Luxury brands need a change of approach

There can be no doubt that the luxury market in China has been experiencing a tough winter, nor that the government's anti-corruption and frugality campaign has been a major factor in this, nor that it will continue to be a drag on the market's growth in 2014.

Growth in luxury spending on the Chinese mainland is expected to have cooled to just 2 percent in 2013, down from 7 percent the year before and a staggering 30 percent in 2011, according to Bain and Co's annual China's Luxury Goods Market Study published at the end of 2013.

Although Chinese consumers are still the biggest consumers of luxury goods worldwide - they accounted for 29 percent of the global market last year - it is reported that Chinese shoppers now do two-thirds of their luxury shopping abroad, which has triggered slowdowns in store traffic and store openings domestically. Therefore, in order to survive in China, luxury brands need to change their strategy to adapt to the shrinking demand in China.

No more rapid expansion should be the first principle for luxury brands, as expanding the number of stores is no longer enough to drive growth.

Of the 20 luxury brands included in Bain's study, the number of new openings in China declined from 150 in 2012 to 100 last year. Most brands are now focusing on renovation, relocation and operational improvements for domestic customers, said Bruno Lannes, a Bain partner in Greater China.

For example, Bentley, one of the top English luxury car brands, does not plan to add any new cities to its dealer network as its sales revenue in China declined by 3 percent in 2013. Despite the fact, the brand's global sales were up 19 percent.

"China's luxury market has quickly changed from land-grab to a steady focus on consumer experience and 'like-for-like' sales," Lannes said.

Another characteristic of the market for luxury goods in China is that demand is now polarizing at the highest and lowest ends of brands' range. Take handbags, for example, 25 percent of handbag sales were for models priced at less than 5,000 yuan ($819), while 33 percent was for bags costing more than 20,000 yuan.

So the second principle for luxury brands to realize their development is providing more affordable luxury goods.

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