LUXURY BRANDS SHOULD EMBRACE THE 'NEXT-NORMAL' IN POST PANDEMIC CHINA

With China’s domestic luxury expenditure soaring, luxury brands in the UK must recalibrate their strategies, taking action to “navigate the now”, plan for the recovery, and shape the future.

The coronavirus pandemic has sent most of the world’s luxury spending into a tailspin and China is the only major economy expected to show growth this year.

Back in 2018, Chinese consumers took more than 150 million trips abroad, with purchases outside the mainland accounting for over half of China’s luxury spending that year. The excitement and authenticity of buying a brand in its country of origin is an integral part of the travel experience, plus the obvious benefits of tax-free shopping.

Nevertheless, the standstill in international tourism is accelerating China’s domestic spending for a few reasons. Luxury goods have become more affordable in China since 2018 when the government reduced VAT from 17% to 13%, plus the Chinese yuan has weakened.  

Furthermore, there’s been a crackdown on daigou, literally translated as ‘buy on behalf’, where luxury goods are purchased abroad for resale in China.

Domestic purchases are expected to account for 26% to 28% of the global personal luxury goods market by 2025 and China's swift rebound from the economic disruption and continuing global travel restrictions, look set to further increase the level of spending on luxury goods taking place on the mainland. 

A NEW APPROACH FOR UK LUXURY BRANDS

This is all well and good, but an important driver of luxury spending in the UK has come to a halt. The abolishment of tax-free shopping at the end of 2020 has had a devastating impact on duty-free retail, at a time when the return of affluent international visitors is critical to post-Covid recovery. Deplorably, we anticipate only a gradual ramp-up in international travel, even after the restrictions are lifted.

UK luxury brands clearly need a new approach and to recalibrate their strategies to compete in a future market - strengthening their digital and omnichannel penetration, and engaging more deeply with shopping-starved consumers across China’s mainland.

The Runway’s resident luxury expert shared her perspective on how brands can take advantage of this opportunity with Digital Doughnut here:

https://www.digitaldoughnut.com/articles/2021/april-2021/luxury-brands-should-embrace-the-%E2%80%98next-normal?feed=Articles-Digital-Doughnut