of the global market by 2025 (source: McKinsey).

(Source: LaPresse/AP)

Considering the profile of the average Chinese consumer, their enthusiasm for buying online is not actually surprising: they are young (age dropped from 35 to 25) and way more connected than their Western counterparts (China is the most connected country in the world!).

Moreover, Chinese consumers approach the online channel as if they were going to the mall with their friends: this is why the aim of Chinese e-tailers has always been to provide a rich alternative to traditional shopping.

Luxury brands have started to understand the importance of this channel and tried to enter this world full of new opportunities.

The clearest example yet of how Chinese luxury shoppers can flock to specially-tailored online experiences is Tmall, a B2C online retail site operating in China and owned by the Alibaba Group, with more than 550 millions of customers.

                   (Source: Journal du Luxe)

When asked who is their target client, the answer is clear: in between 26 and 30 years old, with a bachelor degree, married with children and pets.

The average annual expenditure of the Chinese consumer on Tmall is about 90,000 yuan (almost 15,000 euros ) per year. Their clients love shopping online and – especially –  Made in Italy luxury products.

Considering all these factors, in 2017 they decided to open their luxury pavilion: an exclusive space, invitation-only, where brands can sell directly to consumers and have full control over the experience. It is considered the most important platform online for millennials (44%) and today carries more than 80 brands including Valentino, Versace, Ermenegildo Zegna, Moncler, Moschino, Giuseppe Zanotti, and Maserati.

Last December, Tmall unveiled a new app with a sort of Maison store. The aim of this new format – as Lili Chen, general manager of Tmall luxury pavilion recently said in an interview – is to “let luxury brands digitally embody their unique brand stories, heritage, savoir-faire, and innovations, as well as their in-store atmosphere and energy. Moreover, it is a way to help them engage with online luxury consumers – mainly the ‘always connected’ generation – and provide them with the best tailored, immersive shopping experience close to the one that they would get by shopping in a brick-and-mortar store”.

This is the ultimate goal of the Chinese online giant. As Jack Ma – owner of Alibaba – once said: “We were able to sell online 100 Maserati and 100 Mercedes in 18 seconds. (…) The Canadian Prime Minister called me and asked me to help them sell their famous lobsters. In 5 hours we sold 96,000, and in Vancouver, they ran out of lobsters for three weeks, but Chinese people were thrilled.”

Now it’s up to brands to understand the magnitude of this channel and the possibilities connected to it.

 

 

 

 

 

 

 

 

 

China’s “Daigou” shoppers face big crackdown

The Chinese word dài gòu ( ) literally means “to shop on the behalf of somebody”.

Nowadays, this term refers to a Chinese citizen that lives or travels abroad and buys foreign products — mainly luxury goods, but even groceries — at the request of clients back in China.

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Ph. credits: Qilai Shen/Bloomberg

So how did this business start? 

H. — a 22-year-old daigou I interviewed who has been living and studying in Florence for the past 4 years – has little doubt: “It has always been a matter of pricing.” 

That’s because Chinese import taxes are exceptionally heavy: in 2015 the price of some luxury products was reported to be 75% higher than their original price (Source: Sole24Ore).

This business got started not only bedue to Chinese consumers’ strong desire to purchase foreign goods that were less likely to be found in the mainland, but also because of fear of counterfeit.

Taking advantage of such a situation, people living in other countries — or even just traveling — started to buy goods abroad after being commissioned by someone else back home, making a lucrative business out of it.  

“I helped a colleague of my friend to buy a Valentino bag, and I found out it was almost 800 euros cheaper than in China. She spontaneously gave me 150 euro. That’s how I started,” said H.

It is hard to determine the actual size — and numbers — of this market. 

According to a 2015 report from Bain&Company, we can estimate there are 1 million  small business operators generating approximately 34-50 billion yuan ($5.2-7.6 billion), but this figure has likely increased in the last three years.

“Some daigous are focused on selling cosmetics and beauty items, so they sell a lot of products with little earnings. Luxury items usually have a margin that is 10-15% higher than the one of boutique shops. In a month, I can earn even 1.5-2k euros. But those who work really well can earn from 7 to 15k euros per month,” H. told me.

Despite being unknown to many, this is an extremely well-developed industry, based mainly on trust: the majority of daigous started selling to families and friends, who then shared with their friends, and so on.

Moreover, considering that China accounts about one third of the global luxury goods sales, this phenomenon is important to understand. 

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Ph. credits: Tung Cheung/Shutterstock

However, recently, Chinese authorities have started to crack down this system – for example inspecting returning tourists’ bags for undeclared goods. A clear example of this new attitude was the daigou crackdown in Shanghai’s Pudong Airport last September.   After baggage inspections, more than 100 passengers returning from Seul were found guilty of illegal imports. 

If the introduction of this business was motivated mainly by the price gaps between China and abroad, new regulations mean that 2019 could be a crucial year for this business. 

Starting from January 2019 the Chinese e-commerce law will officially come into effect. According to this law, daigou will have to obtain a business license and pay taxes or possibly face criminal charges.  

Moreover, starting from last June, China embraced so-called orderly trade, according to which Beijing had to reduce importation taxes by 50% (Source: Sole24Ore). 

To conclude, it is fair to ask what will eventually happen to  the “grey area“ of the daigou business: will it disappear or will it survive this new economic scenario? 

According to H., “It will not stop that soon.”

Only time will tell us if he was right or not.

 

Marialaura Chiarelli