Luxury Fashion - China Entry Strategy

From Little Emperors to Ruling Emperors

Team Members: Agenda:

● Alfaro, Andrea ● Luxury Fashion - Macro Trends
● Battaglia, Alessandro ● Luxury Fashion - Micro Trends
● Chiodini, Davide ● Lessons from Louboutin
● Davi, Tommaso ● Market Entry Recommendations
● Geltrude, Andrea
● Rose, Alexander

Insights & Recommendations

EMBA Class of 2021
Luxury Fashion - Macro trends
● The Chinese market is growing rapidly. According to Equité, 400 million additional Chinese will have the means to
purchase luxury items in the next 20 years
● China is poised to gain the largest share of global luxury goods market by 2025

Sources: Bain-Altagamma 2020 Worldwide Luxury Market

Monitor; Bain analysis

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Luxury Fashion - Macro Trends
● In China, the annual revenue of luxury fashion will reach 8
billion USD in 2021
● The annual growth rate of the Chinese market is expected to
be +6% for the upcoming years, driving growth in Asia and
starting to challenge the historical leadership of Japan
● When it comes to the luxury fashion segment, apparel still
generates ⅔ of the total revenue

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Luxury Fashion - Micro Trends
Key Consumer Trends
● The key to seduce and attract Chinese consumers is to
share an inspiring history or story of the brand
● In the Chinese consumers minds, the top 5 luxury fashion
brands are Chanel, Hermès, Gucci, Dior, and Louis
Vuitton.
● In 2021, the face of luxury fashion will evolve. China is
entering the era of secondhand with dedicated mobile
apps like Plum and influencers’ endorsements (Source)
● Traditionally, a significant amount of Chinese luxury
purchases were made outside of China, while traveling
abroad. However, many Chinese consumers have started
shopping domestically in recent months, through offline
stores, online stores, and e-commerce platforms
● Although the Chinese are very influenced by digital
channels during the shopping process, in terms of market
statistics, 92% of consumers still choose to shop offline
Key Success Factors
● Promoting Loyalty - It’s hard to find Chinese
consumers who buy products from the same brands all
their lives; they love to change and try new things.
● Localizing - Product development, Marketing and
distribution strategies need to be specific and local
● Developing an Omnichannel strategy:
○ Chinese consumers engage with brands online and
offline, neglecting offline channels is a limitation
○ Social shopping in China is key to win over young
consumers.
○ In China KOLs are the most trusted people for
purchasing luxury goods
○ Moreover, luxury companies can gain the digital
attention they need by influencing the so-called
KOC (Key Opinion Consumers), normal
consumers who try your product and recommend
it to others, creating an incredible word of mouth
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Luxury Fashion - Micro Trends
4 main trends to drive China luxury market:
● Gen Z are going to be the main shoppers for luxury goods in
the coming years, driven by KOLs and Influencers
● The Chinese luxury consumer is incredibly sophisticated and
educated. 25-30 years old are the sweet spot for luxury
brands
● Brands should focus on customization and cross
collaborations rather than classic models
● Digitalisation and online sales are poised to take over classic
retail offline shopping. COVID and travel restrictions act as a
catalyst, with Europe suffering the biggest hit in local store
sales, dropping 36% this year, with sales in North America
down 27% Sources: Bain-Altagamma 2020 Worldwide Luxury Market Monitor;
● National pride is making Chinese lose interest in American Bain analysis
brands, while European brands still resist. Preference for
Chinese brands is increasing (Source)

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Case History Christian Louboutin: Differences between Europe & China
EUROPE:
● The brand has a clear presence in Europe
with 36 stores in Europe & UK, being
strong in France, United Kingdom.
● The luxury house is focused on
experience delivered in the stores and
special treatments, and customers.
● According to McKinsey research, in 2018
its value has been 330 billion Euros and it
is expected to reach 430 billion Euros, in
2025.
● Desire to capture HENRYs, Millennials
and Generation Z members, the luxury
house has started focusing on the
demographic’s values, such as authenticity,
relatability, commitment and following
sustainable practices, as well as on the
tools and channels they use, particularly
social media platforms.
*HENRY’s = (High-Earners-Not-Rich-Yet)
CHINA:
● The brand has only 13 stores in China.
● A price-driven market.
● The Little Emperors, in 2018, 62% of sales came
from customers who were under 35 years old
(Generation Z & Millennials).
● “The days when luxury retail was all about the
white glove, in-store service are long gone”,
customers want the benefits and convenience of
shopping online or even on social platforms, like
WeChat.
● Consumers nowadays have a choice between
heritage luxury brands and high-street fashion.
Brands like Off-White, Vetements, and Supreme
have built a strong followership by limiting
production, releasing products spontaneously and
working on the “one-chance-to-buy” mania.
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Christian Louboutin: Strategies to positioning in China
● From the desktop to the mobile. Strong E-commerce platform for mobiles era → Mobile marketing.
● Personalized strategies according on the tracking of interests and previous purchases.
● Be-present with retailers and WeChat, as an important channel for purchases and communication
strategies.
● KOL; KOC; KOS → as main channels for communication strategies to consumers
● Live-streaming is one of the big trends in the market
● Influencers for creating advertising and communicating new launches and fashion trends.
● Social Media highly important: “Lady Red Book”; WeChat; TikTok.
● New advertisement: Diversity & Inclusion.
● Personalized packages and personalized shoes according to customers preferences → Cool Branding
● BOF 2021 Report: 88% of China’s Luxury Growth Driven By New Consumers.
Recommendation: Create a New Brand
● Target: Generation Z
○ Born after 1990, usually the only child of the family → 15% of Chinese population
○ Willing to spend on themself → care a lot about their look
○ Proud to be Chinese → witnessed the miraculous growth of Chinese economy.
○ Geography: Tier 1 and 2 cities

● Consumer Insight
○ Chinese Generation Z is getting ready to become the new leading generation of the new leading country in the world. They are
willing to spend in luxury, and waiting for the new Chinese original luxury brand to bring to life their pride to be from China. They
dream of an international life, but they know the role of Chinese within international groups has changed

● Brand IDentity
○ Concept: a new Chinese brand that carries the European heritage and expertise
○ Key Brand Benefit: bring out loud the Chinese pride and dominant role.
○ Reason to believe: 800 years of of partnership between China and Europe to exchange and
create the best clothes.
○ Storytelling: the Silk Road - Marco Polo, Chinese premium fabrics, European expertise,
noble families, history of fashion.

● Brand name and Claim

○ Name: LEAD
○ Claim: It’s time to lead!

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Launch Campaign
● Leverage on new emerging Chinese KOL and KOC
○ young age → high affinity with target
○ not too expensive yet
○ not involved yet with major international brands → credible for our brands

● Use mainly Chinese Models in advertising

○ Pride and beauty of being Chinese

● Leverage on big pop ups events

○ Product testing, training, direct contact with KOLs, consumer feedbacks, data collection
○ Capitalize on media resonance to reach tier 2 and smaller cities

● Focus on online distribution as sales channel → mobile

○ No CAPEX needed for “brick and mortar” shops
○ Broader target cover
○ Agile and less risky approach in launch phase
○ Strongly integrated brand experience between offline (events) consideration and online conversion

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Market entry strategy
Taking LEAD to the Chinese Generation Z
LEAD
-Why enter now: Traditionally, a significant
amount of Chinese luxury purchases were made
outside of China, while traveling abroad.
However, many Chinese Z generation
consumers have started shopping domestically
in recent months, through offline stores, online
stores, and e-commerce platforms.
-When is entering successful? Once a
Strongly integrated brand experience between
offline (events) consideration and online
conversion is achieved in China.
-Core capabilities:Personalized strategies
according on the tracking of interests and
previous purchases.
-Product Mix: luxury clothes and accessories
for generation Z customers.
-Revenue streams: Online- sales-Licensing-
Franchising.
-Cost streams: NO Capex - Management and
production costs.
-Customer segmentation: Gen Z.
Vehicle
-Greenfield investments: in new
operations and platforms.
-Grow with acquisitions:of existing
chinese brands in the fashion segment.
-Joint Ventures: with luxury brands for
diversification.
-Strategic Alliances:with KOL; KOC;
KOS, logistic and distribution, other
brands for market penetration.
-Franchising models:within China
mainland to diversify revenue and
increase market share.
-LEAD brand Licensing activities.
MARKET
-Market size and trends:
In China, the annual revenue of
luxury fashion will reach 8 billion
USD in 2021.
-Competition:Chanel, Hermès,
Gucci, Dior, and Louis Vuitton.
-Substitutes: Other luxury brands
for gen Z.
-Novel Distribution
platform:From the desktop to the
mobile. Strong E-commerce
platforms for mobiles era & Mobile
marketing.
-Favorable trends: 400 million
additional Chinese will have the
means to purchase luxury items in
the next 20 years.
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References
● “In China, Secondhand is the New Challenge for Fashion Brands” - https://fashionchinaagency.com/in-china-secondhand-is-the-new-challenge-for-
fashion-brands/ (accessed 10/11/2021)
● “Is there opportunities left for new coming luxury brands in China?” - https://marketingtochina.com/is-there-opportunities-left-for-new-coming-
luxury-brands-in-china/ (accessed 10/11/2021)
● “The State of Fashion 2021: In search of promise in perilous times” - https://www.mckinsey.com/industries/retail/our-insights/state-of-fashion
(accessed 10/11/2021)
● Statista Consumer Market Outlook 2020 - https://www-statista-com.revproxy.escpeurope.eu/study/56842/luxury-fashion-report/
● “The new threat to China’s luxury boom: What to know” - https://www.voguebusiness.com/consumers/the-new-threat-to-chinas-luxury-boom-
what-to-know (accessed 10/11/2021)
● “China’s luxury market is more resilient than you think” - https://fortune.com/2021/09/15/china-luxury-market-resilience-common-prosperity-
demand/ (accessed 10/11/2021)
● “Report: 88% of China’s Luxury Growth Driven By New Consumers” - https://www.businessoffashion.com/news/china/report-88-of-chinas-luxury-
fashion-growth-driven-by-new-consumers (accessed 10/11/2021)
● “China Is Headed To Be The World’s Largest Luxury Market By 2025, But American Brands May Miss Out” -
https://www.forbes.com/sites/pamdanziger/2020/11/22/china-is-headed-to-be-the-worlds-largest-luxury-market-by-2025-but-american-brands-may-
miss-out/ (accessed 10/11/2021)

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