The Chinese government is scaring fashion brands. Some statements, released in August by President Xi Jinping, brought about a tsunami at the Stock Exchange market. Yet, they might be a preliminary point leading to something much more structural, starting from live streaming sales’ behavioural regulation. Which could contribute to irritate luxury brands and drive them up the wall
“If Chinese buyers sneeze, the luxury business is about to get pneumonia”. Luca Solca, luxury financial analyst employed at Bernstein, pointed it out. That is a picture of a well-known situation, as a matter of fact. Which is nearly obvious, considering how long and how much fashion brands have been essentially relying on Chinese shopping: due to the pandemic outbreak, it is now of crucial and utmost importance. Such reliance, which is supporting most of the manufacturing and financial results achieved by groups and brands, has been deeply challenged over the last few weeks. More specifically, it is still that way, considering that the Chinese syndrome, which is likely to drive luxury players up the wall, is currently underway. For the records, it does not just lie in marketing and sales problems exclusively, as the most problematic issues are related to politics.
The Chinese syndrome, part one
Part one: August 2021. Precisely: Tuesday 17th. Right on that day Chinese President Xi Jinping drove luxury up the wall and made – in a very few hours – over 60 billion euros, coming from the fashion brands’ listing at the Stock Exchange market, go up in smoke. In other words, nearly 10% of the overall market value of LVMH, Hermès, Kering, Richemont and Burberry. How could he do it? It is quite simple. Xi Jinping spoke about “common prosperity for everyone” and redistribution of wealth.
Furthermore, he has also outlined the way China “will regulate overly high incomes and will encourage high-income groups and companies to get back, a little more, into the social context”. Media, which recapped his speech, have quickly wrapped up by saying that China has launched a campaign against “unreasonable wealth”. Therefore, against luxury. Negative repercussions at the Stock Exchange market were not long in coming. As reported by the Financial Times, LVMH, Hermès, Kering, Richemont and Burberry stocks lost altogether, like we said, nearly 10% of their value, that is, 61.7 billion euros.
Strength and fragility
Although all luxury financial analysts and high-end managers still believe that in China “opportunities exceed risks a great deal”, investors’ sudden freak out in August made clear how much Chinese buying strength compares, in the same and opposite way, to luxury fragility while aiming to flood into Chinese buyers’ houses. Figures evidence that. According to Jefferies estimates, in 2021 Chinese luxury shopping is bound to account for 45% of the total turnover worldwide. In 2019, it accounted for 37%. The investment bank, mentioned right above, also estimates that in China about 110,000 people are currently loaded, each of whom spends over 100,000 euros every year for fashion goods and jewellery, therefore accounting for nearly one quarter of luxury overall sales in China. If such audience happened to realize that they no longer need to show off their wealth, the luxury industry would undoubtedly suffer the blow.
The Chinese syndrome, part two
There we go with part two. At the beginning of September, there was a rumour going round, not that openly though, that China’s Ministry of Trade was working on some proposals to set up behavioural standards and regulations for live streamers. In other words, for the ones who market and sell their products on online shopping platforms. As highlighted by Italian press agency Adnkronos, “live streaming e-commerce is a business activity reportedly worth over 30 billion dollars in China.
In fact, well-known influencers sell products and services during live-streaming programmes which may go on for a very long time. A few companies, such as JD.com and Suning.com, along with some video-clip platforms, such as Douyin and Kuaishou, and social apps, such as WeChat and Weibo, are actively engaged in this market. In 2020, users watching live-streaming e-commerce shows amounted to 388 million people; as for the number of e-tailers, playing on 23 platforms, it exceeded 130 million units, therefore making it right a huge business. In practice, the ministry of trade is planning to regulate the way influencers should either get dressed or talk in front of video-cameras. Moreover, they want to impose some guidelines to outline and specify the way platforms should allow buyers to post reviews about the hosts and products they market.
Rules, fairness, and impartiality
More specifically, stated China’s government, “when a host is broadcasting live, both his attire and image must neither break public order nor offend public morality. On top of that, their appearance should also mirror the features of the products and services they are marketing”. In addition, hosts are required to “speak Mandarin during the live-streaming show”. If they are not deemed “fair and unbiased about what they are going to sell, they may go punished by the e-commerce platform, which can limit their trading activity, suspend or even delete their account”. Apparently, for the time being, regulations have affected and hit, most of all, technology businesses. Yet fashion and luxury fear this may be just a starting point ahead of new, stricter rules. Should it occur, it would trigger, rather than a nervous breakdown, a panic attack.
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