Bain Warns Luxe Crowd on China Approach

Luxury firms need to act fast if they don’t want the rapidly evolving Chinese consumer to join the ranks of those disillusioned with their brands.

PARIS — Luxury firms need to act fast if they don’t want the rapidly evolving Chinese consumer to join the ranks of those disillusioned with their brands, consultancy Bain & Co. warned in a new survey.

This story first appeared in the February 11, 2014 issue of WWD.  Subscribe Today.

The behavior of Chinese consumers is replicating the developments seen in more mature markets, but at a much faster pace, Bain analysts Claudia D’Arpizio and Federica Levato said in their study, “Lens on the Worldwide Luxury Consumer,” presented here Monday.

The hard core of luxury consumers — meaning those that spend at least 1,250 euros, or $1,700 at current exchange, a year on luxury goods — totals 150 million worldwide (with the top 10 percent accounting for more than half the spending), according to the survey, produced in partnership with equities broker Redburn and research agency Millward Brown.

The analysts classified these by seven types in declining order per total spending: Omnivore, opinionated, conservative, investor, hedonist, disillusioned and wannabe.

The omnivore category consisted mainly of Chinese consumers from second- and third-tier cities, while the opinionated section included Chinese living in Beijing and Shanghai, followed by Western Europeans and Americans.

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One of the biggest surprises of the survey was the rapid transition of Chinese consumers from omnivore to opinionated over the last 18 to 24 months, said D’Arpizio, a partner at Bain.

“I think it’s pretty scary — it was scary for us, but I think more scary for [luxury brands] — to see how the Chinese changed the way they were consuming luxury goods in a few months. They were really omnivore, and buying the big brands and buying in a very bulimic way, and became very quickly opinionated cherry pickers, more sophisticated,” she explained.

“After all the investments made by the industry in China, I think it’s very interesting to study the speed at which these things change now. It’s 10 times or more higher than it was 10 years ago, so everything is happening very quickly,” D’Arpizio added.

Meanwhile, a group of disillusioned consumers has emerged over the last decade in mature markets such as the U.S., Europe and especially Japan, with price increases factoring heavily into their disaffection.

“We don’t think this is a journey that every mature market has to follow. We think that Japan should be a big test market to really understand how consumers ended up there. Of course, there have been a lot of exogenous events and the crisis, but also probably the brands have invested so much in Japan, but at a certain point, probably not in the right way,” said D’Arpizio.

“So the question is: Is it a journey, or can you do something to stop the cycle and not have the Chinese becoming detached very soon?” she asked.

China and Southeast Asia will remain the main drivers of luxury spending in the next five to 10 years, with an estimated 10 million new consumers entering the market every year, she forecast.

The survey recommended that brands develop more tailored responses to each of their customer segments, with key measures such as developing increasingly differentiated products, more distinctive advertising campaigns and a less formal in-store experience.

“What is clear is the ability of luxury brands of being so strong and very focused on creating big desire and making people fall in love, but then the real relationship after the purchase and during the journey still has huge margins for improvement,” said D’Arpizio.

“Consumers really ask for more of a complete journey with the brand and more of a relationship across all the touch points, and not just the moment of the advertising and creating the desire,” she concluded.