NEW YORK, United States — China may be experiencing an unprecedented economic storm but senior executives at the world's largest luxury conglomerates have been quietly working to avert disaster. The big groups are taking action to buffer themselves against the fluctuations of the domestic Chinese luxury market, while making sure they capitalise on the rise of the outbound Chinese tourist shopper.
In addition to reconsidering pricing strategy, exploring e-commerce and closing or refurbishing underperforming stores, the major luxury groups — including LVMH, Kering and Richemont — are boosting their smaller portfolio brands in China. It may be wise for the big groups to let their "big logo" brands move forward on inertia, while putting real effort behind "newer" brands. In so doing, they could save big by foregoing costly marketing events (deemed by some insiders as largely pointless) and reducing investment in traditional ad campaigns.
For the remainder of 2015 and into 2016, it is likely that groups with a wide spectrum of brands in their portfolio will best weather the China storm. What's also important, however, is to cleverly promote smaller brands in China to spur local purchases, while ensuring that outbound tourists don't forget them on the road.
LVMH: Bolstered by Fendi, Céline and Loewe
Over the past couple of decades, LVMH has benefited from solid demand among China's newly wealthy for its flagship brands, such as Louis Vuitton, Christian Dior, Givenchy and Fendi. But, as Louis Vuitton's star is fading in China, parent group LVMH has responded by quickly pushing other brands in the market.
Recently, Fendi has proved to be the strongest performer, with its Peekaboo line enjoying massive popularity among affluent Chinese female consumers — its popularity driven by fashion bloggers' Weibo and WeChat feeds and the "cuteness" of the brand’s bag charm line. Meanwhile, LVMH portfolio brands Céline and Loewe have steadily grown in popularity among younger shoppers, who are untouched by the anti-corruption campaign and are more flexible in their choice of brands than the post-70s generation.
LVMH, which has relatively low exposure in the tough jewellery and watch segment, continues to benefit from its Bulgari brand among Europe-bound Chinese tourists. LVMH-owned watchmaker Hublot maintains an occasionally strong presence, often as a result of high-profile celebrity endorsements, but does not rely heavily on the Greater China market (which only accounts for around 7 percent of company sales).
And while not strictly in the LVMH orbit (being privately owned by Bernard Arnault), revived brand Moynat has been particularly popular among Hong Kong and overseas Chinese luxury bloggers and Instagrammers.
Kering: Hopeful on Gucci
Kering has experienced shifting sands in China, but remains well positioned to handle the current fluctuations.
Although Gucci has struggled with its pricing strategy in China, it is likely that new creative director Alessandro Michele will attract affluent, younger Chinese consumers with his new look. This was the case for Kering-owned Saint Laurent, whose successful brand revamp has maintained a desirable brand status for Chinese shoppers worldwide.
While Kering brands like Brioni and Stella McCartney have yet to fully take off among Chinese shoppers, Pomellato has a chance to crack the consumer segment. The jewellery brand has a small retail presence in China and is relatively exclusive, making it all the more appealing.
Meanwhile, the continued popularity of Balenciaga and Alexander McQueen — particularly among overseas-based Chinese shoppers and outbound tourists — means that Kering should be well insulated from China's current economic environment.
Richemont: Seeing Promise in Chloé
Of the "big three" luxury groups, it is the heavily watch and jewellery-weighted Richemont that will struggle the most in mainland China in the near future.
While it is Richemont's male-centric brands like Vacheron Constantin, Dunhill and IWC (once the rock-solid beneficiaries of China's luxury "gifting" culture) that may struggle, Richemont will continue to benefit from the strength of evergreen portfolio brands like Cartier.
Swiss watches have been hard-hit over the past year, with watch sales down 10 per cent in July, but portfolio watch brand Baume & Mercier is poised to grow. This is due to an increase of male consumers in China, who are purchasing accessibly-priced Swiss watches for themselves, rather than as gifts — an important new factor. Baume & Mercier sits across the right price points to see modest, yet steady, growth in the years to come.
There is also Richemond's portfolio brand Lancel, which ticks all of the right boxes — relatively affordable, brightly coloured and with a relatively small retail presence in China — and has a chance to tap the greater spending power of young Chinese consumers. But it is the strong brand awareness and popularity of Chloé that may help Richemont most in the near term. Chloé's Drew model remains an it-bag in China through solid media coverage and sustained appearances on celebrity and blogger social media accounts.
A common trait shared among major luxury groups — and one point that smaller brands can learn from — is their ability to quickly pull different levers based on China's current luxury environment. If Chinese shoppers within China have stopped buying logo-heavy items or prefer to buy online or by using mobile, don't fight the culture, move with it.
What’s clear is that the old way of breaking into the China market — opening stores and plastering ads in magazines and on billboards — will no longer work, as young digitally-savvy consumers take the place of the formerly dominant gift-giving shoppers of yesteryear.
Avery Booker is a partner at China Luxury Advisors.