The China Luxury

Playbook
Assembling the brand growth puzzle in
the new Chinese Luxury market reality

January 2024
Authors:
Thomas Piachaud
Max Peiro
Executive Summary
• Shifting market dynamics have led the Chinese luxury market into a period of relative
uncertainty. In this new uncharted territory, there is still growth to be obtained, but with
new challenges to overcome to achieve it.

• A shift in growth mindset is required, focusing on brand optimization to ensure the

long-term sustainable growth of brands in the Chinese market. As part of this shift, we
propose a 5+1 playbook that focuses on five key areas that brands must address to
drive favourable growth in the Chinese market.

• Wholesale Excellence - wholesale practices during COVID have led to a confusing

consumer environment when it comes to China product availability and pricing. A focus
on creating wholesale excellence which includes assessing wholesale partners, pricing
control and product traceability is needed.

• Discount Management - while discounting is inevitably a key driver of sales for many
brands, stricter management of the width and depth of discounting must be maintained
in order to build equity and avoid a race to the bottom and eventual corrosion of brand
value.

• Product Pillars - consolidating and investing behind specific product pillars is a key
ingredient to mitigate risks associated with either heavy dependence on a few products
or a sub-optimal and less consolidated approach through rapid product innovation.

• Channel Expansion - the pandemic period saw a rapid expansion of the quantity
of sales channels in China. Moving forward a focus on quality over quantity will help
ensure a healthy ROI on expansion investments.

• Differentiation & Desirability - a reassessment of the localized interpretation of a

brands’ global positioning, coupled with a strong focus on bringing locally relevant
activations and communications is key to success in China.

• Goal Alignment - consolidating performance around the five key areas for
improvement additionally requires a shift in the KPIs measured by brands to ensure a
‘healthier’ growth.

• As we move into a period of single-digit growth, brands that can act against these
imperatives are well positioned to achieve above-average growth against competition,
further consolidating the importance of China as a luxury growth engine.

RE-HUB The China Luxury Playbook 02

Introduction
Since 2021 Re-Hub has been actively monitoring the Based on experience across the luxury industry in
luxury industry in China. While we primarily focus on China we present an outline for luxury brand building
the digital side of things – we have observed many over the next five years, highlighting the key areas
of the ebbs and flows of the past three years. COVID that brands must focus on with determination to
provided many challenges to brands in navigating maintain sustained growth in China.
complexities, and luxury especially was faced with
the need for rapid digital transformation to maintain The luxury industry in China is undergoing a
momentum. transformative phase, compelling luxury brands to
reconsider traditional business strategies.
With the period of single-digit growth in China
seemingly at an end as the market matures, now is The age of explosive growth is over, and the market
the time for decision makers to take a longer-term recovery in the post-COVID era is taking on a
view and make strategic choices as to where their different façade than many had predicted. This
brand wants to be in the future. change in growth model which is intrinsically linked
with an evolving business dynamic as well as the
Brand value is not lost overnight, except in some ever-changing preferences, needs, and desires of
exceptional circumstances, but instead can slowly the Chinese consumer, requires a refined approach.
be eroded by employing short-term tactics that may
help boost performance in the short term.

RE-HUB The China Luxury Playbook 03

Just Six Charts
To better understand the current situation, we look toward certain market indicators that can give us the context
within which luxury in China now finds itself within.

On their own, each piece of information can only take you so far, but together they paint a reasonably compelling
picture of a significant shift in the market and consumer attitudes which in turn will undoubtedly affect luxury
performance moving forward.

GDP Growth Consumer Confidence

10% 130

9% 8.45%
125
7.77%
7.85%
8% 120
7.39%
7.02% 6.95%
7%
6.75% 115

6.85%
6% 110
5.95%
5.01%
105
5%

100
4%
4.16%
95
3%
2.99%
90
2%
2.24%
85
1%
80
0%
Jul-19

Jan-22
Jun-22
Feb-19

Mar-21
Dec-19
Sep-18

Nov-22
Aug-21

Sep-23
May-20
Oct-20

Apr-23
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024

Figure 1: Chinese GDP growth rate each year in % Figure 2: Chinese consumer confidence index Sep 2018 until Sep 2023

The Chinese market has posted consistent and Consumer confidence took a severe hit in China
strong GDP growth over the past years, even after the on-set of COVID disruption in 2022 and has
throughout the COVID pandemic. However, we yet to recover to anywhere near the previous levels.
have seen a slowing of overall growth, signalling a This indicator tells us that luxury spend from the
more stable, lower growth market. middle classes is harder to earn, and while HNWI
consumers are more isolated from these trends, the
lower confidence in the overall financial picture may
keep consumers from spending.

RE-HUB The China Luxury Playbook 04

The Bounce-Back? Market Projections

50%
Bain and Altagamma
“Long Live Luxury”
40%

2022 2023
30%

20% +12% +11-13%

10%
McKinsey
0% “The State of Fashion”

-10% 2022 2023 2024

Feb Mar Apr May Jun Jul Aug Sep
23 23 23 23 23 23 23 23
+16% H1
Cosmetics -8% +1-3% H2
+4-6%
Apparel and Footwear
Jewellry

Figure 3: Growth of spending by luxury category in 2023 Figure 4: Actual and projected growth rates from consulting reports
on luxury

The start of 2023 welcomed the lifting of many of Considering all the data available, assessing the
the restrictions that had caused disruption during growth trajectory of the luxury market in the next
2022. Optimism was high for a strong rebound of year could be considered more soothsaying that
spending, and a return to the growth of the previous science.
years.
That being said, reports from consulting firms Bain
Initially, growth in spending across cosmetics, & Co as well as McKinsey released late in 2023
apparel and jewelry was high - however it is worth offer an optimistic but moderate projection of the
noting that being a year-on-year growth this was potential growth of the luxury category moving into
compared against the relatively low spending of 2024.
March / April 2022.

However, after the first two quarters we saw a sharp

dip in spending growth - in July for some categories
spending even shrank.

These figures suggest that the return to spending is

either a much longer process than anticipated or not
as strong as might have been hoped.

RE-HUB The China Luxury Playbook 05

Shades of Grey Store Openings

100% 89%
Shanghai 37
44%
50% 33%
17% 17% Chengdu 35
9%
0%
Shenzhen 14

Beijing 9

80% 64%
Nanjing 9
31% 30%
30% 3%
2% Wuhan 7
-20% -9%
Zhengzhou 6

200% Hangzhou 5

101%
100% 63% 52% Qingdao 5
22% 17% 17%
0% Gaungzhou 5
Q1 ‘23 Q2 ‘23 Q3 ‘23

Figure 5: Group financial growth against DeWu growth rate by GMV Figure 6: New luxury store openings by city in 2022/2023 excluding
as a proxy for grey market Hainan

The quarterly financial reports from key luxury At the onset of COVID-19 as travel was curtailed,
players have highlighted a polarization in brand many luxury brands focused on developing
performance. While top brands have been able the relatively underdeveloped Chinese luxury
to maintain and, in some cases, accelerate their ecosystem (compared to the share of consumption
growth, others have been struggling. from Chinese consumers).

The grey market (in this case defined as unauthorized This led to a significant growth in brand presence
resale of products on digital channels in China) has across otherwise untapped cities in China as well
been growing steadily since the onset of COVID19. as explosive growth of brand presence in Tier 1
The availability of products at significant discounts, markets.
coupled with increased focus on user experience
and marketing has led to a channel that for some According to reports from Savills China was
brands significantly cannibalizes opportunities in responsible for over 50% of luxury store openings
the Chinese market. globally in 2021, with that figure decreasing slightly
to 41% in 2022 and 44% in 2023.
The comparative growth rates for brand direct
financial reporting and DeWu (one of the strongest As we move into a more moderate growth phase,
emerging platforms) highlight the troubling reality of this continued footprint expansion may curtail.
the grey market situation.

RE-HUB The China Luxury Playbook 06

Brand Value
As we move into a slower growth paradigm, a shift in focus is necessary. At Re-Hub we envision this shift
should be associated with maximizing and optimising brand value. We propose a framework for understanding
the different levers to ensure the maximum brand value in the Chinese luxury market moving forward.

Short-Term Long-Term

Value Value Value

Creation Protection Retention

Your brand’s power to create The need to control sales Your ability to elevate your
new value to consumers channels to maximize brand brand reputation by maximizing
through your products and equity your products’ retained value
activations

Figure 7: Brand Value Framework for short-term and long-term brand value growth

Value Creation: In the short-term, focusing on the new value you are generating for consumers is key.
This includes elements of both product and marketing. Ensuring you have the right events, collaborations,
influencers, and suitable products in place to drive consumer interest and understanding of your brand.

Value Protection: Brands work incredibly hard to create value, but more needs to be done to ensure protection
of that equity. By monitoring channels outside of direct brand control to ensure the maximization of brand
equity can help maintain a consistent and brand led experience.

Value Retention: With slower growth comes the emergence of shifting consumer behaviors. A burgeoning
secondary market for luxury products is on the ascendance in the Chinese market which will further impact
brand value in the future. This area is specially relevant for the most exclusive brands in luxury.

RE-HUB The China Luxury Playbook 07

 The 5+1 Playbook
For luxury brands to navigate the shifting dynamics and the new growth paradigm of the Chinese market, we
present a 5+1 playbook with five key areas that we believe brands must address to drive sustained growth
and brand value, complete with a new framework for measuring success against these five areas. While these
areas are by no means the complete job to be done, we believe they are crucial areas that should be on the
top of senior executives’ agendas.

The successful evaluation and tackling of these areas require a global approach from brands. Given the
disproportionate revenue generated by Chinese consumers, these are areas that global management cannot
afford to drive solely from a local market perspective, and instead must work in close unison with local teams
to drove effective, growth-driven, solutions.

Wholesale
Excellence

Channel Discount
Expansion Management
Goal
Alignment

Differentiation Product
& Desireability Pillars

Figure 8: The 5+1 luxury playbook for sustained brand value growth

RE-HUB The China Luxury Playbook 08

 Wholesale
Cynthia Zhong
North Asia General

Excellence Manager at
Mulberry

The traditional wholesale model needs re-evaluation.

Retail excellence has long been a focus for many “A greater focus on direct-
brands, but we suggest there is also a need for a focus to-consumer channels while
on wholesale excellence to provide brands with greater controlling wholesale enables
control over their brand image, exclusivity, and pricing, reformed pricing strategies,
ultimately enhancing perceived value. While wholesale enhances margins, and
is a useful tool to drive growth and expansion, it is boosts brand awareness.”
necessary to ensure it is kept within strict guidelines of
excellence to avoid equity loss.

From our monitoring of brands’ prices and assortments across grey market channels in China, we have found
a strong pipeline of wholesale products finding their way to Chinese e-commerce platforms, often via cross-
border transactions, at prices below that which consumers could access at international retail with tax rebates.

This creates a two-fold issue. Firstly, it removes purchases from brand-direct channels in China, given the
attractive discounts offered, while undermining brands’ investments in China. Secondly, it also affects the
purchasing decisions of Chinese consumers abroad, further undermining offline retail performance in other
markets, as they can purchase the same products at below-European prices being delivered directly to their
door.

This direction represents a sub-optimal approach to ensuring returns on investment and long-term growth.
Moving toward heavy reliance on wholesale margins will inevitably erode operating margins and overall
profitability, with the added risk of losing control over the experience with a long-term impact on brand value.
Ensuring the best practices within wholesale is one of the biggest imperatives to protect equity moving forward.

Top 20 Bag Discount Average

-72% -45% -31% -26% -12% +2% +20%

Top 20 Bag Revenue (Approx. 2023 Nov YTD)

715M 116M 527M 185M 1.16B 410M 110M

-71% -38% -24% -21% -3% +49% +46%

Figure 9: Top brand bag discounts on DeWu as a proxy for grey market / wholesale

RE-HUB The China Luxury Playbook 09

 Discount Thomas Piachaud
Head of Strategy at

Management Re-Hub

Effective control over discount strategies is pivotal.

Luxury brands need to take the reins on discounting “Without close management
to maintain brand prestige and exclusivity, while still revenues are firstly funnelled
leveraging sales promotions strategically. Over the
into festivals, with a potential
past two years, discounting has been over leveraged
short term rise in revenue,
by some brands (in some cases to combat the effect of
however prolonged reliance
grey market goods). The recent 11.11 festival highlights
this well, with many brands increasing the width and
on this lever erodes equity in
depth of their discounting, some to a very significant
the long-term.”
level.

The net result of leveraging discounting as a key revenue driver is a consolidation of revenue around discounting
periods (11.11, 6.18 etc.). Coupled with an increasing price to play on each of the platforms, as they in turn
compete with one another for consumer attention (TMall vs JD.com vs Douyin etc.), leads to an attack on
operating margins, and an unsustainable, potentially snowballing, race to the bottom.

Offering discounts is a straightforward tactic to boost short-term revenue, but returning to full price can be
challenging. Brands should consider adopting a long-term mindset, using discounts sparingly as an exception
rather than the rule.

81% 87% 99% 93%

43% 40% 47% 54%

15% 29% 32%

11%

34% 35% 37% 41%

24% 17% 25% 20%

30% 39% 36% 35%

22% 13% 24% 12%

38% 38% 38% 3%

35%
0% 0% 0%
34% 0% 0% 0%

Width
6.18 11.11 6.18 11.11
Depth 2022 2022 2023 2023
Figure 10: The average width (number of products) and depth (percentage discount versus listing price) for brands’ TMall flagship stores during key festi-
vals.

RE-HUB The China Luxury Playbook 10

 Product Nicolas Morineaux

Pillars
CEO at Galeries
Lafayette China

The intertwining of brand building and product “To ensure sustained

development is essential to sustained success. In performances, successful brands
this respect we talk about product pillars. Whether dynamically adjust the split of
categories or specific collections, having pillars that
their Marketing / Communication
support and underpin your brand equity in terms of
/ Merchandising investments
product is crucial.
between historically successful
product pillars and new ones,
In the Chinese market, establishing a coherent identity
and product excellence go hand in hand to resonate
whether disruptive or in the
with discerning consumers. continuity.”

There are two extremes when it comes to pillars. The first, one single pillar which your brand relies on over
an extended period. This approach can pay dividends with enough investment behind product building, and
the eventual output can be a truly iconic product that supports and becomes synonymous with your brand.
However, change is the only constant, and if the market moves away from that product the ability to generate
growth is challenged.

Alternatively, on the other side, brands can fall into the trap of never consolidating the opportunity behind
categories, collections, or products. Instead, constantly changing pillars, or allowing the erosion of their pillars
through wide availability and pricing confusion.

An idealized situation is identifying the pillars on which the brand will be built, understanding that this will shift
over time, while ensuring that there are other pillars in ascension to support the brand. This requires strong
alignment across planning, design, merchandising, and marketing. Ongoing monitoring is crucial to identify
early signs of a downturn in one pillar, allowing a proper transition into a new pillar with the required investment
behind it

H1 2022 H2 2022 H1 2023 H2 2023

Niki Niki Niki Niki
37.8% 30.6% 30.9% 29.1%

Cassandre Cassandre Cassandre Le 5á7

11% 10.4% 9.6% 11.7%

Kate Kate Le 5á7 Casssandre

6.9% 5.9% 9.4% 10.2%

Manhattan Nolita Nolita Kate

5.7% 5.4% 8.5% 4.6%

Le 5á7 Le 5á7 Kate Nolita

5.9% 5.1% 5% 3.5%

Figure 11: Saint Laurent product pillars help support the development of the brand over-time. Shown is the percentage of brand revenue on
TMall flagship stores for each collection.

RE-HUB The China Luxury Playbook 11

 Channel Thomas Piachaud
Head of Strategy at
Expansion Re-Hub

China has accounted for nearly 50% of the global

expansion in new luxury store openings. Notably, “Channel expansion must
this expansion has reached even lesser-known cities have the complete picture
outside of the usual metropolitan hubs, introducing
in mind - no channel exists
luxury brands to an extensive Chinese audience in
in isolation, the relationship
cities with populations rivalling those of major European
is symbiotic in the
capitals. In addition, the eCommerce landscape has
experienced rapid growth, with over 150 of the top
heavily intertwined China
luxury brands being present on TMall Luxury Pavilion,
ecosystem.”
and new flagship stores appearing on JD.com and
Douyin more recently.

In an environment of moderate growth, there arises a need to consolidate rather than accelerate, ensuring a
return on investment and alignment with the broader brand strategy across channels. This shifts the emphasis
from quantity to quality. Channel strategy becomes paramount, recognizing the distinct role that each channel
plays in advancing the brand’s agenda. The job is twofold – ensuring consistency in experience across each
of the touchpoints, while also differentiating products to cater to the diverse consumer segments they serve.

Moving forward we should expect to see some brands still expanding – realizing the opportunity to expand
their brand presence to drive growth. Chanel’s opening of a brand flagship store in Zhengzhou in December
2023 underscores this. On the other hand, we may see brands with high numbers of stores consolidating their
store numbers in line with the focus on quality of experience rather than quantity of doors.

In the digital world, expansion can result in either top-line growth or an eventual cannibalization of other existing
channels. As an example, Douyin, with a strong focus on livestreaming, presents an interesting opportunity to
engage with consumers in a new way, however, the associated costs of running livestreaming operations and
the drive for discounts result in a lower ROI for every unit sold. If the result is a cannibalization of potential sales
on TMall or self-operated digital channels, GMV growth may be achieved, but with a less healthy bottom line.

Online Offline

Chanel opened their new flagship

store in Zhengzhou in Henan
province in December 2023

Louis Vuitton opened their first

store in Haikou on Hainan Island
during Q2 of 2023

Figure 12: Left: Brands opening flagship stores on digital channels in 2022/2023
Right: Flagship stores openings in 2023 from top brands

RE-HUB The China Luxury Playbook 12

 Differentiation
Pablo Mauron
Managing Director at

& Desirability Digital Luxury Group

China

While creating differentiation and desirability is a key

driver of success for any luxury brand, it is something “Localised communication is
that is easier said than done. From the perspective of
shaping the brand perception
pure branding this must start at the highest levels in
in China, since all the most
creating a clear, concise, and understandable brand
important consumption
positioning. This includes identifying who the brand is,
and what it stands for and being dogged in upholding
milestones don’t have a
the brand’s core values, identity, and unique selling
Western equivalent to build
proposition, ensuring that the essence of the brand on.”
remains recognizable and compelling.

The pandemic period offered a rare opportunity for brands to act in reasonable isolation across markets, but
as the luxury consumer moves back into a global context, consistency is key to ensure differentiation. After
validating, confirming, and aligning the positioning the localized expression of the positioning is key.

Low brand loyalty, a high sensitivity to slip-ups, and the rise of a compelling array of local brands in China
requires a greater understanding of cultural, social, and economic nuances. Luxury brands must tailor
marketing campaigns, product assortments, store layouts, limited editions, personalized experiences, and
brand collaborations to the China market. Often a global campaign executed in China with little thought to
localization falls flat. Lacking the support of local influencers (who are primary drivers of engagement), or
relevant topics can lead to a sub-optimal ROI for your marketing dollars.

To achieve this, it is imperative for global teams to liaise closely to their local counterparts, and there is no one
size fits all approach to achieve true differentiation. This is an ever-evolving process where brands must adapt
to changing contexts with the right balance of confidence, humility, and flexibility.

Social Media Offline Events

12.3M 12.2M 8.5M Pradasphere II in Shanghai, Louis Vuitton City-Walk pop-

Q4 2023 up in Shanghai, Q3 2023

65.7k 43.9k 39.3k Gucci Cosmos event in Cafe de Ami in Beijing, Q4

Shanghai, Q2 2023 2023
Figure 13: Left: The top 3 posts of 2023 on Weibo and RED brand official accounts by total engagement
Right: Selected offline events in China that generated brand uplift

RE-HUB The China Luxury Playbook 13

 Goal Max Peiro

Alignment
CEO at Re-Hub

Adjusting goals and strategies to align with the evolving

Chinese market may be challenging. In the face of “A new paradigm in
shifting economic circumstances and potential loss of growth also requires a
short-term revenue growth, luxury brands need, more
paradigm shift in how you
than ever, to have a long-term strategy for the Chinese
measure success. Only
market, and adapt their goal-setting process, alignment
measuring the top-line will
between global and local teams and monitoring
process accordingly, to ensure continued relevance
harm you in the long run.”
and effectiveness.

Firstly, a reevaluation of KPIs to include more actionable

measures beyond revenue growth are essential to support the short-term execution of long-term strategies. By
expanding the scope of KPIs, functional teams can better understand the long-term value they are creating.

Secondly, ensuring deeper alignment between global and local teams, and across functional teams, in assessing
the relevance and feasibility of such KPIs. Continuous monitoring and communication on the evolution of the
KPIs is crucial to measure the brand evolution and to assess the progress towards the overarching targets.

Goal setting should be a continuous and adaptable endeavor, with holistic targets that are subsequently
deconstructed into actionable metrics, enabling brands to flexibly adjust and respond to market shifts and
seize emerging opportunities.

Wholesale Grey Market Size Average Discount

Counterfeit
Product Source
Excellence Presence

Discount Discount Width Discount Depth Sell-Through Rate

Discounted vs Full
Management Price Performance

Product Top 10 Product New Product

Sell-Through Rate
Collection
Pillars Revenue Performance Performance

Channel Channel Portfolio

Channel ROI
Cannibalization Offline Market
Expansion Overlap Rate Penetration

Differentiation Share of Voice Sentiment Engagement Reach

& Desireability

Figure 14: A shifting KPI landscape focused on the playbook for luxury brand building

RE-HUB The China Luxury Playbook 14

Conclusions
The market trends that enabled the rapid acceleration of growth for luxury in China are no longer relevant in
the current context. However, this doesn’t mean that growth is over. We still see the potential for mid to high
single digit growth in the market in the years moving forward.

This growth is a market average, and contained within this average there will undoubtedly be over and under
performers. The framework of the luxury imperatives that we present in this paper is meant to act as a guide
as to 5+1 areas we believe are crucial for brands to focus on to best position themselves to be in the over
performer category rather than the under-performer category.

While some of the points we present are focused on generating top line awareness and growth, a more
important part of moving into a sustained growth model is a focus on optimizing bottom line and the protection
of brand equity in the longer term. In this respect, growth can be unlocked, but in addition this growth should
be ‘healthier’, thereby future proofing the brand against coming market head or tailwinds.

Given the important of the Chinese market and Chinese consumers on the global luxury market, brands
must approach these imperatives with a global view. This requires both a global to local, and local to global
approach, through rapid iterations.

The era of ‘easy’ growth in the

Chinese luxury market is over.
Instead ‘optimized’ growth will
secure brand value moving
forward.

RE-HUB The China Luxury Playbook 15

About Re-Hub
Re-Hub helps Luxury brands in China to OPTIMIZE BRAND VALUE by providing data-driven answers.

Through our three Data&AI tracking platforms - COMPASS, SPECTRUM and SENTINEL we deliver
actionable insights across brand-owned channels, grey-markets, and pre-owned markets respectively in
order to gain clarity, alignment, and direction for business strategic optimization in China.

COMPASS SPECTRUM SENTINEL

COMPETITIVE INTELLIGENCE GREY-MARKET MONITORING SECONDARY MARKET ANALYSIS

BENCHMARK YOUR PERFORMANCE against Competitors across Channels

IDENTIFY PERFORMANCE GAPS and Opportunities to Prioritize

GENERATE NEW GROWTH OPPORTUNITIES at Speed

Learn more at www.rehub.tech

RE-HUB The China Luxury Playbook 16

Authors

Thomas Piachaud Max Peiro

Head of Strategy CEO
[email protected] [email protected]

RE-HUB The China Luxury Playbook 17