Projecting a slowdown, Bain & Co forecasts,China’s luxury sales will decrease by 12 per cent from 2023, with sales primarily being driven by high-net-worth individuals possessing investible assets exceeding 10 million yuan ($1.4 million).
This shift emphasises a renewed focus on catering to key clientele, as highlighted by Tan, a representative from Bain & Co. This reorientation comes in response to a concerning trend, a surge in product returns, prompting luxury brands to reevaluate their strategies within the Chinese market.
During China's major shopping event last November, renowned luxury labels such as Ralph Lauren Corp, Burberry Group Plc, and Richemont SA's Net-A-Porter faced an unprecedented wave of returns and cancellations, with some experiencing up to 75 per cent of sales value being reversed.
The exceptionally high rate of returns, well beyond the norm of 20 per cent to 30 per cent in the luxury industry, persisted even after China transitioned from its strict COVID Zero policies over a year ago. This trend poses a challenge to fashion labels operating in the world's second-largest economy, particularly as the middle class now seeks discounts or refrains from high-end purchases amid economic headwinds.
The situation worsened in the first quarter of the current year, with Tmall return and cancellation rates soaring for several luxury brands compared to the same period in previous years. This included notable names like Brunello Cucinelli SpA, Marc Jacobs, Chloé, Ralph Lauren, and Mulberry Group PLC.
Mark Tanner, Managing Director, China Skinny, suggests, the softening of luxury demand may encourage opportunistic behavior, with individuals leveraging luxury items for status before returning them at no cost.
While Tmall plans to continue collaborating with luxury brands, the return issue persists, exacerbated by shoppers exploiting promotional campaigns to secure discounts, even if they intend to return purchased items later. This behavior inflates initial sales figures but doesn't translate into sustained revenue.
However, luxury labels at the highest echelons, such as Hermes International SCA, Chanel, and Dior, are limiting their reliance on e-commerce channels and refraining from extensive sales campaigns, instead focusing on cultivating relationships with affluent clientele.
Nevertheless, the allure of Tmall's extensive reach continues to attract some luxury brands, despite the risk of tarnishing their image through frequent participation in promotions. With online orders accounting for a significant portion of China's high-end market revenue, premium brands are compelled to navigate the challenges posed by e-commerce platforms, investing in personalised services and exclusive experiences to nurture long-term relationships with wealthy customers.
