Xinhua Insight: Luxury labels embrace "new normal" as Chinese market shrinks

Nothing could stop Chinese holidaymakers from taking overseas luxury shopping trips this Spring Festival, and no one could stop the souring romance between global luxury brands and the Chinese market.

China's luxury market has experienced a negative trend for the first time after eight years of consecutive growth, according to consulting firm Bain & Co.'s 2014 China Luxury Market Study, which was released in January.

Growth of luxury goods on the Chinese mainland was down 1 percent to 115 billion yuan (18.7 billion U.S. dollars) in 2014, with watches, men's wear, and luggage and bags being hardest hit, the study showed.

POOR SALES VS. RICH DEMANDS

Sales of Swiss luxury giant Richemont dropped 4 percent in the third quarter (3Q) of 2014, an epitome of the poor performances of some prestigious names including Montblanc, Rolex, Armani and Ferrari.

Hugo Boss shut seven mainland shops in 2014, followed by six shops from Ermenegildo Zegna and four from Burberry.

The amount of polished diamonds imported into China declined for a fourth consecutive month in January as a result of a weak domestic market as well as sluggish global economic recovery, according to the Shanghai Diamond Exchange.

Corruption and bribery were said to have driven unsustainable growth in China's luxury market, where expensive watches, bags and clothes were given in exchange for "favors".

Although luxury retailers are entering winter amid the ongoing anti-corruption campaign, "daigou" (overseas shoppers who buy and send luxury goods to customers in China) are embracing the spring of their career.

The Bain study showed that daigou had an estimated market value of 55 billion yuan (8.96 billion U.S. dollars) to 75 billion yuan in 2014, which contributes to the fact that 70 percent of luxury goods bought by Chinese were purchased abroad or through daigou services.

A report from Fortune Character, a domestic luxury market research institute, claimed that Chinese customers brought a whopping 46 percent of global luxury goods worth 106 billion U.S. dollars in 2014, compared with a mere 25 billion dollars rung up domestically.

Among Bain's 1,400 respondents, 70 percent said they had used daigou: Competitive pricing, convenient mobile applications and safer payment methods were all cited as determining factors.

ADAPTATION

Confronting the "new normal" of lower long term growth and emerging sales channels, such as daigou, global luxury producers are actively adapting themselves to the changing market dynamics.

Winning the country's growing middle class has become the priority for struggling luxury brands as a McKinsey & Co. report predicted that the nouveau riche in second and third tier cities would be the new drivers of the domestic luxury market.

According to the firm's predictions, this group, who do not frequent luxury shops, now accounts for up to 61 percent of luxury customers.

Brands such as Louis Vuitton, Gucci and Coach are all actively shifting their strategies -- ditching flashy logos being the most notable trend -- to woo this newly emerged group, who are believed to have a different understanding of "luxury".

In its Shanghai-based flagship store, Coach has minimized the number of handbags emblazoned with its iconic logo, this category now accounts for less than a quarter of the store's display.

Gucci, instead of "standing high above the masses", streamed its fashion show online. Other mainstream luxury brands including Tiffany, Catier and Chaumet invited popular fashion bloggers from China to their events.

In addition, accounts on China's many social networking sites has become a must for luxury brands wanting to promote new collections.

Cosmetic brands, such as Clinique, have lowered the prices of some products in China. Luxury watch brands, including Zenith and Hublot, are expected to be priced the same in Chinese and overseas shops.

Zhou Ting, president of the Fortune Character Institute said the "consumption drain" following the variation of information and purchase channels has prompted luxury brands to consciously slash prices in China. Endi