How China’s luxury goods market has changed during Covid

If your business brand operates in the Chinese market, then you’ll already know that the country’s economic indicators are looking extremely healthy and that Chinese luxury consumers are ready to enjoy retail therapy to its fullest!

China’s luxury goods market is helping to reinvigorate China’s economy, and it is expected to rebound sharply after the pandemic’s global downturn. But how has China’s luxury goods market changed in the past year?

During the Covid-19 pandemic, China’s luxury goods manufacturers switched their production away from high-end designer products to the essentials of the health crisis – producing masks and PPE and donating money to charities working on the Covid frontline.

Now, those brands are working hard to establish longer-term impacts. Analysis from McKinsey [1] suggests that the following changes may result:

1. Structural changes

Before the world even knew about Covid, independent European wholesalers of luxury goods were beginning to struggle, along with some of the luxury department stores of North America. This was partly driven by a structural move to more vertical integration models which had begun some years previously – accelerated by the recent surge in e-commerce. Some of these wholesalers, boutiques and stores are expected to go out of business, and those which survive are expected to embrace aggressive discounting and commercial policies which could negatively impact the market position of brands without concession models – at least in the near term.

2. Local shopping

Luxury goods have always been associated with global consumers, with up to 30% of these purchases being made outside of a customer’s home country. Chinese customers took over 150 million foreign trips in 2018 and McKinsey believes that over 50% of China’s luxury goods spending in that year was made overseas; for the lower prices, and as part of the travel experience itself.

However, international travel restrictions are likely to persist for some time and this means that brands will need to attract Chinese luxury goods lovers in a fresh way. Forward-thinking brands will seek to attract this high growth market with local, tailored experiences across digital and omnichannel platforms, and strategies that focus on customers in China’s evolving tier-two and tier-three cities. The challenges of customer service and retail logistics in these cities will be a challenge, but one that luxury brands are expected to be highly motivated to overcome; particularly for Western brands with the logistics capabilities to service Chinese markets via an e-commerce model.

3. The end of the live show?

Trade shows and fashion weeks have always been an integral part of luxury brands’ marketing campaigns and their relationship building with direct customers and trading partners alike. These shows are expected to return in time, but many Western luxury goods brands are looking at digital alternatives in the meantime, and creative means of providing that same sense of atmosphere, drama, storytelling and magic through online content. The challenge will be an enticing one for creative partners of luxury goods brands, who can leverage China’s advanced digital landscape to offer cutting-edge content experiences – without live audiences.

4. Goods over experiences… for now

Experiential luxury – the desire for experience over physical goods – has been one of the fastest-growing trends in the luxury industries in recent years, driven by millennials who prefer ‘Instagrammable moments’ over physical products – and then followed by Baby Boomers who had already brought a lot of physical luxury goods and were also moving towards more experiential purchases; think of high-end restaurants, resorts, cruises and hotels for example.

However, research suggests that there will be a growth in luxury physical goods sales again – at least in the short-term – with customers seeking out reassuring, high-end, quality possessions that they can enjoy while awaiting a return to normal life and free travel. Once international travel and other restrictions are ended, it is expected that the trend for high-end experience consumption will surge once again. This offers opportunities for luxury brands of all kinds to implement impactful digital marketing campaigns that appeal to their target Chinese audiences now – whether for immediate conversions or for longer-term brand positioning in anticipation of future sales.

Steps for luxury brands to take now:

a. Review your current inventory and consider 2021 collections – ideally without resorting to any deep discounting to manage excess stock.
b. Accelerate your investment in digital marketing to engage target customers and to grow your e-commerce channels.
c. Reassess the strength of your supply chain – recognising that, for luxury goods, in particular, many manufacturers are still not operating at capacity.
d. Begin thinking about how you can put digital at the heart of your entire operating model, for a robust ‘pandemic safe’ sales channel that can overcome any future local restrictions.
e. Revisit your customer and market research, to understand how these may have changed in the past year.
f. Focus on building a culture that embraces flexibility, innovation and resilience, to succeed in testing times!

In conclusion

The luxury goods industry is used to reinventing itself. Western brands were already waking up to the emergence of powerful native Chinese luxury brands, changing Chinese consumer trends and the impact of global politics on trade – before Covid was even a factor! There is no doubt that the sector will continue to succeed – although some brands will emerge in a stronger position than others. Success will rest on the ability of brands to adapt to the short-term demands made as a result of Covid, whilst planning ahead to meet longer-term changes in underlying customer demand.

Western luxury brands should almost certainly be using this time to invest in their digital marketing activities and their strategic campaign planning. Whether those brands are in sectors that can now operate freely (such as e-commerce) or planning ahead for a return to full commercial form in the near future (such as luxury travel), there is everything to play for in a market where China’s customers have money once again, the intention to spend and high optimism about their economic prospects.

The help that you need

Market Me China is here to help you succeed with your digital marketing efforts in China, whether your business operates within the luxury sector, or a different market entirely! Our team of highly experienced marketing professionals blend native language skills with deep Chinese digital marketing experience to bring measurable returns to our clients and their bottom line.

We help to develop and deliver impactful Chinese digital marketing campaigns that are tailored to every client’s unique needs – and naturally, we can work on a distanced basis in line with current working practices. Please contact us in the first instance to discuss your needs and we will be delighted to help.


[1] China consumer report 2021 – Understanding Chinese Consumers: Growth Engine of the World, McKinsey