For over ten years, China’s market for luxury and premium products experienced a constant, and partly even steep growth. Until 2014 came and it finally slowed down. While several causes led to this decline, some of the most visible were a plunging stock market, a weaker currency, and beginning anti-corruption campaigns throughout the country.
Of course now this may lead some to think that China is done with its luxury market. Strong brands, however, aren’t worried. In fact, they’re remaining on a steady course and some are even experiencing an increasing presence by adopting new digital strategies.
And there’s more. The Chinese seem to know that this is only a temporary slump as signals for a resumed pace in the near future are already emerging. Global pricing, for example, is soon to be implemented. And so Chinese entrepreneurs have begun adapting their strategy to turn this slowdown into a different form of strength. Hint: they’re looking abroad.
While the market has experienced a downtrend, people’s actual desire for luxury remains strong. The Chinese love fashion, and most of all, their motivation is shifting from buying for new status symbols to buying for enjoyment – something deeper and more organic. To truly kindle and supply this demand, however, is currently hard to do on a purely national level.
It’s not easy for local Chinese brands to increase their reputation and position themselves in the right niche. Especially stock-listed apparel players are in need of new equity stories after last year’s stock market plunge. OEM apparel producers, on the other hand, don’t have the means to build their own brands, so they can’t contribute either.
Mostly though, China’s emerging generation – educated, tech-savvy, and thoroughly exposed to international online platforms – don’t want Chinese apparel names anymore. They want true global fashion. Adding China’s growing middle class, who are seeking affordable premium products with European design, it becomes clear that for a large part, this is still an untapped market.
This is where adding fresh and famous brands to the portfolio could make all the difference, and Chinese investors have realised this.
It’s safe to say that there will be an increased Chinese investment activity looking to acquire good brands in Europe. If done right, this will create a window of opportunity for European players in the fashion industry.
Still, many are wondering what benefits European companies could expect. Essentially, this can be summarised in three points.
Firstly, a successful negotiation with Chinese investors can provide an excellent exit opportunity, if desired. Moreover, Chinese investors have a tendency to pay higher prices for their stake in European entities than their Western counterparts do.
Secondly, European companies can get a strategic sourcing partner as a shareholder, a position which allows for smoother processes in China. After all, the Chinese are better versed in negotiating with Chinese manufacturers and know the production landscape in the country.
Thirdly, one of the most crucial aspects is that European companies can get quick and sustainable sales penetration and/or expansion in China – if all required conditions are met: Only if Chinese investors receive shares at the parent company in Europe are they ready to invest large amounts of capital into sustainable market development in China.
China’s luxury market may have experienced a slowdown in the past two years, but Chinese investors are already adapting their strategy to come out stronger an the end. This approach isn’t only beneficial to them and the fashion-loving Chinese, but also provides an excellent opportunity for those European companies wishing to either exit or expand. In that case, European fashion companies are likely soon to join the global and innovative investment turn.