Trade war has brought challenges to established luxury brands, yet Chinese luxury consumers point a new way for brands to enter China market at a low cost.
Within one month, I was reached by five clients and contacts about a similar question:
- A young fashion designer asked, do you think my brand has a market in China?
- A high jewelry brand asked, can you help me get more Chinese clients?
- A midsize American fashion brand asked, The Chinese investors are not willing to open stores with me in China, how to convince them? How do I enter the China market otherwise?
- To contacts from in that some banks and private equities asked: what do you think is the reason behind no performance of high and jewelry market? What would be the future trend?
When I piece these together, I realized one thing about the trade war:
Trade war has brought challenges to established luxury brands, yet an opportunity for smaller brands to enter China market at a low cost.
The impact of the trade war.
Challenges:
1. China has depreciated its currency.
This makes it more expensive for Chinese tourists to travel overseas and shop overseas. On top of that, China has lowered its luxury tax rate over the years. Chinese luxury consumers are buying less overseas. This has directly caused a sharp decline in store traffic and sales for luxury stores outside China.
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2. The Hong Kong protest.
If China is the hub of the global luxury market, Hong Kong is the hub for China luxury market. Ever since the Hong Kong protest started, luxury retail store sales in Hong Kong suffered.
3. Young Chinese luxury consumers do not like to shop in physical stores.
They love to shop online using mobile payment. As a result, the retail malls and stores in China have experienced a decline in traffic and sales.
4. Pessimistic investors.
The trade war and decline in the retail model make Chinese investors more pessimistic. They are not willing to open stores with new brands like they used to. That means it will be very expensive and risky for new brands to enter China market because you have to do it all on your own budget.
Opportunities from the trade war
1. Enter China with e-commerce
Take advantage of the low luxury tax rate and poor retail store traffic. Allow Chinese customers to shop directly from overseas websites.
2. Develop mobile payment capacities
Such as WeChat pay and Alipay, so Chinese luxury consumers can make an order quickly without going overseas
3. Focus on brand building, social media.
Building a brand takes time.
Over the long term
The trade war will always end. By that time, both investment and consumption will rebound, they have been holding their money for so long!
If you have established a solid brand, social media, and e-commerce channels, you will always be a winner.
It pays off
If you can show your potential amount to Chinese luxury consumers without opening any stores in China, this gives a strong message to the investors to fund your future growth, even when you want to open physical stores in the future.
Action Points
There is no single recipe for success, but every CEO and the top team should consider this:
- There is a lot to accomplish yet not enough expertise and knowledge to do it.
- Develop or source expertise to capitalize on the underlying opportunity to enter China with a low-cost.
If you are ready to grow your brand, let’s talk!
Contact: Tess@tesszhao.com
High Net Worth Academy helps luxury brands grow high net worth clients, and succeed in China and Asia.
Tess Zhao, CEO & Founder. Formerly Head of Global Business Development at Harry Winston Diamonds, Tess is an expert on selling to HNW clients. She was also Head of Jewelry at Amazon Fashion, Media Spokesperson at Jaguar Cars, and a Financial TV reporter.
