Designers face order delays, factory closures and event cancellations. Experts say a digital approach is helping.
By Bella Webb from Vogue Business
Chinese designer Mark Gong was hoping to hold his first physical fashion show since the pandemic at Shanghai Fashion Week in October 2021, but an increase in Covid-19 cases has cast doubt over plans. The 400-person event may now become several smaller shows held in a new venue, in light of possible new restrictions. If that falls through, he will revert to a digital showcase. Already, one of his denim factories closed down this month because of lockdowns.
Covid-19 cases are again on the rise in China, with cities including Beijing and Nanjing locking down residential communities. All domestic trade shows and events have been cancelled in Beijing throughout August. Mass testing programmes have been deployed to control the spread, but uncertainty has thrown local designers’ upcoming plans into disarray and has caused concern for Western luxury brands operating there. Designer and LVMH Prize-finalist Zhou Rui says overseas orders have been delayed and plans to hold pop-up shops in the US have been put on ice. Other brands are reporting factory closures due to outbreaks and cancellations of international wholesale orders.
According to Gong, there is an overall feeling of confidence in China in the government’s Covid-19 strategy, and consumers are prepared for how restrictions may affect daily life. However, a surge in cases in the country is cause for concern for the global luxury industry, which relies on Chinese consumers as the main growth driver of luxury spending. Major companies including Kering, LVMH, Prada and Hermès reported strong growth figures with demand primarily coming from Asia and the US where recovery has forged ahead and lockdowns have lifted. With cases rising and lockdowns again on the horizon, retailers are preparing for disruption amid a broader atmosphere of pandemic jitters, experts say, that could reverberate outside of China.
Boosted domestic spending, online and offline
Travel limitations pose issues for the supply chain. Emerging designer Shuting Qiu would normally travel to Guangzhou to source fabrics, but has turned to online and Shanghai-based suppliers due to domestic travel restrictions. Yuhan Wang says her business has been relatively unaffected by the latest outbreaks, although she cannot fly from London to China to check on production. Samuel Guì Yang, who is stocked in Browns and Farfetch, says he is stuck in London and is worried he won’t make it back to China for his Shanghai Fashion Week show. “If there are more restrictions, we will find a digital way of presenting our new collection,” he says.
While international wholesale orders have been delayed, Zhou Rui says Chinese boutiques have increased their orders, prioritising brands that produce within China and can therefore deliver on time. This could be a further setback for international luxury brands, which will need to change tactics to meet customers where they are. Reducing price gaps between Europe and China is one way to increase domestic demand in China, says Jefferies luxury goods analyst Kathryn Parker. She estimates that 90 per cent of Chinese luxury spending is happening domestically right now, noting that outbound travel is not expected to return to pre-pandemic levels until 2026.
International brands will have to increase their local presence to stay top of mind for Chinese customers. Beauty brand 111Skin is continuing to invest in its local e-commerce presence as international travel remains limited, focusing on Tmall and Douyin’s recently launched shopping feature. “Consumers will replace around-the-world shopping trips with local shopping, perhaps even more extravagantly, as they no longer have to spend for hotels and flights,” says 111Skin chief digital officer Patty Chan.
Since the pandemic began, Chinese designers have been quick to embrace digital tools such as live streaming and digital lookbooks. Designer Angel Chen says she will continue to use this omnichannel approach as the pandemic rolls on. “If offline events stop, we can quickly shift to digital,” she says. “But livestreaming isn’t just a back-up option, it’s a fun way to see consumer feedback. Online and offline will co-exist in the future.” Designer Mark Gong adds that customers are understanding of disruptions. “Since our wholesale orders have been delayed, we’re moving stock towards our own e-commerce channels, including WeChat and Little Red Book. It hasn’t affected the number of sales, but the direction has changed.”
Over the past year, store associates in China have become more adept at facilitating online orders, and executing sales remotely through chat and video calls. Michel Tjoeng, SVP of sales and marketing at Chat Labs, which offers strategy and marketing technology for international brands in China, including Richemont, Chopard and Dior, estimates that since the start of the pandemic around 30 per cent of luxury sales attributed to stores in China actually happen online, including via chat and video calls. This has continued during more recent, localised lockdowns, with most consumers still able to get same-day shipping despite restrictions.
Marketing investment in digital is alleviating some of the lockdown interruptions, says James Hebbert, managing director of agency Hylink Digital Solutions, whose clients include Chanel, Harvey Nichols, Tom Ford and Estée Lauder, noting events by Louis Vuitton and Burberry – including WeChat mini games and NFTs. “Offline brand exhibitions and shows still exist, but we’re seeing less of that now,” he says. “China has a more integrated and innovative online-to-offline experience than the West which has allowed events to continue as normal and brands to recover more quickly from lockdowns.”
Analyst Parker estimates that a quarter of Chinese luxury spend comes from high-spending consumers — some dropping over $100,000 at a time — which is a marker of the growing wealth inequality that the Chinese government is keen to crack down on. “The Chinese government is concerned with inequality, as we saw with its recent clampdown on private education,” she explains. “Last week, Weibo published a list of the top key opinion leaders (KOLs) in China that was swiftly removed to prevent further fan worship. Any extra regulation of KOLs could have an impact on luxury spend.”
“We don’t have a negative outlook on China right now,” adds Parker, “but it’s always good to be cautious.”