MILAN — There’s only one direction for luxury brands that want to survive — and thrive — in the future and that’s facing East, as the pandemic reinforced that appealing to Chinese consumers and being physically and digitally present in the market are no longer an option.
“COVID-19 is increasing the gap between brands performing best and those that are not. Some companies will see their sales return to last year’s revenues in 2021, others will take more than five years to reach the same figures,” said Jefferies managing director of luxury equity Flavio Cereda-Parini, who underscored that retail sales of personal luxury goods will decrease 22 percent this year.
“That means losing almost 70 billion euros, more than three times the loss in 2008,” he added while presenting a report at a webinar hosted by Tmall on Wednesday.
In this global context, Chinese shoppers are the ones who are driving the market and are expected to play an even bigger role in the coming years. Projections for 2020 showed they will account for 46 percent of all global spending on high-end brands. Cereda-Parini highlighted this was an exponential trend; since 2010 they accounted for just 18 percent while last year Chinese consumers represented 37 percent.
In particular, the compound annual growth rate of luxury spending by Chinese customers is 13 percent, compared to 3 percent by shoppers hailing from the rest of Asia, 1 percent by European consumers and less than 2 percent by North American ones.
Most of all, with the pandemic significantly affecting air traffic and travel, Chinese are increasingly spending locally. While in 2019 sales of luxury goods to Chinese customers in China accounted for 38 percent of revenues, this year they jumped at 85 percent.
“There was already a gradual growth of purchases made in China in the recent past, but it spiked in 2020, and what was supposed to happen in five years, it took place in just five months. So this year will mark an epochal shift. Even with a gradual return to travels, the percentage [of sales generated in China] will remain above 60 percent, we will never go back to that 38 percent again,” said Cereda-Parini.
While a gain for the Chinese economy, which was also boosted by a series of measures implemented by the government to further encourage local spending, it has a negative impact on the European one. Reinforcing the consequences the lack of tourists are set to have on luxury brands, Cereda-Parini highlighted that last year, an average 51 percent of sales generated in Europe were credited to tourists, mainly coming from Asia and China, specifically.
“In 2020, this figure was 13 percent, thanks to the first six weeks of the year when traveling was still the norm. We predict that in 2024, these tourists will account for 40 percent of sales in Europe, but I doubt we will return to higher percentages,” he noted.
“So there’s no other way revenues are being made in China. This year proved that a brand that didn’t invest in digital and didn’t know how to communicate, especially in that market, was already behind and now can’t regain the gap. It’s Darwin’s natural selection applied to this industry,” said Cereda-Parini.
“The more time passes by, the more difficult recovering the gap is,” confirmed Dante D’Angelo, chief marketing digital officer at Valentino.
“What I personally learned this year is not about the digital acceleration, which didn’t surprise me much. I was very happy to see as a person and as a manager the affirmation of clienteling: This year the difference between who used it as a slogan in the past and who has really had this concept at the core of its business, was visible,” he added, underscoring that “being digitally strong doesn’t count, you have to know how to speak [to consumers].”
For D’Angelo, creating storytelling and thinking about ways to engage with consumers are at the core of any marketing initiative implemented by Valentino, but are particularly important in China, where staying in touch with clients and entertaining them is essential.
In retracing the brand’s experience in the country and strategic partnership with Tmall, he praised the platform for enabling luxury brands to add the info-tainment aspect to the mere marketplace format.
“We were trying to find a different way to communicate with Chinese consumers. Beyond the importance of the market, it was essential to touch the right emotional chords.…It was also about a different generational approach to shopping, with a type of consumer who was very different from the ones we were used to engaging with,” he recalled.
In 2018, the partnership with Tmall resulted in a Valentino pop-up in the Sanlitun district in Beijing. The location featured digital tools, while consumers were also able to access the store remotely through AI. “The outcome was for both parties beyond any expectation: we had a queue out of the store every day and all products were sold out, especially our sneakers and [Candystud] bag. It was in that moment we understood the magic and power of that operation,” recalled D’Angelo.
The experiment was replicated other times, further enhancing omnichannel services, improving local Valentino stores’ digital offering, enabling shoppers to roam across floors, zoom in on products and buy the exact assortment displayed in the physical location with a simple double-click. D’Angelo underscored that for him the real achievement wasn’t measured only in terms of sales, but mostly in the minutes the brand succeeded in keeping shoppers engaged with the experience.
“I’m a marketer so I have to know how to sell. But I’m also a digital marketer so I have to know how to enchant,” he said with a smile. “So at the end of the day, the main exercise is to draw Chinese consumers’ attention through things that are really interesting to them, and not to us only…and to do so, you have to observe them, understand them and emphasize with them,” concluded D’Angelo.
In China, Valentino is among the nearly 200 brands populating Alibaba Group’s Tmall Luxury Pavilion. Launched in 2017, the platform was the result of the Chinese giant’s strategy to group all its luxury brands and house them in a digital space in sync with their DNA and image as well as facilitate consumers’ research and shopping experience.
Christina Fontana, head of Tmall Luxury for the U.S. and Europe at Alibaba Group, explained that the prime clusters buying at the Luxury Pavilion are Gen Z customers under 26 years old, who have a penchant for luxury bags and shoes and favor co-branded products; low-tier citizens, who bet on big names, consider watches to be status symbols and are mostly affected by word of mouth from social circles in their purchases, and the wealthy class, who prefer new arrivals rather than big brands and particularly appreciate the service and experience.
“For all of them being told a story is essential,” she reiterated, pointing to the services the platform provides to enable brands to do just that. These range from livestreaming sessions and short videos to gamification experiences that enhance the interaction with a younger generation, high-end customized services and content developed with local celebrities.