The Deep Dive: “Luxury Brands Need To Develop A Whole Digital Ecosystem For China Alone.”


Limei Hoang | November 29, 2021

Balenciaga's Couture collection at the Tank Shanghai museum.Credit: Courtesy of Balenciaga.

The head start that luxury brands gained from their presence in the Chinese market has continued to provide a competitive advantage, but as China’s digital ecosystem matures, so too must the strategies that companies employ to navigate luxury's fastest-growing market, says Pablo Mauron, Managing Partner China and Partner at Digital Luxury Group.

Welcome back to The Deep-Dive, a new series from Luxury Society that takes an in-depth look at the big issues and topics affecting the luxury market, and how the industry has responded to them. Through a series of interviews, exclusive data, and market analysis, we hope to provide a comprehensive view of each topic explored, adding to the wider discussions with our own expertise and that of others in the industry.

The second part of our report is a series of interviews with leading experts in different segments of the luxury industry such as Travel and Hospitality, Retail, Automotive, Media and Advertising and Health and Wellness, each taking a deep dive into the current state of the luxury industry today and where each category is headed. We aim to give our readers a deeper understanding and insight into the trends happening in the market through their eyes.

Our fourth interview in part two of The Deep Dive features Pablo Mauron, Managing Director China and a Partner at Digital Luxury Group, who discusses China’s head start in the luxury rebound, why a separate strategy needs to be developed for its complex digital ecosystem, and what lies ahead for luxury’s largest and fastest-growing market.

For many brands, luxury’s rebound commenced at the start of this year when they began to report a significant uptick in sales figures, signalling an improvement from the sharp falls seen during the height of the global COVID-19 pandemic in 2020. But for Pablo Mauron, luxury’s rebound began over a year ago in China when the country eased its restrictions and brands could once more open their stores to customers.

Those that suffered the least from the pandemic in China, were brands that already had a major e-commerce ecosystem in place as well as strong Customer Relationship Management that allowed them to reactivate their audiences when stores were able to reopen, inviting them to elaborate in-store events, particularly as international travel remained off-limits and consumers began to shop domestically for luxury goods.

Pablo Mauron, Managing Director China and Partner at Digital Luxury Group.

“The result has been a very intense 18 months,” says Mauron. “A lot of brands have been very aggressive in their marketing strategies, holding events such as brand installations and pop-ups and on a bigger and more experiential scale, and launching e-commerce offerings across various digital channels – from marketplaces to social platforms. And all of that has been even more warmly welcomed by consumers because it also became a way to entertain themselves at the moment where they were kind of stuck.”

Unsurprisingly, luxury consumption in mainland China is still driving the majority of growth in the market and is expected to for the foreseeable future. Analysts at Bain & Co say that much of the recovery over the past 18 months has been down to the “insatiable” demand from its consumers and by 2025, Chinese consumers’ share of global luxury goods will make up the world’s largest. Little surprise then that brands who were previously reluctant to launch onto platforms like Tmall, have now jumped in and are rapidly attempting to expand their presence on multiple platforms within China’s digital ecosystem.

The fast adoption of platforms like Douyin (also known as TikTok to those in the West) and Xiaohongshu (RED) further highlighted how important new channels have become to luxury brands, who in the absence of a physical touchpoint, had to adapt to survive. But as China’s ever-evolving digital ecosystem develops even further, brands also have to figure out what kind of solution they are looking for in luxury’s fastest-growing market particularly if they want to gain more autonomy and independence and higher profit margins.

“The question for a lot of brands now is how do we continue to grow that online business while potentially reducing the dependency on a third-party platform?” said Mauron. “Brands need to think about how they can scale their e-commerce activities without overspending on media, as well as maximising profit margins – meaning developing direct-to-consumer channels and leveraging private traffic.”

What brands need to realise is that having an e-commerce presence isn’t just about having one flagship store, that consumers will flock to, but about having multiple channels and being present across platforms that make sense for them, that sit alongside supporting marketing strategies and content creation and that lead to two things: customer data and sales.

“Brands realise now that it's really hard to make your user shift from one app that they like to another,” said Mauron. “The evolution is really going to be about developing full integration, content marketing and customer activation across the channels with all the specificities that they have in terms of content assets.”

“They need to be designed in a way that each one of those can lead to a chain of data that can be built into a significant data pool,” he explained. “Which would not only be limited to customer data but be a real data pool that contains leads, prospects and customer data that allows brands to have in-depth analysis when it comes to knowing and owning their customer profiles, their prospects and how to activate them.”

“The funny thing is that we're not really talking about omnichannel anymore,” he added. “The principles remain the same, but we're not any more on that customer mapping journey that says that you go from point A to point B, and onto point C. Customer journeys can now take place cross-channel, or all within a singular channel as well.”

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Looking forward, there are challenges that lie ahead in the Chinese market, despite the plethora of opportunities and rewards that it offers to luxury brands. While there are currently no specific policies stemming from the government’s “common prosperity” drive that impact the luxury industry, it is difficult to ascertain its long-term effects on consumption and demand. And as international borders begin to tentatively reopen, Mauron believes brands should be preparing for a second wave in the rebound.

“We see the revenge spending, which we know cannot be a long-lasting thing,” said Mauron. “You can eventually estimate that there will again be hundreds of thousands of Chinese travellers that will make, once again, trips to their favourite shopping destinations. So, brands that are significantly increasing their investment in the local Chinese market, must also be aware that there is another wave of rebound for other markets which is the day China reopens and will have to work really hard to convince their customers to continue to buy in China.”

Another issue is the longer-term question that needs to be addressed by luxury brands like how to attract younger generations, who are already showing signs of turning away from previous generations’ stereotypical ideas of success.

“I don't necessarily see why the demand for luxury brands would decrease in China, but when it comes to the younger generation, there is a lot of discussion now about the trend of ‘lying down’. Meaning they are deciding to not seek to attain the stereotypical idea of success that has been the same for many generations before them,” said Mauron.

“You do see many people are walking away from big cities, who value more of a work/life balance, that are walking away from the 996 working culture,” he added. “A lot of the assumptions that have been made by the luxury industry is this idea of the growing middle class. But the thing is that for the young generation, a lot of them realise that it's too much work to be a part of that growing middle class and so that does pose a lot of longer-term questions.”

But most importantly, on top of considering all these issues, one concern remains at a primary focus for all luxury brands: how can they ensure that they’re in a leading position in the Chinese market? The answer, as Mauron puts it, is quite simple. Brands must place the country first, in terms of all their decision making, particularly if they want to continue reaping the rewards from it.

“The concern from brands is always the same,” said Mauron. “How can brands ensure they are in a leading position in the world’s largest luxury market? But to be in a leading position in China requires them to place China at the centre of a lot of decisions they make, and that goes beyond digital and marketing.”

“It goes as far as product, design, celebrity endorsement and all of that,” he added. “And I think that the challenge for brands is that there is a requirement to succeed in their most important market. But this is also perceived as the potentially biggest threat on adding an impact on the global image and their global positioning.”

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