The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Since February, when much of China was under some form of quarantine measures, local social media platforms began filling with tales of real or imagined “revenge buying.”
In general, these posts were documenting consumer fantasies of a future in which restaurants would once again be open for a nice meal, or in some cases, positing that a cancelled holiday to Paris might be a good excuse to hit up a local Louis Vuitton boutique in Beijing in the hopes that an expensive handbag would salve the wound of the lockdown.
The term baofuxing xiaofei (“revenge buying”) was first used in China in the 1980s to describe the pent up demand for foreign products that had been denied its citizens when the nation was closed off to the outside world, before Deng Xiaoping instituted the opening up policy of the late-70s and Western brands began flooding into the welcoming embrace of a new and gigantic marketplace.
In more recent times, of the hundreds of thousands of mentions of “revenge buying” currently on Weibo, use of the term seems to be evenly split between those dreaming of how they would blow off steam with a little self-pampering after harsh restrictions to ordinary life end, and those incredulous that anyone could be considering frivolous purchases as incomes are squeezed and the economy struggles to get into gear following extended shutdowns.
"Of course, luxury spending will come back, but I don't think it will come back in a crazy way," InStyle China Editor-in-Chief Yoyo Lu said, referencing the various reactions to the "revenge buying" trend on Chinese social media.
Luxury spending will come back, but I don't think it will come back in a crazy way.
Whether the kind of consumer behaviour associated with "revenge buying" actually materialises is an important question to examine now because green shoots of recovery are emerging across China, as malls and department stores reopen and shopping streets begin to fill up again.
Spending Migrates Online
Even as retail sales figures in January and February showed a worse-than-expected 20.5 percent drop year-on-year, e-commerce sales remained strong, growing 3 percent. This was largely due to categories such as groceries, medicines and other necessities that Chinese consumers were being forced to consume online while physical stores were shut, but non-essential categories also saw a spike in sales.
"We thought our sales were going to fall off a cliff at the height of coronavirus scare in China, but instead we saw some pretty good growth, with sales up 50 to 70 percent over that time [compared with the same period a year earlier]," explains Jeff Unze, president of strategic partnerships at BorderX Lab, a cross-border e-commerce platform that connects American and European merchants such as Saks Fifth Avenue, Bloomingdales, Alexander Wang and Pat McGrath with Chinese consumers (of the platform's 13 million users, 80 percent are Chinese) via their Beyond marketplace.
According to Unze, there has been a progression in the categories that have proven popular with Chinese consumers since the outbreak began, with the first two weeks seeing a spike mainly in products such as face masks and antiseptic wipes, before a switch after about a month which saw a significant boost for beauty products, up 50 percent year-on-year, while sales of women’s handbags grew 2.7 times and men’s watches grew 7.6 times.
“There has been a pent-up demand and they are ready to treat themselves,” Unze added. “I don’t know whether I would call it ‘revenge buying’ but I would definitely call it ‘treat-myself-to-something-nice’ buying.”
The savvy customer base of the Beyond marketplace, largely made up of aspirational younger millennial consumers, has raced to buy products in traditionally more expensive categories such as handbags and watches, as retail partners in the US and Europe discount products on e-commerce channels in order to liquidate existing stock.
“Some of these discounts are better than Black Friday and Boxing Day. [The combination of Chinese consumers looking to buy and international merchants desperate for sales] are coming together in a way,” Unze explains.
Luxury Desire Dampened
Putting discount-focused younger consumers aside, high-net-worth respondents from Greater China (about 70 percent from the mainland in a recent survey) reported an overall dampening of their desire to spend on luxury.
“This is the first time in the past decade that we witness Chinese respondents’ confidence weaken,” said Gao Ming, the senior vice president and managing director of luxury practice Greater China at Ruder Finn Group, referring to findings in the latest China Luxury Forecast 2020 report that the group and market research group CGS (Consumer Search Group) published at the end of February.
This is the first time in the past decade that we witness Chinese respondents' confidence weaken.
In mid-March, Ruder Finn and CGS found 82 percent of 800 Chinese consumers surveyed, with an average household income of 1.3 million yuan, or about $183,000, believed the coronavirus would have a negative impact on the Chinese economy. Their willingness to spend on categories such as travel, fine dining and premium leather goods fell 20 to 25 percent, compared with a previous survey.
The same report, however, showed that a significant number of these consumers, 42 percent, didn’t think the virus would influence their luxury consumption at all. Ruder Finn and CGS attributed an overall dampening of desire for luxury not just to the virus, but to broader factors weighing on Chinese consumers in recent years, including the trade war with the US and the country’s slowing economic growth rate.
“If people feel safe about their future and their income, then they will be happy to spend, but with the economic crisis that’s looming ahead, I doubt very much that people will be irrational with their so-called ‘revenge consumption,’” said Jason Yu, managing director for Greater China at Kantar Worldpanel, adding that the rate of revenge buying would not, in his opinion, be enough to counter losses from the year’s first quarter.
The biggest impediment to a recovery for the luxury sector in China will not be consumer access to products. Official figures from China’s Ministry of Commerce show 95 percent of department stores around the country have already reopened for business, with sales recovering to about 50 percent the level of the same period last year.
To further enhance their availability to consumers, many luxury brands, including Prada, Burberry and Valentino, have also pivoted during China's extended shutdown period to re-focus their energies online, partnering with major platforms such as Tmall's Luxury Pavilion, JD.com and Secoo, as well as beginning to embrace the trend for marrying livestream entertainment with commerce.
The major problem luxury is facing in China this year is an overall drop in consumer spending, making it more difficult for some consumers here to justify a major investment purchase — of a Rolex or Birkin, for example. A China Luxury Advisors study released at the start of March showed 86 percent of surveyed high-income Chinese consumers are planning to reduce their spending in 2020, a significantly higher proportion than the estimated 20 to 25 percent drop in categories likely to suffer from belt tightening, such as travel, fine dining and premium leather goods highlighted in the Ruder Finn and CGS report.
Beauty Is the Winner
While "revenge buying" may not save the luxury fashion sector, it will have a meaningful impact on beauty. "Affordable luxuries will still have their space. I am very positive about the beauty sector, with items priced between 200 and 400 yuan ($28 to $56) that people will still be okay with spending. They make people happy, and make people have hope for the future," Jason Yu says.
Indeed, even as other categories have seen China sales plummet in the first quarter, beauty has remained strong. On International Women’s Day, traditionally a major date on China’s retail calendar, JD.com reported an increase of 97 percent year-on-year in sales of cosmetics and skincare items, with SK-II, Lancôme, L'Oréal SA, Olay and Pechoin the five best-performing brands.
I am very positive about the beauty sector, with items priced between 200 and 400 yuan ($28 to 56).
The General Manager of Elizabeth Arden’s China operations, Yuan Liwei, was prompted by her brand’s Women’s Day campaign success (which sold 150 million yuan, or $21.6 million, in its two-week campaign period) to estimate the company could turn over a billion yuan ($140.79 million) in China this year: "We can't underestimate the demand of Chinese consumers, especially women. We maintain confidence in the Chinese market," she said.
In many ways, the so-called “revenge buying” currently on display in China, where consumers are buying little, feel-good luxuries as a way of compensating for their deprivation of niceties in the first few months of this year, is in fact more akin to the “lipstick effect” — a long rumoured but difficult-to-prove (due to historic scarcity of lipstick sales data) theory that lipstick sales tend to remain strong in the face of economic and societal crises.
In China’s 2020 outlook, however, even the lipstick effect comparison may need to be adjusted for local market conditions. With virtually the whole country still wearing face masks whenever they are out in public, lipsticks may not be the biggest beneficiary of a boom in beauty spending. Case in point, this week when cult beauty brand Huda Beauty launched in China via Alibaba’s Tmall platform, it was the brand’s “Mercury Retrograde” eyeshadow palettes that sold like hotcakes.
But even this isn’t necessarily proof of pent-up demand. Whether more expensive luxury categories will join makeup in eventually enjoying a sudden uplift later in the year remains to be seen but Yoyo Lu, for one, is more sceptical than most about a post-pandemic spending spree.
“We will see some people out there ['revenge buying'] but China is a big market and I don’t think this will be the attitude of most people,” she says.