Luxury brands shift focus to very important clients (VICs) in China as the spending power of the middle class declines.
As China’s post-pandemic economic slowdown affects the spending power of the middle class, luxury brands are turning their attention to a new target market: the very important clients (VICs). These wealthy Chinese consumers, such as entrepreneur Diana Wang, are being courted by luxury brands like Cartier, Tiffany, and Chopard. The brands are offering exclusive events, personalized experiences, and perks to entice these VICs, who account for a significant portion of luxury sales in China. This shift in strategy comes as luxury brands face challenges in the Chinese market and seek to overcome the lack of a strong rebound in luxury demand.
The Challenge of Slow Luxury Demand in China
Despite China’s post-pandemic re-opening, luxury brands have not seen a significant rebound in demand. This has led to concerns among investors and a decline in the stock prices of luxury giants like LVMH and Richemont. Burberry also recently flagged low double-digit growth due to a slowdown in luxury spending globally and in China. To address this challenge, luxury brands are focusing on selling fewer, more valuable items and targeting the VICs who account for a significant portion of their sales in China.
Shifting Strategy to Target VICs
Luxury brands have traditionally focused on mass events to raise brand awareness and attract new consumers in China. However, they are now shifting their strategy to cater to the wealthy VICs. Offering perks such as exclusive access and meet-the-designer events, luxury brands aim to make these clients feel important and privileged. Tiffany, for example, hosted a gala dinner with celebrity guests, while Versace organized an intimate dinner with designer Donatella Versace. Gucci, Chanel, and Dior have also set aside retail space exclusively for their wealthiest clients in Shanghai.
Engaging with Chinese Customers
Engaging with Chinese customers goes beyond advertising and communication for luxury brands. They are paying attention to details and local culture to create a personalized experience for the VICs. Cartier, for instance, holds its annual entrepreneurship awards for women in Shenzhen, while Louis Vuitton opened a pop-up bookstore and cafe in Shanghai with a billboard in the local dialect. Luxury brands are investing in creating a local edge and anchoring their presence in China.
Optimism Amid Economic Challenges
Despite the economic challenges in China, luxury brands remain optimistic about the country’s potential. China is forecasted to account for almost 40% of global luxury sales by 2030. Luxury companies, unlike other industries, are not shrinking their presence in China due to geopolitical tensions. They see the medium and long-term development potential as strong. Luxury brands are also expanding their global footprint while investing in their biggest market to protect themselves and maintain desirability.
Conclusion: Luxury brands are adapting their strategies to target the wealthy Chinese consumers known as VICs, who are becoming increasingly important as the spending power of the middle class declines. By offering exclusive experiences and personalized perks, luxury brands aim to make these clients feel valued and privileged. Despite the economic challenges in China, luxury brands remain committed to the market and see it as a significant growth engine. As the economic slowdown prompts VICs to think more carefully about their luxury purchases, luxury brands are focused on maintaining desirability and providing a unique and engaging experience for their Chinese clientele.
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