British Brands in China Pt 2: Luxury market races for success

The fast-growing Chinese consumer market has seen increasing penetration of British luxury fashion brands in recent years. These brands have used a combination of brand value and strategy to break into the market – but not all have been as successful as they could have been.

In the first part of the exploration of how British apparel and accessories’ brands are selling to this market, we looked at the winners and losers. In this second part, we will take a deeper dive to understand the specific channels which enable success, and the companies that are engaging with them.

Leveraging brand value with localised e-commerce

The key finding from the first article was that luxury brands have been able to make a mark on the Chinese market. Brands such as Burberry (LON: BRBY) are a prime example of this trend – whereas ‘fast-fashion’ brands like New Look and TopShop have not fared as well.

What was not explored is the brand’s marketing approach in the Chinese market. Social media is just as important in China as it is in the UK, however it is very different in China since sites like Facebook and Instagram are blocked.

The Chinese messaging app WeChat is an important gateway for e-commerce, and all major luxury brands have an active presence on this, according to McKinsey research – this includes not just Burberry, but international brands like Gucci, Cartier and Louis Vuitton (EPA: MC) . It is, however, worth noting that Burberry is the only one with an active presence on the B2C e-commerce channel Alibaba (NYSE: BABA).

But big brands are not the only ones capitalising on China’s local channels. London-based luxury start-up Threads Styling is an entirely e-chat-based application, servicing 100 countries through WhatsApp, iMessage and WeChat, depending on the country context.

While the country-wise revenue is not available, Asia, Middle East and the US are its biggest markets. It would be reasonable to guess that China features in an appreciable measure in the Asian market for this ten-year-old start-up raised $18m last year from Highland Europe and C Ventures.

Pricing right

Luxury brands have also sought to explore more price friendly options like outlets to lure buyers. According to McKinsey research, between 8-12% of the purchases are made at these stores, depending on the age group of the consumers. While outlets contribute to the smallest proportion of sales among others like brand stores and premium department stores, the percentage is still non-trivial.

Value Retail, which operates luxury outlet destinations like Bicester village in England, forayed into China in 2011. With two outlets in China and nine in Europe, the company estimates that 20-25% of on account of the Chinese visitors. Besides Burberry, several British brands can be found at these outlets, including Alexander McQueen (EPA: KER), Hunter (FRA: 4BD), and L.K. Bennett. Discounts on goods at these locations can be up to more than 50%, making them a draw for bargain-hungry shoppers.

Major brands have also taken advantage of the tax cuts provided by Chinese authorities to price their goods lower. Value added tax was cut by three percentage points earlier this year from 16% for imported goods, to which major brands like Prada (HKG: 1913) and Louis Vuitton responded by reducing prices, as per a report by the Financial Times.

Branding and buy-outs the Chinese way

Employing Chinese celebrities is another way that brands are creating an appeal for themselves in this market. British fashion house Alexander McQueen, for instance, signed up a popular TV and film actress named Nazha as its brand ambassador earlier this year.

However, success isn’t always assured even with a localised approach. Recently, major international brands like Versace have lost their ambassadors to what has been seen as a less than sensitive approach to issues like Hong Kong at a politically heated time. This suggests that even while making all the right moves on paper, there is still a lot of learning with regard to how China works that is required.

But what seems to be becoming increasingly clear is the perceived value of upmarket British brands by the Chinese, even if those brands are struggling to expand or even survive otherwise.

Well-known British brands under financial pressure are finding new life in the hands of Chinese buyers. This has been the case of coat maker Aquascutum. It was bought out in 2012 by Hong Kong-based retailer YGM Trading (HKG: 0375) which shifted its focus to the Chinese market. 135 of its 146 outlets are located in mainland China, Taiwan, Macau and Hong Kong. It was then purchased by Shandong Ruyi Group (SHE: 002193), a Chinese textile firm, in 2017.

Similarly, earlier this year, L.K. Bennett, which has been favoured by both political leaders and royalty in the UK, was bought by its Chinese franchise partner Rebecca Feng.

Fledgling designers get help

For young designers trying to break into the Chinese market, the British Fashion Council has help on offer. It assists designers in the nuts and bolts of the operations and the designers typically try to find a local partner. But it is not just the newbies that are looking to find local partners. Ted Baker (LON: TED) entered into a joint venture with a Chinese partner earlier in the year and Italian brand Tod’s collaborated with Tao Liang, an influencer.

Multiple routes ahead

There are multiple channels that British luxury brands can employ to get ahead in the Chinese market, and this is true not just for established brands but also for start-ups and new designers.

However, without going through local channels, whether its social media or partnering with Chinese companies, brands can find navigating regulatory and cultural differences a challenge and even among the companies that are doing well, there have been tough times. But that has not stopped either investors or brands from trying to break into this promising market.