Luxury’s New Frontier - Captivating China's High-Net-Worth Market

In the current Chinese economic environment, many luxury brands that had fuelled their performance for over two decades with the fast-growing Chinese middle class are now recognising the imperative of reconnecting with the foundational promise of luxury brands: exclusivity and unparalleled excellence in creativity and craftsmanship, along with exceptional services and experiences. As a result, the term "brand elevation" has become a strategic imperative for many luxury maisons in China. This shift, at its core, involves refocusing marketing and commercial efforts on High Net Worth Individuals (HNWIs), the most resilient and fast-growing consumer segment in China today.

For luxury powerhouses like Dior, Hermès, Chanel, and Louis Vuitton, elevating the brand across all touchpoints has always been central to their strategies. These maisons have consistently prioritised nurturing and protecting relationships with their loyal clients over courting new entry-level customers. This approach will likely further strengthen their standing as exceptional market leaders in the current environment.

Similarly, maisons like Patek Philippe, Loro Piana, or Graff, due to their smaller scale, limited production capacity, and exclusive customer base, have maintained scarcity at the heart of their value proposition. They have focused on a very high-end clientele, avoiding entry-level products and thereby insulating themselves from the current economic environment, which primarily impacts middle-class consumers. For these maisons, the strategy is not about brand elevation but about continuing to remain consistent with their DNA and to protect and enrich their privileged relationships with an elite clientele.

However, the path is more complex for maisons that have thrived spectacularly in China by acquiring new customers and appealing to the growing Chinese middle class through entry-price products, celebrity endorsements, unexpected brand collaborations, and spectacular pop-ups. The strategies that once fueled their success are ineffective in today’s economic landscape, presenting a critical opportunity to return to the fundamentals of luxury. These brands can no longer rely on the Chinese affluent/aspiring consumer segment and are challenged to resonate with HNWIs and cultivate a strong VIC (Very Important Customer) base. Their historical focus on new customer acquisition has left them ill-prepared to cater to HNWIs and VICs, and their extensive marketing targeting the Chinese middle class has diluted their prestige, creating an imperative to elevate their image.

Reconnecting with the roots of exclusivity and luxury demands substantial investment and strategic shifts that cannot be achieved overnight. Elevating a brand involves a concerted and consistent effort to redefine its value proposition and customer experience. While some maisons are showing promising signs, it will take time for the definitive list of best practices to emerge and for the industry to have a blueprint for delivering on this ambitious brand elevation ambition. However, key levers of a successful strategy are emerging:

1. Focus on High-End Products and Create Exclusive Events

Investing in unique, elevated experiences that cater specifically to HNWIs and VICs and focusing on prestigious and high-end products by highlighting exceptional craftsmanship, creativity, and exclusivity allows brands to reintroduce themselves to Chinese VICs and HNWIs. These experiences should be intimate, personalised, and memorable. For instance, Tiffany & Co.'s recent by-invitation-only exhibitions in Shanghai, displaying their most exclusive high jewellery pieces with in-depth storytelling, allowed them to strengthen their positioning as a high-luxury maison with deep authority in this important market.

2. Emphasise Storytelling and Heritage

Emphasising a brand’s heritage and storytelling can significantly impact its elevation strategy. Sharing the history, craftsmanship, and unique stories behind products helps create a deeper connection with customers, making them feel part of an exclusive legacy. Gucci, for example, consistently highlighted its rich history and craftsmanship, along with its new creative direction, in exhibitions across major Chinese cities. The demand for these large immersive exhibitions far exceeded capacity and helped raise Gucci’s desirability.

3. Invest in Spectacular Flagship Stores and In-Store Experience

In a Chinese market where consumers constantly seek the latest and greatest, opening visually stunning flagship stores can significantly enhance a brand's prestige by offering a compelling and immersive luxury experience. Brands seeking elevation should strive to create luxurious in-store experiences with an atmosphere of exclusivity and sophistication, along with personalised services catering to high-end customers. Tiffany & Co.'s flagship store in Shanghai’s Taikoo Li, which opened in December 2023, exemplifies this strategy with its high-end design and artwork, including private rooms and exclusive experiences, projecting a significantly elevated brand to Chinese consumers.

4. Exclusive VVIC Benefits and CRM

Beyond membership programs for top-tier clients, launching exclusive VVIC (Very Very Important Customer) strategies fosters loyalty and provides a sense of belonging to an elite community. These programs can include unique benefits such as early access to new collections, exclusive private events, and bespoke services. Prada’s private stores, accessible only by invitation or appointment, offer bespoke services and private viewings, building deeper, more meaningful relationships with top-tier customers.

5. Prioritise Elevated Communication

Luxury brands can elevate their communication by creating content that highlights their most exclusive products and experiences, projecting a high-end luxury image across all channels. Featuring private, invitation-only events in luxurious settings on social media platforms like Red and WeChat, brands can emphasize their heritage, exclusivity, and prestige, along with the story behind their iconic products, educating their broader audience about the brand's history and values while enhancing the perception of the brand as a high-end luxury maison. By prioritising their marketing spend towards their high-end clientele and leveraging these investments to create content for the public at large, luxury maisons can effectively elevate their status as high-end luxury brands. This dual approach allows them to cater to their most important customers while nurturing the aspirations of the wider market.

6. Reprioritise Marketing Budgets

Luxury brands should radically restructure their marketing budgets to reflect their new focus on VICs and HNWIs. Brands should reconsider and recalibrate their investments in celebrity endorsements, aligning their marketing expenditure with the goal of targetting VICs and HNWIs. In the context of brand elevation, maisons should avoid celebrity idols, often famous for being famous, and focus on celebrated individuals with a recognized and exceptional talent with whom being associated brings further prestige to the brand.

Despite the complexities and challenges, the resilience of the Chinese luxury market offers promising potential for sustained growth. The Chinese appetite for luxury goods remains robust despite various economic challenges. This ongoing demand highlights the resilience of the luxury sector in China and suggests promising potential for sustained growth. The Chinese consumer's desire for luxury has not waned, indicating a strong underlying market force.

However, there is a notable dichotomy in spending behaviours among Chinese luxury consumers. Domestically, the luxury market has seen a downturn, with significant declines in spending, some brands even experiencing double-digit drops. This domestic decrease contrasts sharply with overseas spending patterns. In the first half of 2024, Chinese overseas luxury spending accounted for a third of Chinese consumers’ luxury expenditures. This trend highlights a strategic shift in purchasing preferences among Chinese consumers, who are increasingly indulging in luxury shopping while abroad.

In response to these evolving consumer trends, luxury brands have adjusted their strategies significantly. There has been a noticeable reduction in physical store expansions within China, a shift from the previous focus on increasing retail presence. Instead, brands are now enhancing their engagement through elevated brand events and public relations activities. These initiatives are aimed at fostering deeper connections with HNWIs and reinforcing brand appeal, ensuring that the desirability of luxury brands remains high despite reduced physical expansion.

Luxury brands are also starting to adapt their pricing strategies to better align with global economic conditions, such as adjusting for currency fluctuations like the weakening of the Japanese Yen. Moreover, while marketing expenditures within China continue to be substantial, a growing share of revenue originates from international purchases made by Chinese consumers. This shift necessitates a more globally oriented marketing approach, allowing brands to effectively engage with Chinese consumers who spend abroad.

As in every transformation effort, consistency and perseverance will be critical for brand elevation efforts to bear fruits. This requires spectacular efforts and patience, but luxury brands who do not adopt these approaches with the required discipline are unlikely to reconnect with their roots of exclusivity and luxury, nor remain relevant and desirable to China's HNWIs and VICs. The maisons that can afford and sustain these efforts, on the contrary, should not only reinforce their market position but also set the stage for sustained growth in a still fast-evolving market, in which Chinese luxury consumers will continue to seek the most elevated products and experiences.

Jacques Roizen is the Managing Director of China Consulting at DLG (Digital Luxury Group) in Shanghai. With extensive experience in leadership roles, strategic consulting, and advisory work, Roizen is renowned for driving transformative growth for his luxury industry clients. He is a globally recognised thought leader on the evolving Chinese luxury and beauty market, as well as its unique digital ecosystem. Based in Shanghai for the past 11 years, he regularly shares his insights on LinkedIn and at conferences worldwide.