Is China’s Affordable Luxury Market Dying? | Marketing

the affordable luxury market has shown impressive potential in China in recent years. But market experts are wondering about the future of this industry in the post-COVID-19 era. Given the growing sophistication of the Chinese market and the impact of the pandemic on affordable luxury, their concerns may be valid.

In 2019, the global affordable luxury market was valued at $ 137.8 billion, according to a report shared by Research and Markets. And, over the past decade, China’s growing middle class has emerged as a major force in the development of this market. Nonetheless, the pandemic and China’s economic woes could create significant challenges that could soon undermine growth and development.

Without a doubt, some “affordable luxury” brands like Longchamp and Coach performed exceptionally well in China. And contenders like Michael Kors, Kate Spade, and Tory Burch are also gaining ground. However, it is also true that the COVID-19 pandemic, increasing youth unemployment and household debt on the rise accelerated China’s entry into an era of mature luxury consumption. Therefore, instead of buying trendy seasonal clothes, some consumers are now looking to swap and buy “Bullion coins”.

So, is this sector dead in the Middle Kingdom? We are unlikely to find a definitive answer, but there are good arguments on both sides. Let’s take a look at them.

Factors behind the strengthening of the sector:

  1. China’s economic outlook

According to a Pew Research Center analysis, 10 million people (of the 504 million) may have fallen China’s middle income level during the pandemic. These consumers are very unlikely to have had a significant impact on luxury consumption in China. However, it’s also true that the fear and emotional strain associated with financial distress can hold back overall consumption.

As expensive luxury goods have become even more inaccessible to average consumers, shoppers have turned to more affordable options. We saw this trend in full screen with the rise of the luxury resale market. As a result, a return to affordable luxury should not be seen as a far-fetched idea.

Young professionals obsessed with mianzi 面子 (saving face) and guanxi 关系 (making connections) believe that luxury goods can help them gain social recognition and status. But despite this peer pressure, buyers can no longer afford traditional luxury items, so they have been forced to turn to affordable luxury.

  1. Luxury brands have increased their prices

Hiking prices during the global pandemic – after jobs were cut and millions of consumers struggled to make ends meet – was a questionable strategy, pushing more consumers toward affordable luxury.

Nowadays, most luxury brands sell dream, exclusivity and prestige rather than craftsmanship, heritage and craft skills. As such, there is little difference between a pair of luxury Chanel sneakers and a well-made fast-fashion copy of them. Since luxury brands no longer create physical value, many of them cannot justify their premium prices.

Meanwhile, mid-market retailers have come a long way in recent years. They have improved their quality and efficiency, expanded their product lines and blends, and turned customers into brand evangelists through targeted marketing campaigns.

Take, for example, Coach and Longchamp – two premium brands well positioned to adapt to changes in the Chinese market. It is no coincidence that the two brands have directly won over Chinese middle-class consumers with their successful social media marketing strategies.

Coach’s Limited Edition Valentine’s Day Collection 520. (Coach’s Weibo)

Factors that could kill the industry:

  1. The consumer shifts from buying luxury products to seeking experiences

The pandemic has exposed the fragility of life, fueling a new YOLO economy. Young, exhausted consumers give up stable jobs for “low desire lives”, adopting the resistance movement known as “lying flat”.

Many consumers have replaced the mad rush with a simpler life, abandoning materialism and consumerism. This trend has an impact on consumption as buyers decide to ignore their buying impulses and get out of the trap of conspicuous consumption.

  1. Casual wear and fast fashion disruptors improve their value proposition

Japanese fast fashion retailer UNIQLO is capturing the hearts of Chinese consumers with its product offering and winning marketing strategy. The Japanese brand has expanded its product line to include premium clothing that is both timeless and affordable. This strategy positions Uniqlo as a rival to many affordable luxury brands.

Yet the future of affordable luxury remains bright in China. Soon, luxury conglomerates LVMH and Kering may have to pursue more aggressive strategies in this direction if they are to retain control of the highly lucrative luxury markets in China and India. As such, the move could eventually lead to business acquisitions and hostile take-over bids of private brands like Longchamp.

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