US luxury brands may fall victim to Chinese consumer sentiment soured by trade conflict
Global luxury brands are investing again in China, chasing cash-rich millennials in second- and third-tier cities despite a slight slowdown in the Chinese economy, Reuters reported.
This wave of investment is the first one after a crackdown on corruption in China several years ago, but ongoing trade tension may hinder US luxury brands’ development as the world’s second-largest economy taps its potential in luxury consumption.
“With luxury consumption dropping in 2016 to its lowest level since 2009, much attention has been focused on one of the biggest forces in global luxury spending: Chinese consumers,” a report by McKinsey said in 2017.
The report added that Chinese luxury consumers’ spending represented almost one-third of the global luxury market. No global luxury brands can afford a failure in the Chinese market, so there’s white-hot competition for cash-rich consumers. At the moment, any small thing could become a factor leading to failure amid intense competition.
In China, a recent hot topic online has been the boycott of US products in Turkey, as videos featuring the violent destruction of iPhones have been widely circulated on the internet. Although most Chinese people and firms have yet to boycott US goods, the wide popularity of the videos describing the “boycott US” campaign in Turkey do reflect some Chinese people’s sentiment toward US products. A survey by FT Confidential Research, a research unit at the Financial Times, found in July that 54 percent of 2,000 respondents in China would be prepared to boycott US goods. If the US continues to escalate trade tensions with China, we cannot rule out the possibility that there may be some small campaigns targeting US products.
US luxury brands that are reportedly focusing on affluent Chinese millennials in smaller, less-developed cities may become a victim of the trade conflict.
China and the US are growing highly interdependent in economic terms, so a “boycott US” campaign would be a double-edged sword for both sides. However, affluent millennials represent a group that can be more easily infected by nationalist sentiment.
US luxury brands may have to make more effort than their EU competitors in chasing China’s fickle young people.
Possible retaliatory tariffs on imports could be another challenge faced by US luxury brands. Amid intense competition in the Chinese market, higher prices as a consequence of possible tariffs might further discourage Chinese consumers from buying US products.