1、The China Luxury PlaybookAssembling the brand growth puzzle in the new Chinese Luxury market realityJanuary 2024Authors:Thomas Piachaud Max PeiroThe China Luxury Playbook02RE-HUBExecutive Summary Shifting market dynamics have led the Chinese luxury market into a period of relative uncertainty.In thi

2、s new uncharted territory,there is still growth to be obtained,but with new challenges to overcome to achieve it.A shift in growth mindset is required,focusing on brand optimization to ensure the long-term sustainable growth of brands in the Chinese market.As part of this shift,we propose a 5+1 play

3、book that focuses on five key areas that brands must address to drive favourable growth in the Chinese market.Wholesale Excellence-wholesale practices during COVID have led to a confusing consumer environment when it comes to China product availability and pricing.A focus on creating wholesale excel

4、lence which includes assessing wholesale partners,pricing control and product traceability is needed.Discount Management-while discounting is inevitably a key driver of sales for many brands,stricter management of the width and depth of discounting must be maintained in order to build equity and avo

5、id a race to the bottom and eventual corrosion of brand value.Product Pillars-consolidating and investing behind specific product pillars is a key ingredient to mitigate risks associated with either heavy dependence on a few products or a sub-optimal and less consolidated approach through rapid prod

6、uct innovation.Channel Expansion-the pandemic period saw a rapid expansion of the quantity of sales channels in China.Moving forward a focus on quality over quantity will help ensure a healthy ROI on expansion investments.Differentiation&Desirability-a reassessment of the localized interpretation of

7、 a brands global positioning,coupled with a strong focus on bringing locally relevant activations and communications is key to success in China.Goal Alignment-consolidating performance around the five key areas for improvement additionally requires a shift in the KPIs measured by brands to ensure a

8、healthier growth.As we move into a period of single-digit growth,brands that can act against these imperatives are well positioned to achieve above-average growth against competition,further consolidating the importance of China as a luxury growth engine.The China Luxury Playbook03RE-HUBIntroduction

9、Since 2021 Re-Hub has been actively monitoring the luxury industry in China.While we primarily focus on the digital side of things we have observed many of the ebbs and flows of the past three years.COVID provided many challenges to brands in navigating complexities,and luxury especially was faced w

10、ith the need for rapid digital transformation to maintain momentum.With the period of single-digit growth in China seemingly at an end as the market matures,now is the time for decision makers to take a longer-term view and make strategic choices as to where their brand wants to be in the future.Bra

11、nd value is not lost overnight,except in some exceptional circumstances,but instead can slowly be eroded by employing short-term tactics that may help boost performance in the short term.Based on experience across the luxury industry in China we present an outline for luxury brand building over the

12、next five years,highlighting the key areas that brands must focus on with determination to maintain sustained growth in China.The luxury industry in China is undergoing a transformative phase,compelling luxury brands to reconsider traditional business strategies.The age of explosive growth is over,a

13、nd the market recovery in the post-COVID era is taking on a different faade than many had predicted.This change in growth model which is intrinsically linked with an evolving business dynamic as well as the ever-changing preferences,needs,and desires of the Chinese consumer,requires a refined approa

14、ch.The China Luxury Playbook04RE-HUBTo better understand the current situation,we look toward certain market indicators that can give us the context within which luxury in China now finds itself within.On their own,each piece of information can only take you so far,but together they paint a reasonab

15、ly compelling picture of a significant shift in the market and consumer attitudes which in turn will undoubtedly affect luxury performance moving forward.The Chinese market has posted consistent and strong GDP growth over the past years,even throughout the COVID pandemic.However,we have seen a slowi

16、ng of overall growth,signalling a more stable,lower growth market.Consumer confidence took a severe hit in China after the on-set of COVID disruption in 2022 and has yet to recover to anywhere near the previous levels.This indicator tells us that luxury spend from the middle classes is harder to ear

17、n,and while HNWI consumers are more isolated from these trends,the lower confidence in the overall financial picture may keep consumers from spending.Just Six ChartsGDP GrowthConsumer Confidence808590955120125130Sep-18Feb-19Jul-19Dec-19May-20Oct-20Mar-21Aug-21Jan-22Jun-22Nov-22Apr-23Sep-2

18、3Figure 1:Figure 2:Chinese GDP growth rate each year in%Chinese consumer confidence index Sep 2018 until Sep 20237.85%7.77%7.39%7.02%6.85%6.95%6.75%5.95%2.24%8.45%2.99%5.01%4.16%0%1%2%3%4%5%6%7%8%9%10%20000224The China Luxury Playbook05RE-HUB-10%0%10%20%30

19、%40%50%Feb23Mar23Apr23May23Jun23Jul23Aug23Sep23CosmeticsApparel and FootwearJewellryThe Bounce-Back?Market ProjectionsThe start of 2023 welcomed the lifting of many of the restrictions that had caused disruption during 2022.Optimism was high for a strong rebound of spending,and a return to the growt

20、h of the previous years.Initially,growth in spending across cosmetics,apparel and jewelry was high-however it is worth noting that being a year-on-year growth this was compared against the relatively low spending of March/April 2022.However,after the first two quarters we saw a sharp dip in spending

21、 growth-in July for some categories spending even shrank.These figures suggest that the return to spending is either a much longer process than anticipated or not as strong as might have been hoped.Considering all the data available,assessing the growth trajectory of the luxury market in the next ye

22、ar could be considered more soothsaying that science.That being said,reports from consulting firms Bain&Co as well as McKinsey released late in 2023 offer an optimistic but moderate projection of the potential growth of the luxury category moving into 2024.Figure 3:Figure 4:Growth of spending by lux

23、ury category in 2023Actual and projected growth rates from consulting reports on luxuryBain and Altagamma“Long Live Luxury”202220222023+12%-8%+4-6%+11-13%+16%H1+1-3%H220232024McKinsey“The State of Fashion”The China Luxury Playbook06RE-HUBShades of GreyThe quarterly financial reports from key luxury

24、players have highlighted a polarization in brand performance.While top brands have been able to maintain and,in some cases,accelerate their growth,others have been struggling.The grey market(in this case defined as unauthorized resale of products on digital channels in China)has been growing steadil

25、y since the onset of COVID19.The availability of products at significant discounts,coupled with increased focus on user experience and marketing has led to a channel that for some brands significantly cannibalizes opportunities in the Chinese market.The comparative growth rates for brand direct fina

26、ncial reporting and DeWu(one of the strongest emerging platforms)highlight the troubling reality of the grey market situation.At the onset of COVID-19 as travel was curtailed,many luxury brands focused on developing the relatively underdeveloped Chinese luxury ecosystem(compared to the share of cons

27、umption from Chinese consumers).This led to a significant growth in brand presence across otherwise untapped cities in China as well as explosive growth of brand presence in Tier 1 markets.According to reports from Savills China was responsible for over 50%of luxury store openings globally in 2021,w

28、ith that figure decreasing slightly to 41%in 2022 and 44%in 2023.As we move into a more moderate growth phase,this continued footprint expansion may curtail.Store OpeningsFigure 6:Figure 5:Group financial growth against DeWu growth rate by GMV as a proxy for grey marketNew luxury store openings by c

29、ity in 2022/2023 excluding Hainan3735149976555ShanghaiChengduShenzhenBeijingNanjingWuhanZhengzhouHangzhouQingdaoGaungzhou17%17%9%33%89%44%0%50%100%22%17%17%63%101%52%0%100%200%2%3%-9%31%64%30%-20%30%80%Q1 23Q2 23Q3 23The China Luxury Playbook07RE-HUBBrand ValueAs we move into a slower growth paradig

30、m,a shift in focus is necessary.At Re-Hub we envision this shift should be associated with maximizing and optimising brand value.We propose a framework for understanding the different levers to ensure the maximum brand value in the Chinese luxury market moving forward.Value Creation:In the short-ter

31、m,focusing on the new value you are generating for consumers is key.This includes elements of both product and marketing.Ensuring you have the right events,collaborations,influencers,and suitable products in place to drive consumer interest and understanding of your brand.Value Protection:Brands wor

32、k incredibly hard to create value,but more needs to be done to ensure protection of that equity.By monitoring channels outside of direct brand control to ensure the maximization of brand equity can help maintain a consistent and brand led experience.Value Retention:With slower growth comes the emerg

33、ence of shifting consumer behaviors.A burgeoning secondary market for luxury products is on the ascendance in the Chinese market which will further impact brand value in the future.This area is specially relevant for the most exclusive brands in luxury.Value CreationValue ProtectionValue RetentionYo

34、ur brands power to create new value to consumers through your products and activationsThe need to control sales channels to maximize brand equityYour ability to elevate your brand reputation by maximizing your products retained valueShort-TermLong-TermFigure 7:Brand Value Framework for short-term an

35、d long-term brand value growthThe China Luxury Playbook08RE-HUBThe 5+1 PlaybookFor luxury brands to navigate the shifting dynamics and the new growth paradigm of the Chinese market,we present a 5+1 playbook with five key areas that we believe brands must address to drive sustained growth and brand v

36、alue,complete with a new framework for measuring success against these five areas.While these areas are by no means the complete job to be done,we believe they are crucial areas that should be on the top of senior executives agendas.The successful evaluation and tackling of these areas require a glo

37、bal approach from brands.Given the disproportionate revenue generated by Chinese consumers,these are areas that global management cannot afford to drive solely from a local market perspective,and instead must work in close unison with local teams to drove effective,growth-driven,solutions.Wholesale

38、ExcellenceChannel ExpansionDiscount ManagementDifferentiation&DesireabilityProduct PillarsGoal AlignmentFigure 8:The 5+1 luxury playbook for sustained brand value growthThe China Luxury Playbook09RE-HUBFrom our monitoring of brands prices and assortments across grey market channels in China,we have

39、found a strong pipeline of wholesale products finding their way to Chinese e-commerce platforms,often via cross-border transactions,at prices below that which consumers could access at international retail with tax rebates.This creates a two-fold issue.Firstly,it removes purchases from brand-direct

40、channels in China,given the attractive discounts offered,while undermining brands investments in China.Secondly,it also affects the purchasing decisions of Chinese consumers abroad,further undermining offline retail performance in other markets,as they can purchase the same products at below-Europea

41、n prices being delivered directly to their door.This direction represents a sub-optimal approach to ensuring returns on investment and long-term growth.Moving toward heavy reliance on wholesale margins will inevitably erode operating margins and overall profitability,with the added risk of losing co

42、ntrol over the experience with a long-term impact on brand value.Ensuring the best practices within wholesale is one of the biggest imperatives to protect equity moving forward.Wholesale ExcellenceCynthia ZhongNorth Asia General Manager atMulberry“A greater focus on direct-to-consumer channels while

43、 controlling wholesale enables reformed pricing strategies,enhances margins,and boosts brand awareness.”The traditional wholesale model needs re-evaluation.Retail excellence has long been a focus for many brands,but we suggest there is also a need for a focus on wholesale excellence to provide brand

44、s with greater control over their brand image,exclusivity,and pricing,ultimately enhancing perceived value.While wholesale is a useful tool to drive growth and expansion,it is necessary to ensure it is kept within strict guidelines of excellence to avoid equity loss.Top 20 Bag Discount AverageTop 20

45、 Bag Revenue(Approx.2023 Nov YTD)-72%-71%715M-45%-38%116M-31%-24%527M-26%-21%185M-12%-3%1.16B+2%+49%410M+20%+46%110MFigure 9:Top brand bag discounts on DeWu as a proxy for grey market/wholesaleThe China Luxury Playbook10RE-HUBThe net result of leveraging discounting as a key revenue driver is a cons

46、olidation of revenue around discounting periods(11.11,6.18 etc.).Coupled with an increasing price to play on each of the platforms,as they in turn compete with one another for consumer attention(TMall vs JD.com vs Douyin etc.),leads to an attack on operating margins,and an unsustainable,potentially

47、snowballing,race to the bottom.Offering discounts is a straightforward tactic to boost short-term revenue,but returning to full price can be challenging.Brands should consider adopting a long-term mindset,using discounts sparingly as an exception rather than the rule.Discount ManagementThomas Piacha

48、udHead of Strategy at Re-Hub“Without close management revenues are firstly funnelled into festivals,with a potential short term rise in revenue,however prolonged reliance on this lever erodes equity in the long-term.”Figure 10:The average width(number of products)and depth(percentage discount versus

49、 listing price)for brands TMall flagship stores during key festi-vals.Effective control over discount strategies is pivotal.Luxury brands need to take the reins on discounting to maintain brand prestige and exclusivity,while still leveraging sales promotions strategically.Over the past two years,dis

50、counting has been over leveraged by some brands(in some cases to combat the effect of grey market goods).The recent 11.11 festival highlights this well,with many brands increasing the width and depth of their discounting,some to a very significant level.81%87%99%93%43%40%47%54%24%17%25%20%30%39%36%3

51、5%15%11%29%32%34%35%37%41%22%13%24%12%38%38%38%3%35%0%0%0%34%0%0%0%6.18 2022WidthDepth11.11 20226.18 202311.11 2023The China Luxury Playbook11RE-HUBThere are two extremes when it comes to pillars.The first,one single pillar which your brand relies on over an extended period.This approach can pay div

52、idends with enough investment behind product building,and the eventual output can be a truly iconic product that supports and becomes synonymous with your brand.However,change is the only constant,and if the market moves away from that product the ability to generate growth is challenged.Alternative

53、ly,on the other side,brands can fall into the trap of never consolidating the opportunity behind categories,collections,or products.Instead,constantly changing pillars,or allowing the erosion of their pillars through wide availability and pricing confusion.An idealized situation is identifying the p

54、illars on which the brand will be built,understanding that this will shift over time,while ensuring that there are other pillars in ascension to support the brand.This requires strong alignment across planning,design,merchandising,and marketing.Ongoing monitoring is crucial to identify early signs o

55、f a downturn in one pillar,allowing a proper transition into a new pillar with the required investment behind itProduct PillarsNicolas MorineauxCEO at Galeries Lafayette China“To ensure sustained performances,successful brands dynamically adjust the split of their Marketing/Communication/Merchandisi

56、ng investments between historically successful product pillars and new ones,whether disruptive or in the continuity.”Figure 11:Saint Laurent product pillars help support the development of the brand over-time.Shown is the percentage of brand revenue on TMall flagship stores for each collection.The i

57、ntertwining of brand building and product development is essential to sustained success.In this respect we talk about product pillars.Whether categories or specific collections,having pillars that support and underpin your brand equity in terms of product is crucial.In the Chinese market,establishin

58、g a coherent identity and product excellence go hand in hand to resonate with discerning consumers.Niki37.8%Niki30.6%Niki30.9%Niki29.1%Cassandre11%Cassandre10.4%Cassandre9.6%Le 57 11.7%Kate6.9%Kate5.9%Le 57 9.4%Casssandre10.2%Manhattan5.7%Nolita5.4%Nolita8.5%Kate4.6%Le 57 5.9%Le 57 5.1%Kate5%Nolita3

59、.5%H1 2022H2 2022H1 2023H2 2023The China Luxury Playbook12RE-HUBIn an environment of moderate growth,there arises a need to consolidate rather than accelerate,ensuring a return on investment and alignment with the broader brand strategy across channels.This shifts the emphasis from quantity to quali

60、ty.Channel strategy becomes paramount,recognizing the distinct role that each channel plays in advancing the brands agenda.The job is twofold ensuring consistency in experience across each of the touchpoints,while also differentiating products to cater to the diverse consumer segments they serve.Mov

61、ing forward we should expect to see some brands still expanding realizing the opportunity to expand their brand presence to drive growth.Chanels opening of a brand flagship store in Zhengzhou in December 2023 underscores this.On the other hand,we may see brands with high numbers of stores consolidat

62、ing their store numbers in line with the focus on quality of experience rather than quantity of doors.In the digital world,expansion can result in either top-line growth or an eventual cannibalization of other existing channels.As an example,Douyin,with a strong focus on livestreaming,presents an in

63、teresting opportunity to engage with consumers in a new way,however,the associated costs of running livestreaming operations and the drive for discounts result in a lower ROI for every unit sold.If the result is a cannibalization of potential sales on TMall or self-operated digital channels,GMV grow

64、th may be achieved,but with a less healthy bottom line.Channel ExpansionThomas PiachaudHead of Strategy at Re-Hub“Channel expansion must have the complete picture in mind-no channel exists in isolation,the relationship is symbiotic in the heavily intertwined China ecosystem.”Figure 12:Left:Brands op

65、ening flagship stores on digital channels in 2022/2023Right:Flagship stores openings in 2023 from top brandsChina has accounted for nearly 50%of the global expansion in new luxury store openings.Notably,this expansion has reached even lesser-known cities outside of the usual metropolitan hubs,introd

66、ucing luxury brands to an extensive Chinese audience in cities with populations rivalling those of major European capitals.In addition,the eCommerce landscape has experienced rapid growth,with over 150 of the top luxury brands being present on TMall Luxury Pavilion,and new flagship stores appearing

67、on JD.com and Douyin more recently.OnlineOfflineChanel opened their new flagship store in Zhengzhou in Henan province in December 2023Louis Vuitton opened their first store in Haikou on Hainan Island during Q2 of 2023The China Luxury Playbook13RE-HUBThe pandemic period offered a rare opportunity for

68、 brands to act in reasonable isolation across markets,but as the luxury consumer moves back into a global context,consistency is key to ensure differentiation.After validating,confirming,and aligning the positioning the localized expression of the positioning is key.Low brand loyalty,a high sensitiv

69、ity to slip-ups,and the rise of a compelling array of local brands in China requires a greater understanding of cultural,social,and economic nuances.Luxury brands must tailor marketing campaigns,product assortments,store layouts,limited editions,personalized experiences,and brand collaborations to t

70、he China market.Often a global campaign executed in China with little thought to localization falls flat.Lacking the support of local influencers(who are primary drivers of engagement),or relevant topics can lead to a sub-optimal ROI for your marketing dollars.To achieve this,it is imperative for gl

71、obal teams to liaise closely to their local counterparts,and there is no one size fits all approach to achieve true differentiation.This is an ever-evolving process where brands must adapt to changing contexts with the right balance of confidence,humility,and flexibility.Differentiation&Desirability

72、Pablo MauronManaging Director at Digital Luxury Group China“Localised communication is shaping the brand perception in China,since all the most important consumption milestones dont have a Western equivalent to build on.”Figure 13:Left:The top 3 posts of 2023 on Weibo and RED brand official accounts

73、 by total engagement Right:Selected offline events in China that generated brand upliftWhile creating differentiation and desirability is a key driver of success for any luxury brand,it is something that is easier said than done.From the perspective of pure branding this must start at the highest le

74、vels in creating a clear,concise,and understandable brand positioning.This includes identifying who the brand is,and what it stands for and being dogged in upholding the brands core values,identity,and unique selling proposition,ensuring that the essence of the brand remains recognizable and compell

75、ing.12.3M65.7k12.2M43.9k8.5M39.3kSocial MediaOffline EventsPradasphere II in Shanghai,Q4 2023 Gucci Cosmos event in Shanghai,Q2 2023Louis Vuitton City-Walk pop-up in Shanghai,Q3 2023Cafe de Ami in Beijing,Q4 2023The China Luxury Playbook14RE-HUBmeasures beyond revenue growth are essential to support

76、 the short-term execution of long-term strategies.By expanding the scope of KPIs,functional teams can better understand the long-term value they are creating.Secondly,ensuring deeper alignment between global and local teams,and across functional teams,in assessing the relevance and feasibility of su

77、ch KPIs.Continuous monitoring and communication on the evolution of the KPIs is crucial to measure the brand evolution and to assess the progress towards the overarching targets.Goal setting should be a continuous and adaptable endeavor,with holistic targets that are subsequently deconstructed into

78、actionable metrics,enabling brands to flexibly adjust and respond to market shifts and seize emerging opportunities.Goal AlignmentMax PeiroCEO at Re-Hub“A new paradigm in growth also requires a paradigm shift in how you measure success.Only measuring the top-line will harm you in the long run.”Figur

79、e 14:A shifting KPI landscape focused on the playbook for luxury brand buildingAdjusting goals and strategies to align with the evolving Chinese market may be challenging.In the face of shifting economic circumstances and potential loss of short-term revenue growth,luxury brands need,more than ever,

80、to have a long-term strategy for the Chinese market,and adapt their goal-setting process,alignment between global and local teams and monitoring process accordingly,to ensure continued relevance and effectiveness.Firstly,a reevaluation of KPIs to include more actionableWholesale ExcellenceGrey Marke

81、t SizeDiscount WidthTop 10 Product RevenueChannel Portfolio OverlapShare of VoiceDiscount DepthNew Product PerformanceChannel ROISentimentSell-Through RateDiscounted vs Full Price PerformanceSell-Through RateCollection PerformanceCannibalization RateOffline Market PenetrationEngagementReachAverage D

82、iscountCounterfeit PresenceProduct SourceChannel ExpansionDiscount ManagementDifferentiation&DesireabilityProduct PillarsThe China Luxury Playbook15RE-HUBConclusionsThe market trends that enabled the rapid acceleration of growth for luxury in China are no longer relevant in the current context.Howev

83、er,this doesnt mean that growth is over.We still see the potential for mid to high single digit growth in the market in the years moving forward.This growth is a market average,and contained within this average there will undoubtedly be over and under performers.The framework of the luxury imperativ

84、es that we present in this paper is meant to act as a guide as to 5+1 areas we believe are crucial for brands to focus on to best position themselves to be in the over performer category rather than the under-performer category.While some of the points we present are focused on generating top line a

85、wareness and growth,a more important part of moving into a sustained growth model is a focus on optimizing bottom line and the protection of brand equity in the longer term.In this respect,growth can be unlocked,but in addition this growth should be healthier,thereby future proofing the brand agains

86、t coming market head or tailwinds.Given the important of the Chinese market and Chinese consumers on the global luxury market,brands must approach these imperatives with a global view.This requires both a global to local,and local to global approach,through rapid iterations.The era of easy growth in

87、 the Chinese luxury market is over.Instead optimized growth will secure brand value moving forward.The China Luxury Playbook16RE-HUBAbout Re-Hub Re-Hub helps Luxury brands in China to OPTIMIZE BRAND VALUE by providing data-driven answers.Through our three Data&AI tracking platforms-COMPASS,SPECTRUM

88、and SENTINEL we deliver actionable insights across brand-owned channels,grey-markets,and pre-owned markets respectively in order to gain clarity,alignment,and direction for business strategic optimization in China.BENCHMARK YOUR PERFORMANCE against Competitors across ChannelsIDENTIFY PERFORMANCE GAP

89、S and Opportunities to PrioritizeGENERATE NEW GROWTH OPPORTUNITIES at SpeedLearn more at www.rehub.techCOMPASSCOMPETITIVE INTELLIGENCESPECTRUMGREY-MARKET MONITORINGSENTINELSECONDARY MARKET ANALYSISThe China Luxury Playbook17RE-HUBAuthorsThomas PiachaudHead of Strategythomasrehub.techMax PeiroCEOmaxrehub.tech