What will the new year bring for luxury brands in China?
With the industry facing challenges on the mainland, we make five radical predictions about what companies can expect over the next 12 months
For the luxury industry in China, 2019 is likely to be a year of turbulence.
Macro factors such as the ongoing United States-China trade disputes and Beijing's economic slowdown will surely shape the landscape.
The main challenge for brands is to realize how radically the situation has already changed and to remain mindful of the micro effects in this rough market that can either make or break deals. Preparations and the right strategies are crucial.
Chinese populism will take a bite out of international luxury brands
In the final months of 2018, we saw Italian luxury fashion house Dolce & Gabbana's crash in China and Canada Goose's "forced" delay of the opening of its flagship store in Beijing.
In the past, similar events might have been dismissed as isolated cases of injured national pride, but it's much more than that now.
Chinese nationalism has evolved into a set of populist values, and consumers now wield their power internationally as the nation's weight in the global luxury market reaches unprecedented levels.
Widespread Chinese populism is here to stay. It's like a fully loaded shotgun that's easily triggered when brands show a lack of understanding and respect towards their market.
Meanwhile, luxury brands' best friends - Chinese celebrities as well as brand ambassadors - are typically the ones that set off the controversies for brands that don't fully understand who they're selling to.
Alibaba or Tencent? Brands may have to choose sides
Luxury brands' participation in and affiliation with China's technology titans Alibaba Group - the owner of the South China Morning Post - and Tencent Holdings deepened significantly in 2018.
For one thing, it shows the sophistication with which luxury brands are operating in the Chinese market.
However, brands need to be cautious about getting sucked into Tencent and Alibaba's fierce rivalry. The two companies have been known to request that companies who work with them avoid collaborating with their rival.
Other sectors such as consumer goods, finance, and technology have experienced this in the past few years as well.
More poorly managed foreign brands will exit China
Plenty of Western brands such as Macy's, Topshop, and Marks & Spencer, which failed to perform in the Chinese market gave up in 2018. That means the golden period of "being present equals making money" is over for international brands selling in China.
The rising popularity of national Chinese brands adds a new level of competition and, in a time when Chinese consumers care much less about a brand's origin, being foreign is not the card to play any more.
Leading luxury brands that use similar strategies will face challenges to stay relevant
Leading luxury brands such as Gucci, Christian Dior and Louis Vuitton had a fruitful year in 2018 in terms of engaging with Chinese consumers, building up brand awareness and popularity and generating sales.
However, they seem to have entered a period of innovation fatigue.
Everyone started to market and sell on Chinese social media apps WeChat or Douyin and went crazy with Chinese influencers and hosted art events.
Yet consumers will soon get fed up with the high level of similarity in these strategies. So what's new for luxury brands to make waves with? They better figure that out fast.
Auction houses are playing an increasing role
Retail stores should be fearful of the growing role that auction houses such as Sotheby's and Christie's will play in luxury retail in 2019.
Chinese luxury shoppers have bought so many classic products, such as handbags, footwear, jeweler, and watches in recent years, that some of them - especially high-net-worth individuals - are now in search of unique and special items with rich backstories and investment values.
This trend has placed leading auction houses in an advantageous position. They have special connections with luxury brands and can get exclusive access to their rare products to resell during the auction seasons.
On top of that, they are masterful at marketing them and providing top-notch service to their customers.