According to a study published by McKinsey Global Institute, among the 2 billion people who have achieved high standards of living over the past 20 years (with a GDP per capita of at least USD 8,300 and a life expectancy of at least 72.5 years), 1.1 billion live in China and almost another billion in micro-regions spread across 75 countries. This means that more than half of these two billion people are Chinese.
Also according to McKinsey, (Study by Alice Scalco, Michael Straub, Jacob Wang and Daniel Zipser), the apparel, fashion and luxury (AF&L) market in China continues to be one of the largest and most dynamic in the world, with growth forecasts – after a difficult 2022 – again in double digits, thanks mainly to the growth of the middle class. This set of data gives us a picture of a market that appears immense and with immense potential for international fashion brands. But this does not mean that it is easy for global multinationals to do business in China. In fact, many top Chinese fashion brands are outperforming their global peers and many of them are adopting an increasingly agile operating model and supply chain, allowing for greater responsiveness to changes in consumer preferences and tastes. Not only that, but these brands appear increasingly adept at operating on the various social-media and online commerce channels, able to engage local opinion leaders to connect directly with consumers.
For this reason, according to McKinsey, global AF&L brands aiming to strengthen their long-term competitiveness in the Chinese market should start with a well-defined brand positioning, followed by consistent on/off-line communication. Therefore, strategies for physical chain shops, as well as digital platforms, should be consistently framed by investing in omnichannel activities and direct consumer engagement (D2C). Finally, ‘enabling factors’ – ranging from product and supply chain development to technology and digital infrastructure – can help global brands improve their relevance in the local market.
Brand positioning, strategies and communication
Tastes and trends in China are constantly evolving and often follow different paths from those in other markets. For this reason, global brands wishing to establish themselves in the Chinese market must be prepared to adapt their positioning to local tastes and develop a true local marketing engine. In order to keep up with the fierce competition from local brands, global brands can also reconfigure their organisational structure and speed up time-to-market by adopting a ‘test and chase’ model to test and review product features. In addition, a closer look at sales channel preferences in China shows that consumers are progressively shifting from traditional department stores, to shopping malls located in prime locations, which boast a wider and more comprehensive lifestyle offering, as well as food and beverage options.
Increasingly towards a D2C omnichannel approach
Chinese consumers have increasingly embraced the omnichannel approach, and easily switch from online to offline contact before making a purchasing decision. This is why it is important for global fashion brands to adopt and develop an effective omnichannel D2C strategy that engages and builds consumer loyalty (from upgrading digital touchpoints that enhance the shopping experience, to training shop staff for better customer engagement). Also important is the effective exploitation of the consumer data set, which can offer exponential value.
Furthermore, as shopping on social platforms has become a natural step for Chinese consumers, global fashion brands should develop tailor-made placements along the consumer’s decision-making path, e.g. by developing local content or live streaming operations.
Agile supply chain, technology and digital localisation
Demand patterns are more dynamic in China than in mature markets. Therefore, global fashion brands can reconfigure their supply chain in a more customised way by adopting ‘data-driven’ planning and developing a ‘China for China’ supply chain. Global brands should also prioritise technology and digital localisation for greater resilience: it is necessary to have the right technology and digital infrastructure in place to create a valuable experience for local consumers, while developing partnerships with local players.
The luxury market in Hong Kong
According to a study by PwC (the global network of professional audit and business services), Hong Kong’s consumer market forecasts for 2023 are optimistic: retail sales are expected to grow by 13% to around HK$395 billion.
Erika Andreetta, Emea Fashion & Luxury leader and partner at PwC Italy, says: ‘Mainland China’s lifting of quarantine requirements for inbound travellers will rebound retail sales for 2023. Tourism will start a slow recovery: Hong Kong estimates 20 million visitors, one-third of the 65 million peak in 2018. Retail sales will benefit from the Tourism Authority’s recent HK$100 million plan to attract tourists with free gifts and promotions, such as consumer vouchers that can be spent at more than 130 attractions, shops and restaurants. Hong Kong will also give away 500,000 airline tickets to travellers from around the world to help revive tourism. It is true that the re-opening of the borders will help; but considering that the retail sector in Hong Kong will continue to rely on local consumption in the first few months, it may prove difficult to return to the levels we saw before the pandemic.
Erika Andreetta continues: “Looking ahead, department stores and the luxury sector, including jewellery, will continue to grow by around 40 per cent in 2023, compared to around 20 per cent for clothing, footwear and related products, supported by the recovery of tourism and the strengthening of the renminbi.”
The luxury market is recovering fast from the pandemic and with greater vigour, resilience and agility, and luxury brands should prepare to respond to the recovery and new opportunities. Although Hong Kong still faces some challenges, the luxury market will benefit from the national and global recovery, continuing to strengthen its edge over competitors as a shopping paradise. The city can further become a platform for e-commerce in North Asia.
The future of luxury retail in Hong Kong
According to PwC’s Mainland China/HK Luxury Market Insights for 2023, the retail landscape in Hong Kong has been profoundly transformed by three years of closed borders. Brands have, in fact, revisited their shop footprints and reduced their presence in Hong Kong in favour of Mainland China. This is because the difference between prices in Hong Kong and mainland China has gradually narrowed due to exchange rates and the strong penetration of e-commerce in the latter. The transformation of the Hong Kong market is likely to continue, while Mainland China will increasingly become a viable alternative. And yet, as an international financial hub with no sales tax or customs duty, Hong Kong can still hold a unique and privileged position. How? Against this backdrop, it becomes crucial for Hong Kong to focus strongly on offering even more exclusive, customised and cutting-edge products, as well as a cosmopolitan shopping experience that can cater to Asian high-end shoppers and differentiate itself from Mainland China. The future of retail in Hong Kong will also be linked to the Greater Bay Area (GBA); some districts in Shenzhen and Guangzhou, along with large areas in Guangdong Province, are still underserved in terms of high-end malls and outlets, and shoppers living in the GBA are likely to continue to be attracted to Hong Kong as a shopping destination.
The role of e-commerce in Hong Kong
In 2022, online retail sales constituted 10 per cent of total retail sales in value terms, an increase of 21 per cent year-on-year. In the past three years, Hong Kong’s retail sector has changed dramatically as the number of people buying online has grown. Many retailers have increased investment in online sales platforms to improve the overall Internet shopping experience. According to PwC Hong Kong, however, online retail sales will continue to grow in 2023, but at a slower pace. The growth of e-commerce will depend on several factors, including the development of consumer data protection, ethical artificial intelligence and other key features of a digital economy.