Premium brands bouncing back after growth shocks

"One (Xiaohongshu user) said she waited for almost an hour to get inside the store. The other said four customers were 'competing' for one bag. A third said a new round of price hikes is expected soon," she said. "It just makes me want to get a bag badly."digital-savvy Chinese often hear of alleged price hikes from surrogate shoppers, better known as daigou in Chinese, who warn clients of the potential increases via social media sites.

"Even our company has not officially confirmed another round of price hikes. But I personally came across such information on Xiaohongshu," said Michael, the sales representative from LVMH, which has seen upward price adjustments in March and May consecutively.

Fashion houses raised prices for some of their most coveted products as they seek to make up for sales impaired by novel coronavirus lockdowns, especially as a lot of the mature markets have yet to see large-scale business normalcy.

Luca Solca, a luxury goods analyst at Bernstein, said, "It's a strategy to defend margins." But not all labels could follow that route because it could trigger backlash from consumers and pose a question on the sustainability of such an approach.

"There are always limits to how many times prices can go up, and once international travel resumes, this cannot last," Solca said.

"There is a possibility this year of getting away with it a little bit more," Francesca Di Pasquantonio, managing director of equity research at Deutsche Bank, told Vogue Business. "This year, Chinese consumers won't travel to Japan or to France. Next year, they might be able to."

Bain projected China to lead the way toward a recovery and Chinese consumers are set to cement their status as crucial drivers of the industry, accounting for nearly 50 percent of the market by 2025.

"There will be a recovery for the luxury market but the industry will be profoundly transformed," said Claudia D'Arpizio, a Bain & Co partner who led a research report on the luxury market post-COVID. "The novel coronavirus crisis will force the industry to think more creatively and innovate even faster to meet a host of new consumer demand and channel constraints."

Many are turning to online channels, which are expected to claim 30 percent of the market by 2025. This goes hand in hand with the younger generations (Generation Y and Z) becoming the backbone of the market.

Burberry has been promoting online-to-offline commerce by opening in July the first-of-its-kind social retail store in Shenzhen, Guangdong province. The London-based fashion hub says it blends physical and social worlds with a suite of digital technologies powered by Chinese internet giant Tencent.

Like many other brands, Burberry saw the Chinese mainland registering mid-teen growth in the first quarter but has jumped ahead of the January pre-COVID-19 level of 30 percent in June.

"Travel restrictions caused by the contagion have to some extent fueled local consumption of luxuries," said Josie Zhang, president of Burberry China.

"To harness mid-to-long-term growth here in China, it's critical for us to reach out to new customers, build connections and stay agile in digitally innovative ways."

Through a dedicated mini program backed by WeChat, Tencent's iconic messaging app, customers can unlock exclusive content on the brand and personalized experiences, and then share with their communities.

The mini program is designed as a digital companion. As long as customers walk into the store, they stand to access features such as store tours and product information. It also offers access to dedicated client services, in-store appointment bookings, events and table reservations in the in-store cafe.

Zhang said initiatives like these are aimed at capturing a growing penchant for social interactions and community building among the younger generation of shoppers, who are typically free-spenders looking for "spiritual resonance" in luxury brands. When customers put the contagion behind them, the way they see the world will have changed and luxury brands will need to adapt, said Bain partner Federica Levato.

"Safety in stores will be mandatory, paired with the magic of the luxury experience－creative ways to attract customers to stores, or to get products to customers, will make the difference."