Plenty of industries and markets saw anomalous reactions to the COVID-19 crisis. No one was surprised when N95 masks became scarce, but when supply chains were disrupted, we saw delays or shortages in everything from pickles to tennis balls, according to an article in Money. But perhaps one of the most unexpected industry booms during and after the pandemic was the Chinese luxury market.
According to research from Bain & Company, Mainland China’s share of the world’s luxury goods market nearly doubled in 2020, putting it on a path to become the biggest market by 2025. A drop in international travel fueled double- and even triple-digit increases in the rate of domestic luxury spending for some brands, a decidedly unexpected outcome of global disruption. The elevated tastes of millennial and Gen-Z shoppers along with continuing digitalization helped drive this unprecedented expansion. In my work as an intellectual property (IP) lawyer and China expansion specialist, I’ve seen forward-thinking luxury brands all over the world take note.
“It’s been wonderful for me to see China evolve so quickly,” says Greg Brockway, founder and CEO of high-end home furnishings and art website Chairish. “I lived there for the first time back in the mid-90’s and have worked all over Southeast Asia. I’m not surprised that it’s become the largest single destination for consumers of luxury products.”
The coalescence of these factors makes now the perfect time to make a bold move for businesses contemplating entry into the Chinese and Asian Pacific markets. As an expert lawyer and business consultant who helps businesses scale up for massive expansion, I’m urging all of my clients to plan for expansion into Asia in the very near future. This is the new frontier, and now is the time to explore it.
Asian Norms Can Challenge Western Business Leadership
This is not to say that overseas expansion into China and other parts of Asia will be a cinch. My elite CEO and entrepreneurial clients are often brimming with stress over cultural differences and unfamiliar expectations when they first engage me to help them bring their luxury brands into the Chinese market. For example, in many Asian cultures, including China, doing business is all about relationships. Charging in and expecting your new suppliers and vendors to immediately trust and respect you will backfire, a norm that baffles many fast-moving European and American CEOs and entrepreneurs. Instead of leading from afar, I advise them to build their own local companies, managements and staff so they can cultivate direct and longer-term relationships with a wide range of landlords, bankers, potential investors, customers, influencers, manufacturers, suppliers, media, government agencies and other key business partners and collaborators from all over China.
If entrepreneurs dive in without laying the needed relationship-groundwork, it can lead to missteps. And expensive ones at that. Ardelle Fawehinmi, founder and creative director of Ardelle, has experienced this firsthand.
“In speaking to a few of my designer friends, I have heard that working in China can bring misunderstandings with fabrics, manufacturing times, product quantity and quality,” she said. “All of my colleagues say to go there, so that you can actually see your business partners, speak with them and build proper relationships with them. I’ve always heard that relationship building is very important in order to get exactly what you’re asking for.”
Ethical jewelry designer Erin Flynn, founder of Erin Flynn Jewelry, adds that Chinese consumers have evolved their ideas around “luxury”offerings in a way that may surprise some Westerners. She points out that status and logos aren’t driving profits like they used to, and that many Chinese shoppers want top brands to prove they’re working toward social impact.
“It’s the belief that brands need to do more than just offer luxury products,” Flynn explained. “From the human rights side of it to the materials used and to giving back part of the profits … It’s going to be really important for up-and-coming brands in Asian markets to have that from day one.”
Of course, setting up operations in-country can be challenging, too, as obtaining local licenses and permits, tax registrations and navigating other legal complexities is no mean feat. It can be done, of course; I help my clients do it every day. And it’s well worth the effort for brands eager to participate in a luxury goods market worth RMB 346 billion and growing.
Benefits of the Chinese Luxury Market
The fundamental advantage of directly operating your business in China versus other expansion methods (e.g. merger and acquisition, joint ventures, franchising, licensing, concession, etc.) is the control you can exert over executive and managerial decision-making, corporate governance, ESG, supply chain management and other critical business functions. Allie Egan, founder and CEO of Veracity Selfcare, went this route for her luxury custom skincare line.
“We do our packaging in China, so we’ve been working with partners over there since very early on and honestly, it’s wonderful,” she said. “I think our packaging is some of the most beautiful, upscale stuff and we’re a startup. We work fast and it was amazing to custom-order these amazing, cool droppers for our concentrates. Our Chinese partners were able to do that for us in such a short amount of time and with such good quality.”
Several luxury brands also pointed out that China is a bellwether for trends, consumer behaviors and market appetites. A huge advantage of establishing your brand in Asia is the ability to observe and road-test game-changing ideas before they go global.
“The Chinese market is a crystal ball for all things digital, marketing and retail,” said Kelly Kovack, the founder and CEO of BeautyMatter. “The market moves so fast and is so dynamic that it really is an indicator of what will happen in other markets in, say, 12 to 18 months. There are definitely opportunities to be an early mover in Western markets if you’re tapped into what’s happening in China.”
What is it Like Doing Business in China and Asia Pacific?
The China market is huge, but it is not a uniform or homogeneous country. There are significant differences between provinces in terms of their population sizes, average income levels, consumer spending habits, education levels, literacy rates, lifestyles and so on. I tell my clients that having a local team in due course will greatly enhance their abilities to connect with their target markets and access their customers.
“There’s this idea that you just show up and the money starts flooding in, and that couldn’t be further from the truth,”said Kovack. “Unless you have a lot of money and you intend on setting up an infrastructure in China, you need a really strong partner. One that understands your business. One that is in line with your objectives. Find local partners who are a good fit because they’ll be an extension of your business. And listen to them because there’s no shortage of cultural missteps that brands make.”
“What you have to do as a luxury brand is work out who you are partnering with who is local,” Nicholas Bowman-Scargill said, managing director of the Fears Watch Company. “Who is the distributor? Who is the person who can tell you what’s going to resonate with the Chinese consumer? … We find that local distributor, that local person who has the knowledge [and has] the connections, who can help us, can guide us.”
Several of the elite leaders that I interviewed also emphasized that, although there are culture-specific challenges to doing business in Asia, there are also some universal issues that arise no matter where you’re expanding.
“There is obviously no shortage of information written on the market,” said Kovack. “But you must do your due diligence on the market. If you want to be in a market — China or any other market — you need to do a market visit. I’m always amazed by brands that will sign distribution deals and they’ve never stepped foot in the country.”
Overall, these entrepreneurs and industry mavericks encouraged newcomers to balance boldness and excitement with prudence and cautious optimism. There is massive opportunity in China and other parts of Asia for luxury brands to make their marks and pull ahead of their competition. But entering this market must be done diplomatically and strategically.
Bowman-Scargill sums it up beautifully: “I’ll be honest, I think it’s also very important to do what we’ve done: baby steps. Don’t rush into it.”
It is important to engage the right support when making this huge transition, which is why I encourage you to book a connection call with me to discuss how I can help you expand your company globally.
Bernie Hung is the rebel lawyer and innovative founder behind BlueBox Rocket. Her revolutionary “Vision-to-Launch” service helps pioneering entrepreneurs and CEOs grow their seeds of ideas into reality or scale up their business for massive expansion. Learn more at blueboxrocket.co.uk or berniehung.com.