After shutting down 15 outlets in China in the first quarter of this year, Ermenegildo Zegna is hoping that revamping its product mix will help boost sales in the country. Gone are the racks of limited-collection suits that could cost more than $30,000 apiece. Shoppers will now find more floor space dedicated to sportswear and accessories.
Zegna reckons that the less expensive products will attract more first-time customers. The Chinese government’s austerity campaign also means that bureaucrats and businessmen are passing up expensive suits for more modest clothing. “The accessories help get new customers and then made-to-measure comes after,” Ermenegildo Zegna, the brand’s chief executive tells the Financial Times.
Indeed, China’s luxury market has undergone a deep shift: “It’s moved from a male-driven, watch-driven and a gifting-driven market to a more female-dominated luxury space,” says Erwan Rambourg, global co-head of consumer and retail research at HSBC.
This is a demographic that Tiffany & Co will now have to court vigorously if it wants to turn its fortunes around. The US jewellery chain recently reported that same-store sales in the Asia-Pacific region, its second biggest market, slumped 15% in the last quarter. Citing poorer tourist traffic, especially from mainland China to Hong Kong, Tiffany closed down 11 stores last year, eight of which were in Asia.
Tiffany may have a branding problem with young Chinese consumers too. “The brand is not seen very negatively but it is seen as being somewhat tired and traditional,” Neil Saunders of research firm Conlumino told Reuters. “Younger consumers especially see it as a place that is for the older generation and for a different era.”
Tiffany is not the only jeweller struggling. Chow Tai Fook, the world’s largest jewellery chain by market capitalisation, has warned that its 2016 profits might fall by up to 50% because of “weak consumer sentiment in [the] Greater China region”. Similarly, Luk Fook, another Hong Kong-listed jewellery retailer, reported earlier that its same-store sales have plunged for the ninth consecutive month to post a 27% decline in the first quarter.
So to appeal to younger female consumers, jewellery makers are now trying new approaches. For instance, Chow Tai Fook is displaying cosmetics and skincare products at its outlets to attract shoppers (the company recently acquired the South Korean cosmetics brand It’s Skin). Tiffany – like Zegna – is promoting a more affordable product line to entice shoppers too.
It is a segment that has proven to be hugely successful for Pandora. The Danish jeweller reported that revenue in Asia rose 58% in the first quarter of this year, citing strong sales in China as the biggest reason for the increase. Pandora operates about 60 retail outlets in mainland China and 22 in Hong Kong and it pledges to increase that total by at least 25 stores every year, says Hong Kong Economic Journal.
“We were very surprised by the strong demand from smaller Chinese cities and we realised we can be very successful in some of these second-tier cities,” Kenneth Madsen, president of Pandora Asia told the China Daily.
The brand – famous for its charm bracelets – has a different demographic from Tiffany because its price points are more affordable (most charms start at Rmb198, or $30.17). The pieces also allow for variety and personalisation. Pandora currently carries as many as 600 charms, in various combinations of gold, silver, wood and glass, cast in intricate shapes and designs.
“Pandora appeals to consumers that are do-it-yourselfers: the products can be easily customised so it attracts young shoppers today that are not only less brand-obsessed compared to the older generation but also interested in showing their individuality,” says China Business Journal.
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