Capturing Discretionary Spend of Affluent Consumers in Greater China

Asian luxury brands should capitalize on the current financial crisis to innovate and rethink distribution channels. With e-commerce and mcommerce identified as among the key drivers propelling growth in the luxury industry in Asia, brands need to stay ahead of these trends to capture the US$200.7 billion of key discretionary spend by the affluent in Greater China.

These are among some of the findings of a MasterCard commissioned report - The Luxury Industry: Lessons Learnt from Past Crises.

The report examines the growth of the global luxury industry through the various crises and distils lessons for brands to apply in the current economic climate.

The report is developed in conjunction with the ESSEC Business School in Paris, which runs the a luxury brand management MBA program.

MasterCard’s research shows that the key discretionary spend by affluent consumers in Greater China will reach US$200.7 billion in 2015 – with US$166.9 billion of spend by consumers in China, US$17 billion by consumers in Hong Kong and US$16.8 billion by consumers in Taiwan.

To capture this market, improving services in luxury online and offline stores has been singled out as a top priority for luxury brands. With consumers demanding a total experience that is functional, sensorial and emotional, brands need to think of more innovative and customized ways of engaging its affluent clientele.

As part of this, e-commerce and m-commerce have been identified as key drivers propelling growth. MasterCard research shows that online shopping is holding up in the region despite the global economic crisis.

The percentage of respondents looking to shop online continues to increase steadily, with China (94%) having the highest number of respondents intending to shop online when surveyed.

While the global luxury industry is facing challenging times in the current economic crisis, the report recommends that brands view this instead as an opportunity to strengthen their market share and keep ahead by defining their brand personality, offering product innovation, improving stock management and value chain optimization, and implementing strong risk management programs.

“The luxury houses have evolved tremendously over the last 30 years, moving from family-run businesses to corporations run by shareholders, finance and marketing professionals. The evolution has been shaped by many of the past economic crises, as economic crises provide opportunities for businesses to grow either through innovation or mergers and acquisitions. The current crisis provides an opportunity for brands to rethink and refine their strategies so as to emerge even stronger post-crisis. Brands that manage to do this and do it well will succeed and increase their market share,” said Prof Michel Phan, Director of MasterCard-ESSEC Luxury Brand Management Executive Program and LVMH Chaired Professor, Marketing Department, ESSEC Business School in Paris.

While no one crisis is identical to the next, the report identifies four strategies which have been key in helping major luxury groups grow through the previous crises. They include:

- Developing a strong retail network through new store openings and/or store refurbishing in key strategic locations

- Launching new products to continuously stimulate consumer demand

- Improving financial health by cutting costs, creating greater efficiencies and better managing logistics/supply chain

-  Diversifying into strategic but complementary businesses, or acquiring greater control of current businesses

“Over the years, MasterCard has devoted extensive resources to developing a deeper understanding of consumer trends and the business and economic environment in the region through surveys and independent research studies. This report adds to our knowledge and key insights on the luxury industry, and we believe that there are important lessons that can be learnt from the past. We are glad to be sharing this with our customers and valued merchants, as together we seek to innovate and emerge stronger from the economic crisis,” said Jeff Portelli, group executive, Global Products & Solutions, Asia Pacific, Middle East & Africa, MasterCard Worldwide.

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