Big Data in Luxury China

Post by 
Matthew Ryan
December 28, 2020

While the rest of the world continues to struggle with Covid and the connected economic onslaught, China for the second half of the year has been pretty much the only bright spot for luxury brands. According to a recent report from Bain Capital, the luxury sector in China grew by 48% in 2020, and reached nearly RMB 346 billion. This is in a dismal year where in total the global fashion industry has experienced a -93% drop in economic profit compared to the previous year. 

In 2021, this trend looks to continue, Bain has found that most luxury brands expect that domestic growth will rise by 30% in 2021 in China, although the second half of the year could end up being more challenging.  Maximizing profit from the China market is now a priority for luxury brands, but in a rapidly changing market, this means dropping traditional practices and embracing more innovative digital models.

Capturing Trapped Spending

A prosperous year for Chinese luxury brands has mostly been a by-product of the effects of the Covid pandemic. For the last decade, wealthy Chinese tourists have been the growth engine for traditional luxury retail destinations such as Paris, London, New York and Milan. In 2018, only 27% of luxury purchases were made domestically in China. Shoppers at both the highest and lowest end of the luxury spectrum preferred purchasing abroad because of both better pricing and also more glamorous high-end experience. Covid travel restrictions have kep these shoppers at home, resulting in 80% of luxury spending being made locally.

The burning question within the luxury industry is now'how can this trapped spending be kept in China once the crisis is over and tourists can travel again?'. The race is on to convince domestic shoppers that buying locally is a superior and more enjoyable experience before borders open again.

Data-Led Luxury Experiences

Covid has clearly shifted the luxury retail battlefield online. BCG’s recent Digital Luxury Report in conjunction with Tencent found that online purchases of luxury goods rose from 12% in 2019 to 33% in 2020. The luxury customer journey in China is far more complex than the rest of the world, with consumers requiring on average 14 touch-points before making a purchase, and 60% of those are digital.

Especially important to Chinese consumers in 2020 is personalized service. The BCG discovered approximately 45 % viewed personalized information as the critical factor in improving luxury customer service. Re-Hub published our own white-paper in 2020 explaining how luxury brands can personalize their service and content, and turn every consumer into a VIP.

While many luxury brands had already kick-started their digital transformation pre-Covid, there are also a number of laggards playing catch-up. In order to keep consumers spending domestically, the big push now for personalization.

For overseas brands to realize this in China, their biggest challenge in 2021 will be upgrading their capabilities to collect, track, and analyze consumer data. Luxe Digital reports that 85% of luxury brands sales come from customers registered in the database, but traditional brands struggle to utilize big data and analytics to enhance their operations.

Because the luxury purchase journey is longer and more complex than for other products, luxury brands have an advantage in being able to have and track more interactions with customers. They have a lot of data at their disposal but are slow to leverage it to tailor content and experiences for their most important customers.

In 2021, the brands who are able to master data analytics to steer customer experiences and marketing will be the winners.

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