A quick stroll in midtown Manhattan can give shoppers a sampling of what’s hot in the flourishing luxury market: Anya Hindmarch's playful Rubik’s Cube design handbag, innovative Korean cosmetics, and jewel-encrusted bangles and chokers. But no matter whether those goods are being sold in New York, Paris or Milan, it’s actually Chinese consumers who are driving the industry.
At an exclusive Korn Ferry conference, noted author and luxury industry expert Erwan Rambourg told a group of investors and industry leaders that Chinese shoppers have spurred on a recent resurgence in the high-end sector—forcing brands to reshuffle both products and leadership. “It has become time for more risk-taking, both for brands and their leaders,” said Rambourg, head of consumer and retail equity research at HSBC and author of “The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Begun,” which two years ago correctly predicted this retail shift.
Though rebounding well now, few sectors have presented as many challenges to its top-brand leaders as those in the luxury sector. “The turnaround in the fall happened so fast,” Melanie Kusin, vice chairman of Korn Ferry’s Board and CEO Services practice, told the audience. “The industry has been an absolute roller coaster.”
Rambourg said that after a brief but drastic retreat from the sector between mid-2015 and mid-2016, Chinese customers now account for more than one-third of industry sales and will and make up nearly half of sales by 2025, even as the entire industry doubles in size. But while the Chinese appetite for luxury shows no signs of changing, what they consider luxury and how they shop for it is changing the landscape dramatically, a development that will require the industry to adapt. “If you’re not changing your product, your retail, or your people, someone else will,” Rambourg said.
Political tensions, a weak currency, and terrorist events abroad made wealthy Chinese consumers shut their wallets for about a year. But starting this past fall, the strengthening of the nation’s currency made it cheaper for Chinese travelers to venture outside their country and shop for more high-end bags, clothing, and jewelry on their trips. The climate calls for more risk-taking by leaders, Rambourg said, so that their products and experiences can more quickly adapt to changing Chinese taste.
That includes giving Chinese tourists unique local products (goods that they won’t see other wealthy Chinese people wearing when they return home) and distinctive store experiences. If a brand’s store in Milan looks and feels the same as a store in Shanghai then the brand may appear boring, Rambourg warned. To keep Chinese customers engaged when they aren’t traveling, luxury goods makers need to ramp up their online messaging efforts, he said.