Why FOMO is Shaping the Luxury Market Now More Than Ever

There’s always one recurring theme I see in my luxury masterclasses: Luxury managers are aware that their brands aren’t prepared to be attractive or relevant to millennials today — at all. And while they struggle to adapt to changes that have already happened, the changes that are coming via Gen Z will far outpace what they’ve already experienced. As a result, it will be critical for luxury brands to have the ability to anticipate what will happen over the next decade. That’s because, according to research, luxury brands are only relevant to younger consumers if they are considered influential and innovative. Brands that are relegated to following the pack will quickly become irrelevant and will be replaced with zeitgeist-defining brands.

How do we know this? Because of the consumer signals we receive. One of those signals, FOMO (a.k.a. fear of missing out) is what’s driving Gen Zers — more specifically, the fear of not being relevant because they’ve missed out on something culturally important. This is the feeling that will completely change the way brands — and even entire markets — operate in the future.

Imagine that a suitcase company launched a new trolley, and because you weren’t paying attention, you are now among those unlucky people who missed out on the latest fashion accessory. You may ask yourself: How did that happen?

For decades, the suitcase market was one of the most traditional markets (even the most boring one, some say). Consumers bought a suitcase as a utility that would hopefully be used for an entire lifetime. Function and durability won over form every time.

There were some exceptions, mostly due to material differentiation, but most businesses blindly followed the same century-old playbook. But now, within the last few months, everything in the industry has changed. Suitcases are becoming the new sneakers (meaning the hot collectible luxury purchase) thanks to new concept items like Rimowa’s limited-edition collaboration with Christian Dior and Off-White’s transparent trolley. Both products have upended the rules of the category while creating an incredible amount of value and price points the industry has never seen before ($4,000 for a cabin trolley, for instance).

Some of these suitcases are so valuable, the owners don’t even use them for travel. They’ve become a must-have/a collectible/a work of art and, most importantly, they create FOMO. Suitcases evolved in less than a year from utilities to highly-sought-after fashion items for a season, for one trip, or even to sit at home. I know one owner of a limited-edition Rimowa suitcase who would rather postpone a flight than check his new luggage. The suitcase could be damaged and not available for the next trip. Thanks to FOMO, consumers are treating must-have possessions as even more valuable than they are

When consumers experience FOMO, they start to follow everything the brand does in fear of missing out on future experiences. But to stimulate the desire to follow, brands must create content that keeps followers engaged. And to keep them engaged, there needs to be authenticity and relevance.

But how do you create an authentic message? It’s important to understand that it’s the customer — not the brand — who decides what’s authentic. If they evaluate the brand and its content as authentic, then it is. If they find it inauthentic: It is. Brand intentions don’t matter. There’s no such thing as becoming ”more authentic.” Authenticity is binary: Either a brand is perceived as authentic, or it’s not.

Once a brand is seen as authentic and its message resonates, then relevance is created. Only then will a consumer consider that brand, especially a young, urban Gen Zer. Authenticity drives a consumer’s desire to follow a brand, their positive reactions create FOMO, and in turn, FOMO stimulates more people to follow the brand. It’s a virtuous circle if done correctly, and it’s a nightmare that destroys brands when it’s done incorrectly.

What should brands do to prepare for a decade of increasing FOMO at an accelerated pace? First, they need to be aware that consumer perceptions are changing rapidly. This rapid change reinforces the consumer’s need for brands to be innovative and influential. Complacency will completely kill a luxury brand by 2030, as innovation and influence become more and more crucial.

Many brands I speak with are unprepared for this change. They lack a comprehensive brand story that balances the brand’s rational and emotional aspects or offers a clear purpose. The brand story is the base of all brand content, so if the brand story is weak, there’s no way to guide the consumer. Without guidance, content becomes random and empty. Gen Zers will simply look elsewhere. As their influence increases, brands will have to refocus their brand storytelling, equity, and content.

Real-time consumer insights will become a precondition to understanding the rapidly evolving views of consumers, and artificial-Intelligence based insight technologies will replace focus groups and traditional market research, as they lack precision and are too isolated or slow to work in today’s quickly changing marketplace. Very few brands can generate and process real-time consumer insights today, but this will be essential in the future.

FOMO on ”steroids” will separate the successful brands from those who fail. The influence of FOMO will force a completely different way of thinking onto brands. They must ask themselves: How can luxury brands become trendsetters? How can they create a desire in a specific moment? How can they involve more consumers? How can they add perceived coolness? In the future, brand strategies will have to address this and create FOMO-growing moments. How prepared is your brand?

Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger

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Unlocking the Potential of China’s Elite International Shopper

The UN predicted that 100 million Chinese will become travelers by the year 2020, but that number was reached in 2016 — four years ahead of schedule. Thanks to China, travel retail has transformed every actor in the airport industry, turning airports into destinations unto themselves. Data shows that what was 70 percent “impulse buying” five years ago is now 79 percent “planned buying” today, meaning that travel businesses should be planning unique and exclusive offers to elite or frequent travelers rather than price-sensitive promotions for standardized products.

In 2020, one segment is forcing airports and retailers to elevate the travel experiences for the rest of us: the elite Chinese international traveler. Having already moved their focus from infrequent first-time travelers to the dominant spending patterns of elite worldwide travelers, travel retail actors are now compelled to mold their offers specifically for this powerful and growing Chinese segment.

A recent in-depth study by the Swiss strategic technology and payments partner Global Blue offers a unique point of view on the forces at play in luxury retail travel segmentation. One-third of global personal luxury goods spending is done by consumers shopping abroad — a total value of $99 billion — and within this value, the elite international shopper represents 17 percent of that tax-free spending amount.

What makes an elite international shopper?

Around 40 percent of this segment is from greater China, while 15 percent is from Southeast Asia. They spend an average of €55,000 at international, tax-free locations over roughly 12 transactions a year, equaling three trips a year or 15 days of travel, leisure, or business. But recently, we’ve noticed a pivotal change in this group’s travel tastes.

This segment began by traveling in Hong Kong, Southeast Asia, Europe, New Zealand, and Australia, but today, Africa and rural parts of Europe have become the new hotspots. More of China’s elite travelers are now interested in far-flung countries that offer more rural, natural, and thrill-seeking experiences. That includes safaris but also unique and rustic castles in the French or Italian countryside that are often hard to find or access.

Aside from mistakenly focusing on the infrequent travel shopper segment, marketers also wrongly assume that Chinese travelers still prefer to sightsee in groups. But today, they are much more independent. In 2015, Chinese consumers traveled wherever the exchange rate worked strongly in their favor, but now they look at travel and shopping overseas as more of a cultural experience.

Therefore, any destination that can provide a shopping opportunity with a cultural experience will win. Hong Kong, for instance, only offers them a familiar shopping destination, but Japan provides shopping opportunities within a unique local culture with a quick, affordable flight from China. The same goes for Seoul and Taipei.

Global Blue Singapore Managing Director, Jan Moller, explains the market’s potential, saying, “Most destinations are seeing an increase in Chinese arrivals. But the spending is not increasing, meaning Chinese are not only spending, [but] they are also going for experiences. [Today], seven percent of the Chinese population has a passport. But if you reach 15 percent, 120 million outbound [travelers] become 200 million, and they are first-time travelers versus experienced travelers.”

Successful traveler profiling

We tend to put all Chinese travelers in the same bucket, but they’re not homogenous. Standard profiling suggests two main types: the Status seekers (who must convey a certain image) and the Appreciators (who want an engaging experience). Both are traveling everywhere these days, and a lack of diversity from brands and their offers has created inefficiencies.

With data from a recent Global Blue report on the elite traveler, three new international personae have now been developed: Janice, a millennial shopper (60 percent come from China); Baya, a High Net Worth Individual (22 percent come from Southeast Asia); and John, a Silver shopper (49 percent come from America and are age 55 and up.)

Janice: an elite Chinese millennial shopper

The millennial group is the one that’s most represented within the elite Chinese shopper category at 34 percent, and they are reacting particularly well to creative co-branding collaborations like the LV x Supreme releases.

A 32-year-old only child with a strong education from Guangzhou, Janice is a young executive in the tech industry who spends 15 days of travel over 3 – 4 trips per year. 25 percent of millennials follow Janice and visit both Europe and Asia, and their favorite destinations are Japan, France, Italy, and the UK. 
Europe is a locale for 25 percent of Chinese millennials, while Japan is a landing spot for 50 percent of them. Although shopping is just a part of her cultural experiences abroad, she tends to purchase special editions or collaborations from luxury brands while traveling.

Janice’s tax-free spending amounts to approximately €50,000. She favors collaborations such as LV x Supreme, Chanel x Pharell, and Adidas x Yeezy. 
Watches and jewelry are her biggest purchases at 45 percent, followed by leather goods at 32 percent.

Baya: Indonesian Gen Xer and high net worth individual

Born and raised in Jakarta, Baya is a 43-year-old CEO who travels for 30 days over four trips per year, avoiding peak periods.

Baya and Southeast Asians represents 22% of HNWI shopping in Europe only. Seven days in Singapore is her favorite shopping destination, followed by six days in France and a long weekend in Japan.

Motivated by a broader selection of items and a higher quality of experiences, she spends an average of €210,000 on tax-free shopping each year, preferring watches and jewelry from brands like Richard Mille, Patek Philippe, and Hermes.

John: American silver traveler

An investment banker from New York City, John is a 60-year-old ‘Silver Shopper’ that travels for 20 over three trips per year, mostly in the summer.

While 48 percent of these US-based travelers shop in one unique country over multiple trips, they will visit at least two countries in Europe but will rarely travel to Asia. While John spends most of his time in the UK (six days on average), he will spend the most money in France (four days) and Italy (three days).

John’s tax-free shopping amounts to €53,000 while traveling, and he will spend €6,500 at luxury outlets — which isn’t considered a traveling experience — in Europe at stores like LV, Gucci, and Rolex, which he considers to be a part of the traveling experience.

There are some common behaviors in each of these Elite travelers segments:

Experiences trump shopping and transactions

Chinese HNWI travelers spend an average of 20 days on holidays. In 2014, their outbound trips increased by 17 percent. So Chinese millionaires are spending more time on holidays and are experiencing more leisure activities.
 Hurun recently released a report surveying 300 ‘super-travelers’ (those who spent $35,000 or more on luxury travel products).

These travelers need to be watched closely because their tastes will influence the rest of us. The average Chinese millionaire is taking 4 to 6 outbound trips per year and are spending less on luxury in China, instead of traveling overseas to get more cultural and culinary experiences. In addition to their luxury travel growth, this group is being seen on their travels a lot more via social media.

This explains the increase of outbound from this group, and the European market was ready for it, unlike America. Elite Chinese shoppers’ top destinations are France (36 percent), UK (31 percent), and Italy (36 percent). 
They will spend €42,000 in town and €20,000 in department stores (remember, there is a high luxury tax in China, so going to Gucci is 30 percent cheaper in the EU on top of a tax refund.)

Tax-free shopping happens in the city, and duty-free happens at the airport. Retailers in the city are competing with the airport’s duty-free stores, and some luxury brands want to capture the eyes of passengers in town since their selection of goods at the airport isn’t as high and is less of an ‘experience’ for travelers. Chinese travelers currently represent 35 percent of all retail spending in EU airports. Europe is already maximizing their efforts (and have for the last eight years), whereas the US is still collecting and analyzing data.

The French paradox

France is the top destination for elite shoppers, but it only captures 46 percent of international elite shoppers’ luxury spending while the UK has 60 percent of their spending, and only 30 percent of all greater China international elite shoppers even visit France. By developing and promoting specific end-to-end shopping journey experiences, France can start to convert the elite Chinese shopper, but what experiences they should focus on has yet to be determined.

Singapore leads the way, followed by… Beijing?

The hype and speculation about Beijing’s new airport can only be outdone by Singapore’s Changi airport-turned-experiential destination known as Jewel.

As a performance indicator, Singapore’s tax-free sales progression for the period between January and august of 2019 helps us understand the potential market to target. In Singapore, China and Indonesia lead the way in APAC spending, with 37 and 20 percent, respectively, of total tax-free spending, and strong performances by key markets like China, Indonesia, and Vietnam continue to fuel Singapore’s growth.

When doing deep-dive analysis of Singapore’s tax-free sales, fashion and clothing lead the way with 40 percent of total in-store sales (a 10 percent sales jump over the previous year). That segment is followed by jewelry and watches at 34 percent of total sales (a 9.6 percent sales progression), and Cambodia skyrocketed with an amazing 43 percent sales progression.

Garnering 37 percent of total tax-free spending, fashion & clothing continued to soar with Chinese travelers, accounting for 42 percent of their total spending (an average of $1,360). Department stores lost 2.4 percent of sales overall during the year, even while fashion and clothing still gained 12 percent.

The Indonesians, who came in second with 20.2 percent of total tax-free spending, were buying across categories and recorded a sharp increase in average spending, which was up 13 percent (roughly $834) compared to the previous year. While fashion and clothing led with 34 percent of total sales, the top category in sales progression was jewelry and watches with a 42 percent jump.

The rise of niche luxury travel agencies

Social media, particularly WeChat (no one uses email in China), allows travelers to easily access curated experiences while also spreading the word about them. These days, 94 percent of travelers use a travel app and most are on CTRIP or Qunar.

The influence of niche luxury travel agencies — there are only 12 of them for China — has grown a lot, too. Five years ago, there was very little in the way of luxury travel agencies, but  today, over half of the best trips millionaires embark on have been confirmed via luxury travel agencies, most of which now offer an array of proper bespoke packages.

Travel solutions:

  1. Anticipate the next wave of downtown duty-free

A huge amount of duty-free shops — a major shopping channel for luxury brands  — is in heavy development and should create a lot of competition for airport retail.

China’s duty-free sales are slated to grow at a staggering annual rate of 22 percent, reaching $24 billion by 2025, according to Morgan Stanley. China’s duty-free sector is expected to quadruple by 2025. Currently, downtown prices are roughly 15 percent higher than prices overseas, but we see room for this gap to narrow because downtown outlets have lower rental costs (15-20 percent of revenue) than airports (over 40 percent of revenue), lower labor costs, and higher gross margins. In fact, downtown duty-free prices already declined by 10 percent over the first half of 2019.

  1. Define your perfect elite Chinese segments

As Jan Moller explained in his report, the Chinese Elite traveler is the leading millennial segment. Focus on a segment that aligns with your millennial segment and have them influence each other or even meet at unique destinations. Then prepare offers that can turn Chinese travelers into new or elite travelers.

  1. Create end-to-end branded journeys

It’s not about being in the right place at the right time anymore. With contemporary art, cultural brands, and airport destinations all merging, brands should create experiential rewards that accompany travelers from place to place. Recent WeChat Index data showed that a leading cultural institution with Chinese was the British Museum, which has already collaborated with many cultural institutions and could be a very interesting player at airports.

Tanguy Laurent is Managing Partner of Creative Capital, Altavia Group Leading US Chinese retail branding agency. Follow him for more insights on Linkedin: https://www.linkedin.com/company/creative-capital-hk

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WeChat Launches Short-Video Feature In Beta & More!

In “Headlines from China,” we share the biggest news stories about the luxury industry in China that have yet to make it into the English language. In this week’s edition, we discuss:

  • WeChat Tests Beta Short-Video Feature
  • Hang Lung Properties Reports Strong Growth in China
  • Hong Kong Streetwear Group I.T’s Sales Slowed

WeChat Tests Short-Video Feature In Response to Rivals — 36Kr

Seeing short-video platforms Douyin’s (known as TikTok outside China) success, WeChat now wants to add a short-video feature for its users too. can no longer hold the crown as China’s all-in-one app. It recently launched an internal test for a new video feature on its ‘Discovery’ tab. As of now, the news-feed-like feature is only open to users in certain Chinese cities who can prove to be influential and creative, Tencent says. Organizations and individuals can now post videos up to a minute in length or up to nine images. They can also add text and link to their official WeChat accounts. While luxury brands, including the fashion retail group Selfridges, are still catching up with WeChat Mini Programs, which brand will test the water?

Hang Lung

The developer behind Shanghai’s Plaza 66 (pictured) reports strong revenue growth in mainland China. Photo: Hang Lung

Hang Lung Properties Reports Strong Growth in China — Guandian.cn

Hang Lung Properties, the commercial developer behind some of China’s luxury shopping malls like Shanghai’s Plaza 66 reports strong growth in its 2019 financial report, with HK$8.5 billion (around $1.1 billion) of revenue from property leases and 53% coming from the mainland last year. Plaza 66’s retail sales — a benchmark for China’s luxury sales — has gone up by 21% compared with a year-ago, reaching 1.69 billion yuan (around $1.23 billion). With stable sales in its core business, the Hong Kong developer can now look to other projects, such as the budding deal to bring Kering’s brands to six more tier-2 cities like Wuhan and Dalian. 

IT event

Hong Kong streetwear group I.T reports slowed growth in sales for the third quarter ended November 2019. Photo: I.T’s Facebook account

Hong Kong Streetwear Group I.T’s Sales Slowed — Jiemian

I.T, the group that owns the eponymous streetwear select shops I.T, draws links between its slipping sales worldwide with China. In the third quarter ending on November 30 last year, same-store sales dropped 5.2% in China’s mainland and 33.3% in Hong Kong and Macau. Japan and the US also shed 6.1%, according to an unaudited third-quarter financial update published last Friday. The group says that the decline in mainland China was mainly because they held back discount activities for both online and offline channels. As for its Japan and US segment, the lost sales was due to decreased tourist traffic from the mainland, according to the retail group.

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D2C Brand Perfect Diary is Disrupting China’s Beauty Market

  • In China, the development of D2C brands has been built on similar strategies to brands globally, however, the strategies have been adapted for the local market and focus heavily on user platforms and customer care. Perfect Diary has paved the way, becoming one of China’s first beauty disruptors.
  • Perfect Diary is one of China’s most innovative D2C brands and is now valued at US$1 billion. It has proved itself to be a fast-learning, dynamic brand that customers feel stands out among the stiff competition in the beauty sector. It has dominated the sector by implementing dedicated KOL strategies applied product by product.
  • According to expert opinion, when beauty brands react to trends at such a fast pace as Perfect Diary does, it can raise quality control and production issues. While there have been several negative concerns raised by consumers it seems that Perfect Diary is adept enough to resolve such issues.

Since launching in 2016, China’s homegrown beauty brand Perfect Diary is now the hottest cosmetics brand on Tmall. During Singles Day 2019, Perfect Diary broke the first brand breaking the 100 million RMB (US$14 million) sales record in one day – ahead of other international cosmetic brands.

Moreover, in September 2019, the brand raised a new round of funding and was valued at US$1 billion. Chinese media reports it is planning to use this capital to grow its offline store counts from 40 to 300 and to enter the perfume market. What attributed their astonishing growth? And what are some concerns behind? We took to the internet to find out what consumers thought and spoke with experts in marketing, influencer strategy, and beauty sectors.

WeChat-first response
Traditionally in the west, D2C (Direct-to-Consumer) brands’ path of development has been quite clear: They manufacture and ship products directly to consumers without relying on physical stores. Companies like Glossier, Allbirds, and Everlane are the flagship D2C brands; whether it’s building slack groups or repurposing user-generated content, they are disrupting the traditional industry by being user-centric.

In China, the development of D2C brands is built on similar strategies to the aforementioned but have a local twist. For example, by leveraging private traffic on WeChat, Perfect Diary has become a trailblazer in engaging with consumers on a one-on-one basis. This includes the creation of a fictional avatar “Xiao Wanzi” that befriends and chats with customers.

Once a friend is added on WeChat, the virtual avatar sends discount codes and shares makeup tutorials on her moments. Photo: screenshots/WeChat

“Today there are hundreds of “Xiao Wanzi” personal WeChat accounts run by Perfect Diary employees, all with the same profile image and WeChat Moments posts. Each of these accounts operates dozens, if not hundreds, of WeChat groups filled with the brand’s customers,” wrote marketing expert and a China trend watcher Lauren Hallanan. These WeChat groups contain daily chat updates on the latest Brand products, makeup tips and more.

Little Red Book KOLs

Besides establishing WeChat touchpoints, Perfect Diary was initially known for building viral campaigns on Little Red Book. Such popularity was achieved by their bulletproof KOL strategy. Kim Leitzes, founder and CEO of China’s influencer marketing platform Parklu, notes, “they activate across the entire spectrum — celebrity, top-tier, mid-tier, micro and KOC.” These beauty KOLs’ product reviews ultimately attracted consumers. And, because the product pricing is relatively low and accessible, ranging from about $8 (52rmb) for a lipstick to $19 (129rmb) for a twelve color eyeshadow plate, Perfect Diary easily grew its first set of consumers from Little Red Book.

As the company distributed their KOL budgets one product at a time, it built “It items” like the Little Diamond lipstick and the twelve colors eyeshadow collaboration with the Discovery channel while their consumer base snowballed. Within the first year of the brand’s launch, it became the top mentioned beauty brand on Little Red Book, ahead of luxury brands like L’Oreal, Tom Ford, and Estee Lauder.

The average media value of Perfect Diary’s KOL mentions is 36% more than other domestic brands, but the frequency of repeated mentions is much lower. Photo: Parklu

The average media value of Perfect Diary’s KOL mentions is 36% more than other domestic brands, but the frequency of repeated mentions is much lower. Photo: Parklu

However, Leitzes voiced concerns. Based on the research from their firm, in comparison with other brands, she suggests that the company hasn’t inspired enough social capital to “organically inspire aspirational KOLs.” By this, she means that while consumers are bombarded by Perfect Diary reviews, the status of this brand is not yet strong enough for consumers to voluntarily post organically.

Frequent drops
Perfect Diary has created diverse products that amassed users’ attention on social media. On Weibo, the tag #perfectdiarymonthlynewdrop had over 649,300 views and attracted a constant follower growth. In terms of collaboration, it has avoided obvious partnerships that make traditional Chinese products, such as museum overlaps; instead, it worked with more unusual outlets like the Discovery Channel and National Geographic China to launch products with color palettes inspired by nature. Unique collaborations like these have successfully expanded consumers’ preconceptions about cosmetics.

However, when beauty brands react to trends at such a fast pace, it could raise quality control issues. Perfect Diary has said they use the same factory as big brands such as Dior, YSL, and Estee Lauder yet there have been several consumer complaints.

The experts we approached, however, were understanding of such issues. “Color cosmetics are commoditized because manufacturers like Intercos dominate the industry, including supplying LVMH and Kering beauty brands,” said Leitzes. “When you’re creating new products as fast as Perfect Diary, it’s inevitable that quality gets sacrificed — especially for mass price points.”

Consumers’ complaints on Little Red Book.

Dao Nguyen, the founder of Essenzia – a consultancy for beauty and fragrance marketing strategy in China – said there can be various reasons behind consumer complaints: ranging from industry quality control standards to formula and packing. Nguyen is optimistic, noting that unless Perfect Diary completely neglects quality management, the brand is here to stay. “Perfect Diary has pivoted its strategy several times over the last three years. Their learning curb has developed greatly and it has shown it is learning fast,” she said.

When it comes to the issue of complaints, the company has its own unique strategy for dealing with consumer feedback. On its official Bilibili video streaming channel, Perfect Diary had staff create test videos to address product rumors. However, Hallanan was skeptical about whether Perfect Diary can maintain its track record. She told Jing Daily, “I think right now consumers’ curiosity about this hyped brand is really high, so they might overlook negative reviews because the price point is low and they want to try it out, but eventually, after the hype dies down, it may be an issue.”

Despite these expert concerns, by using innovative marketing tactics – from private WeChat groups to sophisticated KOL strategies on RED – Perfect Diary has proved to be a fast-learning, dynamic D2C brand that customers feel stands out among the stiff competition. It may not be flawless, but this innovative company is building a beauty community. The ambitious team (mostly post-90s millennials) has said they want to be the L’Oreal of the post-Internet era. Whether it can live up to its own claims or not remains to be seen. But without a doubt, Perfect Diary is now a beauty industry disruptor in its own right.

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Diesel’s Renzo Rosso on Enticing China’s Generation Cool

As young Chinese consumers become more and more discerning in their tastes, many Western luxury labels are struggling to gain — or maintain — brand loyalty in China. Simply being internationally known is no longer enough and has even shown to hinder a brand’s popularity among the young and unique. Youthful consumers are seeking luxury goods that relate to them and their lifestyles and personify the style tribe in which they seek to belong. For many, this has meant turning to domestic luxury brands that are able to unify the concepts of both cultural nostalgia and modern rebellion.

Alongside this struggle, established luxury brands are having to contend with an almost universal desire for streetwear over the luxe and traditional. So how can Western brands survive in this changing luxury climate? Diesel’s founder, Renzo Rosso, is forging the way, having globally rejuvenated the well-known denim label in 2019.

In March 2019, Diesel filed for Chapter 11 bankruptcy protection in the US and began a huge overhaul in an attempt to attract a new generation of streetwear-loving sneakerheads. Arguably the first step to redemption is recognizing the problem, and other traditional brands might do well to take note. Markedly, the relaunch included a big focus on China, following the opening of Diesel’s direct Chinese e-commerce website and a celebrated launch on the shopping giant Tmall. Diesel has focused on bridging the gap between global and local by working with local designers, artists, and ambassadors to promote its brand across mainland China. At Shanghai Fashion week in 2019, the brand opened a special customization showroom featuring art by the zany and rebellious Chinese contemporary artist, Chen Tianzhuo, and a capsule collection in collaboration with Chinese designer Xander Zhou.

Diesel has also kicked off 2020 with the announcement of a collaboration with the Shanghai and Milan-based label Pronounce, founded by designers Yushan Li and Jun Zhou. Some of the 18-piece, unisex ready-to-wear and denim collection was previewed on January 4th at Pronounce’s London Fashion Week Men’s runway show. The full unveiling of the collection will take place during Shanghai Fashion Week and will hit stores — in China and at flagship locations worldwide — in late March.

But will all this be enough to attract savvy Chinese shoppers? Renzo Rosso spoke to Jing Daily about Diesel’s plan in China, and why he thinks they’ve really got a shot.

Jing Daily: With Diesel returning to growth worldwide, what is your plan for targeting the young Chinese market? 

Renzo Rosso: Currently, Diesel has 56 stores in Greater China, with 12 opened in the last six months alone. In the next six months, we will be opening 12 to 15 more, taking the final count to about 70 stores in the region. The basis of our growth in the region is this strong retail development and an important increase in our online business. In addition, we have already begun to target 2nd and 3rd tier cities in China and will continue on this path in the next few years.

How do your latest collections appeal to Chinese consumers?

Our collections are designed globally but when developing them, we travel the world, including China, and we work hand in hand with our local teams to ensure market specifics are considered and looked after. Our male and female collections speak to international, open-minded, fashion-conscious but not fashion-victim consumers — well informed and with a distinct personality that they also want to express by the way they dress.

Considering your presence on platforms like Tmall, what does your e-commerce strategy look like for the Chinese market?

E-commerce is a key growth channel for us as it allows us to reach all corners of a massive country like China. In 2019, our online business increased by 166%. Currently, Tmall is our most important partner but we are working also with different platforms and operators. We are also excited to say that 2020 will see the launch of our official WeChat store.

How have your collaborations with Chinese designers been received by Chinese shoppers? 

We strongly believe in localization and working with individual markets in order to not impose on them what we are doing in other parts of the world. This is crucial. So far, our collaborations in China have been successful because they have been so carefully planned and thought out. Even before our relaunch, most of our collaborations in China sold out and generated lines outside of our stores like the extremely successful capsule collection we created with Chris Lee in 2017.

How much economic worth does China represent for you as a company and how do you see this trajectory going? 

China is still a relatively small part of our global business, but it is the region with the highest growth rate. Apart from the retail and e-commerce developments mentioned before and a series of locally relevant special projects, we are investing heavily in communications respecting the culture and the values of the country and its people. Instead of ‘buying’ celebrities and talents, we work with them; we engage their creativity in our brand universe in new and surprising ways. And this latest collaboration with designer duo Pronounce is a great example of this.

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What The 5G Revolution Means For Luxury Fashion

This post originally appeared on South China Morning Post Style, our content partner. 

The identities of many luxury fashion brands are formed from the conceptual leadership of their founders. These histories and stories provide the foundations for modern brands’ strategic directions.

However, the old rules are less relevant now, as Ian Rogers, chief digital officer at LVMH, explains. “The luxury business is still a business of the previous century. This century is a complete and wholesale change. It will be defined by the way human beings have been connected via the internet; also, by data and the collective intelligence derived from that data using AI [artificial intelligence] and machine learning.”

Brands’ use of virtual reality (VR) and augmented reality (AR) is likely to increase as 5G capabilities make experiences richer and more seamless, supporting purchase consumers’ decision-making. The fifth generation of mobile technologies, or 5G as it’s generally referred to, represents a major increase in broadband mobile network capabilities. In short, it will enable people to download more content much faster than 4G.

China, a leading force in 5G, has already rolled out the new communication network. The country’s tech giants, from Huawei to Tencent, have invested heavily in the service, including building the infrastructure to supplying 5G-powered devices and services such as cloud gaming.

Kiki Fan, general manager of the planning and implementation department at Tencent, says, “In the near future, 5G will give brands the capability to communicate high-quality information instantaneously, and eliminate lag time, ultimately improving the consumer experience.”

5G is likely to have an impact on a few fashion industry fronts: supply chain connectivity, retail operations, service, and sales executions. It is also poised to affect the level of creativity and innovation brands incorporate into their engagement with consumers.

B Bounce, Burberry’s online game, features characters dressed in TB monogram winning various prizes. Photo: Burberry

B Bounce, Burberry’s online game, features characters dressed in TB monogram winning various prizes. Photo: Burberry

On the retail and supply chain operations aspect, AI will drive more effective brand buying and merchandising systems that will enable businesses to use real-time data and automated inventory supply and replenishment; in short, faster and more accurate responses to consumers’ demands. Add to this beacon technology networked through the internet of things (IoT) and brands will have stores that can deliver personalized digital communications, immersive experiences and customized service to individual consumers – or markets.

Luxury group Kering unveiled an immersive pavilion at the 2019 Import Expo in Shanghai, which showcased the group’s history of innovation and provided visitors with a digital experience through multisensory displays and interactive installations.

Sephora has launched a new app feature – Virtual Artist – that uses AR to help customers try products before making their purchases.

Jonathan Chippindale, CEO of Holition, an agency offering digital solutions for retailers, says, “Every brand is taking on huge amounts of data and using AI to use that data to personalize it. The more data you can get, the more you can hyper-personalize product selections, you can understand people and you can come up with recommendations that are as finely tuned as possible.”

A good example of how 5G will influence business capabilities, from consumer transaction through to delivery, is the 2019 “Singles’ Day” event held by Alibaba. In the first 24 hours, it took US$38 billion in sales. Its use of AI greatly increased the speed and efficiency of processing sales orders and transactions to 540,000 transactions per second. This sales level generated 2.8 billion parcels which were distributed across China.

Michael Evans, president of Alibaba, says, “Those packages are not being delivered over the next month, but over the next three or four days. When you are delivering 65 to 70 million packages a day, as we do every day, it’s impossible to keep track of everything with humans so we need bots, we need technology.”

As the infrastructure improves, including the capabilities provided by 5G, this level of capacity achieved through automated systems will be much more common, as Evans points out. “We believe there will come a day in the future when we operate at that scale, and at that capacity, every day. Don’t ask me when, but I think it will be sooner than most people think.”

At the store level, Hong Kong-based consumer goods supply chain group Fung Retailing has stated its ambition to speed up transaction times using technology that will be enhanced by 5G. The company has collaborated with China’s largest online retailer in launching Hong Kong’s first AI-powered checkout service at a physical retail store. Sabrina Fung, managing director of Fung Retailing, says, “We are trying to prototype a process to shorten checkout time to 4.5 seconds, and where your face is linked to your WeChat Pay or Alipay account. When you walk into the store, as soon as it recognizes you, that is the payment mechanism.”

The new Sephora store in Hong Kong’s IFC mall offers the beauty app Virtual Artist, which lets customers try on and compare different products. Photo: Sephora

The new Sephora store in Hong Kong’s IFC mall offers the beauty app Virtual Artist, which lets customers try on and compare different products. Photo: Sephora

Research by SAS and Futurum Research into global consumer attitudes to the use of future technologies suggests that by 2030, when making a purchase most consumers will expect to use chatbots and augmented reality. They will also accept the delivery of goods by drones or autonomous vehicles and control their devices through wearable technologies. The ability of consumers to download huge amounts of data in seconds means brands now have the opportunity to be more creative in working with digital design, especially in respect of aesthetics and complex 3D structures. This opens the door for brands to experiment with digital entertainment as part of a brand engagement strategy. This could be as diverse as fashion shows or gaming.

For example, Burberry’s B Bounce game engages players as they accrue points which enable them to win prizes. These range from personalised GIFs to a digital Burberry puffer jacket that can be edited onto an image of their choice. The first prize is a real-world Burberry puffer jacket, though. Dior launched entertainment features on Snapchat and Instagram using AR that allows users to try on the house’s new designs.

Gucci, meanwhile, pivoted to games to engage with customers by releasing two retro arcade games – Gucci Ace and Gucci Bee – to play on its app, both of which reference the brand’s renewed vintage style under creative director Alessandro Michele. 5G-enabled technologies will be the main driver behind new customer ecosystems and completely reimagined customer experiences.

The use of digital characters and, more recently, sophisticated avatars is not new in luxury fashion. A small number of luxury fashion brands have experimented with digital avatars in the past. For example, in 2006 Armani had a store in online virtual world Second Life and in 2012 Prada dressed characters from videogame Final Fantasy in their digital collection, featured in Arena Homme+ magazine. In 2017, Louis Vuitton used one of the Final Fantasy characters to model its new collection.

The Gucci Ace gaming app includes old favourites like ping pong. Photo: Gucci

Nicolas Ghesquière, Louis Vuitton’s creative director, said at the time, “Selecting the video game avatar as a spokesperson for LV was a natural thing for our world, where social networks and communications are now seamlessly woven into our lives.”

Younger millennials and Generation Z consumers have grown up using digital for most things. So, if brands want to engage with them, the medium needs to be digital, and the method is probably gaming. Fashion gaming is groundbreaking and likely to grow in significance, although many luxury and fashion brands have been cautious about adopting gaming technology.

There is still some way to go for gaming to become mainstream in fashion, according to Chippindale: “Fashion and gaming don’t make particularly easy bedfellows. One of the reasons is because so many games are about death and destruction; about values that don’t necessarily sit with a kind of caring fashion brand that wants to furnish its sustainability credentials.”

Louis Vuitton partnered with League of Legends for the 2019 World Championship. Photo: Louis Vuitton

Chippindale adds that many of those working in gaming companies replicate those in tech companies. “They are male, they are quite nerdy, quite geeky and I love that but luxury and fashion play on slightly different types of investment. It’s softer and more feminine and I just don’t think there are enough of those skills yet in the gaming space.” Nevertheless, Chippindale believes this is changing now.

There is a distinction, however, between those who play games and those who create them. According to Roberta Lucca, co-founder of the BAFTA-winning game developer Bossa Studios, 50 percent of global gamers are now female.

Lucca also explains that the younger Gen Z and older Alphas are regularly playing games such as Fortnite, which they see as normal. “They are growing up assuming that games are a perfectly normal thing for you to do as a hobby. And when you look at the massive markets of e-sports it becomes even bigger. When I talk with Gen Z, I can see that for them, real-world and virtual world is all integrated.”

The reality is that no one really knows how 5G will change things in luxury other than the fact that it’s unlikely to be business as usual. Chippindale notes, “The tech space we [Holition] operate in is changing and evolving so rapidly that it’s very difficult to understand the projects that I will be doing in six months or a year’s time.”

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3 Key Takeaways from McKinsey & Company’s Chinese Consumers 2020 Report

The retail world continues to be concerned about Chinese consumer spending power as implications of the trade war lingers and China’s economy remains steady at 6% growth. But McKinsey & Company, the global management consulting firm, is here to tell you that there’s nothing to worry about.

Although retail sales growth has slowed, China’s consumer confidence index had hit a 10-year-high of 126 points in February 2019, though by November 2019, it was reported at 124.6 by the National Bureau of Statistics of China.

Moreover, the total sales from China’s 2019 Singles’ Day hit a record-shattering 410 billion yuan ($58 billion), which was up by 31% compared to that of 2018, according to McKinsey.

Here, Jing Daily summarizes three major takeaways from the 20-page report, which was published last month based on the analysis of 5,400 respondents from 44 Chinese cities.

  1. Young, free spenders are today’s growth engine

China’s young digital natives who reside predominantly in tier-2 and tier-3 Chinese cities have become retail’s growth engine. This spending trend in the luxury sector parallels the overall outlook, according to Daniel Zipser, McKinsey’s senior partner and co-author of the report, who adds: “The shoppers born in the 1980s are by far the largest group of spenders on luxury.

The percentage of upper aspirant and mass affluent households in lower-tier cities are now in line with what the proportion was in high-tier cities five years ago, according to McKinsey. A few example cities in the report include Yancheng in the Jiangsu Province and Mianyang and Zigong in the Sichuan Province.

One reason is that they are hit less hard by the economic slowdown compared to their counterparts in metropolises like Shanghai, Beijing, and Guangzhou. They also tend to hesitate less about spending because they are less concerned about the rising cost of living, the report states.

  1. Many Chinese consumers are getting savvy 

As growth in disposable income slows and consumption expenditure rises, many Chinese consumers are becoming discerning, savvy, and more frugal, according to the report. McKinsey highlights three additional consumer segments: (1) busy and affluent discerning consumers, (2) savvy shoppers, who are likely to be married females living in tier-1 cities and have time to compare products, and (3) young and single frugal consumers.

Luxury brands may not find this trend so relevant, but they should take note of young consumers’ growing sophistication. “When you go back in time, Chinese luxury consumers only care about brands. But today, savvy consumers focus more on fabrics and design,” Zipser said, adding “that it’s no longer enough for brands just to be foreign and famous.”

  1. High-end Chinese brands are increasingly appealing

While the report indicates that many consumers preferred Chinese brands over foreign ones for staple items like fresh food and household appliances, the preference has been expanded to more expensive premium products this year, the report discovers.

The results are also nuanced when comparing respondents from different locations. When it comes to spending 8,000-20,000 yuan for a jacket, the report indicates that French and American brands are in the lead by a small margin for consumers from tier-1 and tier-2 cities. But consumers in tier-3 and tier-4 cities have a clear preference for Chinese brands over Western ones.

Consumers are also developing a taste for carefully crafted clothes by homegrown designers like Ms MIN, Ming Ma and Angel Chen, which now appear alongside top Western brands in China’s luxury department stores, according to the report. And despite the increased popularity for Chinese fashion, Zipser said that he has seen more successful cases in the premium beauty market. “Chinese brands are reaching the more premier end of category,” he said. “But it will take a much longer time for them to get to luxury fashion.”

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Opportunities and Challenges of the Greater China Luxury Market in 2020

On January 20, the luxury industry welcomed the 4th edition of the Luxury Symposium at Charterhouse in Central, Hong Kong. Here, over 200 decision-makers from brands and retailers in the greater APAC region gathered to learn more about the future of China’s luxury market. Hosted by the French Chamber Hong Kong, key topics included how landlord and retailers are adapting to the ongoing Hong Kong protests, where luxury brands should look for growth next, why there needs to be a greater emphasis on experiences, and more. We highlighted key conversations from the event below:

Luxury — What’s Next
by Daniel Zipser, Senior Partner, McKinsey & Company

Based on the research from the consulting and analytics firm McKinsey, Zipser began with a macro view of the Chinese luxury market while clarifying some common misconceptions. Many brands are shifting their attention to mainland China, as the Chinese government is determined to boost domestic consumption. Zipser believes that the experience of shopping overseas will still be attractive because of its novelty. Another refreshing finding is that while Chinese luxury consumers dominated one-third of luxury consumption, they are still learning about most luxury brands. For example, only 45 percent of the 1,000 surveyed consumers think the Canadian outerwear company Canada Goose comes from Canada, while 30 percent think it comes from Europe and another 55 percent have no idea. Zisper pointed out that these types of consumer mistakes are even greater in the food and beverage industry, offering those brands the opportunity to tell their original story better or form a new angle in China.

Quick statistics:

  • For the first time in the past five years, the number of high-net-worth Chinese families dropped (by 1.5 percent).
  • By 2025, Chinese HNWIs will exceed those in Europe and the US combined.

China’s Digital and E-Commerce Ecosystem: How and Where to be Impactful Today?
By Cyril Drouin, Chief eCommerce Officer, Publicis Commerce Greater China

Drouin revealed the reality of how the competitive nature of online marketing in China, and the key principles of navigating the digital sphere. For instance, Chinese consumers spend 80 percent of their mobile device time on Baidu, Alibaba, Tencent, and Bytedance (BATB), so brands need to split their media budgets between those platforms. Those giants hold the keys to online data, so brands must work with them and understand how to smartly gain access to the data. Consumers’ online journey is very fragmented these days, so companies have to stay on brand to offer quality experiences.

Quick statistics:

  • Chinese consumers can be quick to decide: A business must win them over within a 24-hour period.

Omnichannel Best Practices: Sephora
By Benjamin Vuchot, President Asia, Sephora

According to Vuchot, China is the top market for Sephora. One of the buzzwords in today’s beauty industry is “omnichannel,” and last year, we spoke to Vuchot about how Sephora is on the cutting-edge of omnichannel marketing via WeChat. At the conference, Vuchot clarified the brand’s approach, saying, “We don’t talk about omnichannel anymore, we talk about consumers.” Sephora also hopes to become an unbiased media source where consumers can review products and share beauty tips, and Vuchot reinforced the idea that, even in a challenging retail landscape, “bad retail is dead, but good retail will always have a future.”

Quick statistics:

  • Compared to customers who interacted with Sephora on a single channel, those who interacted with the brand on omnichannel spend three times more with double the number of transactions over the past 6 months.

From Creativity to Commerciality
Alexis Bonhomme, VP Greater China – Commercial, Farfetch

In his talk, Bonhomme gave a dynamic speech on their lessons in heading Farfetch‘s localization effort in China. From their experience, there are a couple reasons on what makes an A-listed KOL excited for collaboration can be a couple: Is there an opportunity in global expansion? Is there capability to build a creative campaign in a longer-period? He also addressed why Farfetch acquired NGG: “For e-commerce to make sales, they often work on pricing, it’s the game of online promotions.” he said. “But now (e-commerce) needs to become more vertical. We are not buying brands, but an accelerator of brands.”

Driving Retail Innovation
Moderated by Anson Bailey, Partner KPMG, Head of Consumer & Retail ASPAC; Zoe Cheng, Head of Growth, Cosmose; Carson McKelvey, CEO, Tofugear; Tim Wu, board member and program director, Eureka Nova (New World Group)

On this panel, speakers addressed what’s stopping retail innovation. Tofugear’s CEO Carson McKelvey referenced in an executive workshop they hosted, that a consistent problem is a brands’ inventory being not very user-friendly. Traditional retailers have a lot of brick and mortar stores but not a lot of fulfillment for e-commerce. Brands should consider those brick and mortar stores as also fulfillment centers. While the director of Hong Kong New World Group’s tech accelerator, Eureka Nova, Tim Wu said fashion has a tech talent problem: “Most tech talents want to stay in a tech company. Unless you have a culture to nurture these people, they don’t stay.”

Conversation: How landlords Adapt Their Offering
Raymond Chow, Executive Director, Commercial Property, HongKong Land with Alain Li, CEO APAC, Richemont

Raymond Chow and Alain Li addressed the changing landscape of retail in Hong Kong. “The Hong Kong situation is going to be a true test to the (landlord and brand) partnership,” said Li. While Chow advocates for HK landlords to shift their thinking to be more like retailers. Both speakers think positively about the future. Chow reported that landlords are actively making changes. For example, some contribute more than 20% of the space on F&B to address the shifting trend that people not just want to shop but experience something new. There will also going to have more pop-ups, which fundamentally change the business model for the landlord but they have to adapt accordingly.

Everything is Experience/ Experience is Everything
Moderated by John Mefford, Managing Director, Accenture Interactive APAC with Teresa Muk, Head of Brand, Swire Hotels; Isabelle Zhuang, China President, Luxury Business Institute; Billy Ip, Principal, Woods Bagot

Accenture’s John Mefford pointed out experience is a key factor to draw Chinese young consumers, and brands need to accelerate their progress in understanding this segment. He predicted that by 2030, Chinese consumers will grow on average 15 to 20 years younger than the West. Luxury Business Institute’s Isabelle Zhuang resonated and added that many stores may add a lot of tech gadgets to enrich the experience, but technology is still just a tool to serve customers and a human-centric store approach is still essential.

Valuing the Values: Engaging Through Storytelling
Simon Nyeck, Director, Centre for Excellence in Luxury, Arts & Culture; ESSEC Business School with Elise Gonnet Pon; Managing director of APAC, L’ ECOLE, School of Jewelry Arts Supported by Van Cleef & Arpels; Angela Shum, Brand General Manager Greater China; Cha Ling, LVMH

Three speakers at the conference emphasized the value of luxury. ESSEC Business School’s Simon Nyeck offered a presentation bringing the history and depth behind luxury. He addressed that a sale is just one aspect of the business, and brand creators need to remember that “Luxury is culture and it needs to be relevant to the whole society. The luxury audience should be wider than your luxury consumers.”

Quotes are edited and revised for clarity.

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Can Macau Replace Hong Kong as a High-end Shopping Destination?

  • Macau is well-positioned for future growth because of the Chinese government’s ambitious economic proposals.
  • Macau’s history of shared colonial rule has led it to favor national policies, unlike Hong Kong.
  • Nationalist Chinese shoppers prefer spending in Macau and want to punish Hong Kong for its defiance.

In the past few years, the city of Macau’s ostentatious casinos and high-end stores have been attracting Chinese high-rollers. Interestingly enough, the appeal of Macau has grown exponentially as the chaos in Hong Kong lingers, and affluent mainlanders have warmed up to this former Portuguese territory.

But Macau’s rise as a high-end shopping destination didn’t come overnight. The city made great progress back in 2007 when “the luxury retail industry was centered on the Mandarin Hotel, and there was nothing else,” according to Michael Schriver, the former chief operating officer of DFS Group and current President North Asia, Louis Vuitton. This view is shared by David Sylvester, Senior Vice President of Retail at Sands Retail for Sands China Ltd., who told the South China Morning Post that when the group started leasing out the 330 retail spaces at the Venetian in 2005, the comment he kept hearing was “that Macau is for gaming, while Hong Kong is for shopping.” According to Sylvester, the growth in gaming has reshaped the local retail ecosystem.

Macau’s economic boom is undisputedly linked to the city’s dutiful and compliant approach to China’s government, and if Hong Kong plays the role of “woke” activist, Macau is more akin to the risk-averse brother who safely bets on seeking profitability and economic growth instead of total independence. Interestingly enough, both cities are governed under the “one country, two systems” structure, so one might expect the same revolutionary vibe from Macau that Hong Kong is displaying. History, however, has played an important role in Macau’s development. While both cities were European colonies, one was governed by a crippled Portuguese power while the other was the crown jewel of the all-powerful British Empire.

Over the years, the British government poured resources into Hong Kong and encouraged liberalism and the pursuit of equality and individual liberties. But Macau’s situation was far more complex, given the complications that arose from the 1887 Lisbon Protocol. Many historians, in fact, argue that China and Portugal shared sovereignty of Macau even before the 20th century. Because of this, one could say that Macau’s situation has created a dependent personality disorder, leading to the city’s intensified respect for authority or dominant powers. This docility has made Macao a very wealthy city  — one that continues to flourish at its own pace.

Considering the turmoil in neighboring Hong Kong, it’s safe to say that Macau’s star will continue to rise, and the city’s luxury boutiques have reported a sales growth thanks to affluent mainland buyers turning away from neighboring Hong Kong and embracing consumerism in Macau.

Angelise Wu, a wealthy shopper from Beijing, told the Nikkei Asian Review that she won’t buy luxuries in Hong Kong, even after the protests end. “I just don’t feel like contributing to its economy,” she said. This attitude is not uncommon, and there’s a growing belief that “disobedient” locals shouldn’t be rewarded for their insurrection. Various posts appeared on Weibo and social media criticizing not only Hong Kongers but also foreign corporations that supported the protests. Examples include the french bank BNP Paribas coming under fire because one of its employees took a pro-democracy stand, a #BoycottCathayPacific hashtag that attracted over 17 million views and 8,000 comments, and how even a Taiwanese tea house named Yifang fell victim to social media outrage, with The Global Timesreporting that the #bubbleteaboycott attracted over 230 million views on Weibo.

According to the German state-owned public international broadcaster, Deutsche Welle, and Claudia D’Arpizio from Bain & Co., protests were responsible for over €2 billion in Hong Kong sales losses in 2019. Bain’s recent report shows that Hong Kong’s power is dwindling, and the city that once accounted for around 5 percent of global luxury sales now barely reaches 2 percent. Furthermore, the report argues that luxury sales in Hong Kong, which reached  €10 billion ($11.09 billion) in 2013, will most likely drop to €6 billion for 2019.

The protests have caused havoc for even the most acclaimed luxury conglomerates and businesses. Prada is not renewing its lease on Causeway Bay, vacating the property that was leased for €1 million in monthly rent. Burberry has registered an alarming “double-digit” decline in sales in Hong Kong, Chanel intended to inaugurate a store on Fashion Walk in the Causeway Bay district but temporarily suspended the project, Rimowa stopped short of opening a new store in the same district, and Louis Vuitton is shuttering its Times Square Mall store.

Considering Hong Kong’s dire perspectives, does Macao has the potential to replace the former and become the “ultimate shopping destination” in the Asia-Pacific region? Here are some reasons why it could happen:

  1. Favorable pricing

First, the price discrepancies between Hong Kong and Macau have decreased significantly and will work in Macau’s favor. Those famous shopping sprees that mainland luxury buyers used to take to Hong Kong should be replaced with trips to Macau, and we foresee luxury players further developing their assorted strategies in Macau and generating higher profit margins.

Second, despite Premier Li Keqiang’s latest tax cuts, Macau’s luxury prices remain competitive. Therefore, it’s safe to say that the city will soon compete not only with established Chinese shopping destinations, but also with international hot spots like Japan, Korea, Singapore, and Thailand.

  1. A “China-friendly,” open-for-business attitude

In an increasingly patriotic country like China, local consumers appreciate loyalty. We’ve seen on various occasions how companies that stand with China get endorsed by local entities and are rewarded with higher profit margins and increased consumer confidence. By contrast, businesses that engage in “unpatriotic” actions experience a full-force nationalistic backlash. For instance, Lenovo stirred controversy when CEO Yang Yuanqing said in an interview that the company is not a Chinese brand but a global one.

That same “China-friendly” attitude is even expected from strategic partners, and Beijing understands that the carrot-and-stick concept is perfect for keeping accomplices in check. As an example, President Xi Jinping visited Macau to commemorate the city’s 20th-anniversary return to China last month, and according to CNBC, Xi Jinping will generously reward Macau’s loyalty with a series of policies that will significantly impact on growth.

Those policies include the establishment of a yuan-denominated stock exchange in the Chinese special administrative region and greater land allocation in mainland China for Macau to develop. All in all, Macau has been good to China, and Beijing’s policies and pro-Macau stand are good for the local business community.

  1. The broader retail look

After seven months of protests and political unrest, Hong Kong’s retail scene is in bad shape. Many stores are at risk of closure, and Reuters reports that more than one in ten retailers in Hong Kong could close over the next six months. The Hong Kong Retail Management Association (HKRMA) said that retail sales decreased by a quarter in October 2019 from a year earlier, and tourist arrivals declined by 43.7 percent over the same period.

By contrast, Macau is diversifying tourism to attract affluent visitors from Indonesia. WebBeds, the Macau Government Tourist Office, and some established Macau hotels including MGM Cotai and Hotel Lisboa have inaugurated a campaign designed specifically for Indonesian tourists. This diversification is a brilliant strategic move designed to lure consumers who traditionally belonged to the Hong Kong market.

According to Skift and MGTO statistics, Macau saw a record of 35.8 million arrivals in 2018, with 71 percent of those visitors coming from the mainland and another 18 percent coming from Hong Kong. So it shouldn’t come as a surprise that Macau wants to attract visitors from other countries, too.

  1. Strategic positioning

Macao has a strategic position in the Greater Bay Area, and it could easily replace Hong Kong as a trade hub. In fact, China revealed an ambitious plan last year proposing the creation of an “innovation cluster” that would rival America’s Silicon Valley by linking Macau, Hong Kong, and nine other Chinese cities via infrastructure projects.

This would further consolidate the status of each urban settlement, including Macau, and since Hong Kong is losing its gloss and allure, Macao could be empowered to take the city’s place as a top regional trade hub. This consolidation won’t happen overnight, and significant development differences will hinder the process, but the fact that Macau has become a regional tourism and trade hub in only a decade proves that the city has immense potential.

Right now, what the future holds for Hong Kong is unclear. But Macau continues to grow as a high-end shopping and tourism destination, and this affluent and obedient city is looking ahead towards a promising future.

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Luxury Groups Stocks Suffer As China’s New Virus Spreads

What happened:

China’s new strain of the coronavirus, which has already spread to at least three other countries and could spread further during the Chinese New Year holiday travel rush, has sent European luxury stocks tumbling, including the likes of LVMH, Kering, Richemont, and Burberry. Official reports say that coronavirus, a respiratory virus that causes pneumonia-like symptoms and that can be passed in between humans, has already killed four people and infected nearly 291 in China, according to state media China Daily on Tuesday. But the actual outbreak might prove worse.

An estimate by scientists from University of Hong Kong said today that nearly 1,700 people in Wuhan, China — where the virus  outbreak started — may have also been infected. As China’s 40-day Spring Festival travel season just kicked off, health experts are also discouraging people to travel to Wuhan, though major cities like Beijing and Shanghai already have confirmed cases. Given the increasing concern of a global outbreak, stocks of European luxury brands that rely heavily on the Chinese market have slumped as a result. Compared to last Friday, LVMH and Burberry’s stock fell 3%, while Kering lost over 4%, and Richemont’s declined almost 5.5%.

The Jing Take:

Luxury veterans might still remember how the SARS outbreak in China left the industry in despair in the early 2000s, leading to billions in losses and cost the Chinese GDP growth by nearly 1%. At the moment, however, it’s difficult to predict how much economic damage a potential coronavirus outbreak will be for China, as well as the global economy. For Western luxury brands, there is not much they can do at this point other than paying close attention to how their consumers are reacting and pray that the Chinese government has potential epidemic under control, as it claimed this Monday. Time will tell.

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