Brian Buchwald, chief executive of Bomoda, on China’s economic slowdown and its impact on UK luxury brands.
A chill wind has descended on recent earnings announcements from British luxury stalwarts such as Burberry and Mulberry. Chinese consumers, the jet engine of the global luxury market, have scaled back their spending in mainland China, Hong Kong and the UK, and shifted increasingly to continental Europe and Japan.
There are a multitude of reasons for this shift, but the base driver was currency fluctuation around the world. A weak yen and euro made purchases in Japan and Europe comparatively cheap for travellers and Chinese agents who buy internationally and resell to Chinese consumers back home. In contrast, a stronger pound and dollar deterred would-be travellers to the UK and US.
Rather than waiting for macro-economic factors to shift this balance back towards the UK, there are a number of steps British brands can take to minimise the negative impact and turn the tide.
Continue to broaden retail locations and marketing spend globally in outposts like the Middle East, Western Europe, Japan and Korea. This diversification will ensure that, as revenues lighten in one particular locale, there is a portfolio approach to soften the blow.
Focus more on making the UK a must-see tourist destination for the global Chinese tourist. Shopping represents approximately 60% of the travel budget for Chinese travellers and luxury goods are prominent portions of spend. Therefore, it is not enough to put one’s head in the sand. Instead, one must look to the example of proprietors such as Value Retail (operators of Bicester Village), who employ active outreach via marketing, charter buses, travel tour operators, communications in China and hotels in England to take a greater share of wallet if the consumer does decide to visit Britain – and in fact they try to make a trip to England a must.
Court the Chinese reseller (or daigou). These resellers are estimated to account for 40% of Chinese overseas spend. And for many brands they are their best retail customers. Bomoda recognises the inherent conflicts tied to resellers, from diminishing pricing power to loss of direct ownership of the consumer. However, the dirty little secret for many retailers is that at the store level these resellers (or “brokers”, “traders” or “personal shoppers”) are their go-to. A broader acknowledgement of the phenomenon at headquarters with more proactive outreach policies could stem the negative tide in the short run until markets turn more favourable.
Invest in global intelligence and global CRM. Brands can do three things to grow their business:
1. Increase the number of customers who visit – 60% of what Chinese consumers will buy when they visit is decided prior to a trip. Therefore, identify them before they travel, understand the products they are interested in and incentivise them to visit your brand.
2. Build up the yield per customer per visit – bank on intelligence that identifies product demand and know the trends driving that demand. Put those products in front of your prospective consumer and complement it with visuals, Chinese messaging and hopefully Mandarin-speaking sales associates.
3. Drive up the customer lifetime value of the shopper through proactive post-trip outreach and communication. Even if the buyer does not plan another trip to the UK in the immediate future, they could conceivably buy the product online, through a reseller or purchase it closer to home. As always, repeat purchases are far more profitable than new customer conversion.
China is a country of 1.4 billion individuals, a huge and aspirational middle class, more billionaires now than the US and a citizenry where less than 10% currently hold passports. The opportunity for British luxury brands has not gone away – but it has shifted. It is an immense opportunity for brand executives to better anticipate these shifts in the future and build strategies that can at a minimum mitigate the impact, and more optimistically leverage them for growth.
Brian Buchwald is chief executive of consumer intelligence company Bomoda