Brazil5 ways how Chinese luxury consumer behavior is changing
China’s luxury market is rapidly evolving, with new trends, economic headwinds, and country-specific dynamics reshaping how Chinese consumers engage with brands. Camille Drumel and Wenbo Li from Simon-Kucher walk through five major trends within the consumer landscape, and outline the strategies luxury players should be considering to remain at the forefront of the market.
Polarized consumer behaviors
At Simon-Kucher, we see two distinct types of luxury consumers emerging in China. The first group, particularly those seeking high-end luxury, continues to purchase with more discretion but remains committed to premium brands. The second group, focused more on accessible luxury, is trading down, demonstrating heightened price sensitivity and opting for lower-priced alternatives.
This means there’s a growing need to address both ends of the spectrum. Brands may need to offer more accessible products to engage price-sensitive consumers while maintaining high-end offerings for those still willing to invest in premium goods.
Growing importance of local
Localization is crucial in the current climate. Chinese consumers are turning to local brands – not only for affordability but also for products that feel more aligned with their cultural identity. International brands need to adapt by offering products and marketing that resonate with local tastes and values.
This doesn’t mean abandoning your brand’s core identity. Instead, it means finding ways to make your brand feel more “at home” in China. Whether it’s through localized branding, product lines, or customer experiences, the goal is to ensure your offering feels relevant and desirable to Chinese consumers.
Shift to Tier 2 and Tier 3 cities
While the major cities like Beijing and Shanghai are still key markets for luxury brands, we see increasing potential in Tier 2 and Tier 3 cities. These regions are experiencing growth, and consumers here are becoming more affluent. However, their preferences differ from those in larger cities. It’s important to tailor your approach accordingly.
To capture demand in these regions, rethink your channel strategy. Digital marketing via platforms like Douyin (TikTok) is essential for reaching these consumers. You also need to provide a seamless omnichannel experience, allowing customers to move effortlessly between online and offline shopping.
Discounting and stock issues
One of the most pressing challenges facing luxury brands in China is the rampant discounting by retailers. Many wholesalers and resellers, particularly those stocking high-end luxury items like bags and ready-to-wear, often find themselves sitting on excess inventory. When demand doesn’t meet expectations, they resort to heavy discounts to offload the surplus. We've seen up to 40% on brands like Burberry.
When consumers associate luxury items with frequent discounts, your brand’s premium image gets eroded. To combat this, you need to implement tighter controls on stock levels and distribution channels. One effective solution is imposing stock quotas on retailers, limiting how much inventory they can purchase. This helps prevent overstocking and reduces the likelihood of markdowns.
You can also reserve your most luxurious assortments for high-end retailers. This strategy ensures premium items remain exclusive, preventing widespread discounting and maintaining your brand’s luxury appeal.
The rise of ‘luxury shame’
Another trend impacting luxury consumption is what we call ‘luxury shame’. Many affluent Chinese consumers are becoming more discreet in their purchasing behavior. They’re moving away from highly visible luxury goods like watches and jewelry in favor of less flamboyant items. This shift is not only about saving money but also about avoiding the social stigma associated with overt displays of wealth.
Rethink your product mix in China. For example, you may decide to focus on luxury services or items that feel exclusive but are less immediately recognizable. Offering more understated items can help cater to consumers who want to buy luxury without attracting too much attention.
Crafting a luxury strategy
While China’s luxury market is undergoing a significant transformation, this doesn’t mean global brands can’t thrive. To navigate China’s luxury goods market, brands need a clear, customer-centric strategy. Setting such a strategy requires clear-cut answers on two main dimensions:
Where to play?
- Who are the target consumers that will fuel future growth, and where are they located?
- Where will future demand come from, and how can you ensure the right product-market fit?
- What opportunities exist to differentiate from competitors and align with Chinese market trends?
How to win?
- How can you build a customer-centric business, including your brand, products, and services?
- What business models and tactics will help you land and expand across various channels and regions?
- What value proposition adjustments do you need to make to grow in target or prospect segments?
In summary, addressing both the “where to play” and “how to win” dimensions can help luxury brands remain relevant and successful in China’s shifting market.
