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Kate Spade faces struggle to bag Chinese millennials Premium

Survey data show higher-end luxury brands increasingly popular among younger shoppers

MAY 19, 2017 by: FT Confidential Research

• Coach is hoping to expand the international presence of recent acquisition Kate Spade, but cracking the China market may prove challenging.
• FTCR’s latest consumer brand data finds growing popularity for high-end luxury brands at the expense of affordable names, including Kate Spade.
• This trend is particularly notable among Chinese millennials, a target market for Kate Spade. High-end luxury brands have invested heavily in capturing a younger market, while some smaller brands continue to rise as individuality becomes more important for young shoppers.
  

Coach’s acquisition of Kate Spade raises the tantalising prospect of an expanded footprint for the eponymous handbag brand in the Chinese market. This will present a considerable challenge, however: our latest brand popularity data point to a resurgence of high-end luxury names at the expense of the affordable segment, particularly among millennials.

In our latest consumer survey, across all consumer segments, the popularity of high-end luxury brands increased slightly between the first quarters of 2016 and 2017. The popularity of affordable brands — which include Coach and Kate Spade, as well as rival Michael Kors — fell heavily (see chart).

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Although the popularity of affordable brands grew among older shoppers, there was a pronounced drop in the 18-24 age group, where their combined popularity fell 8.2 percentage points over the year.

Kate Spade has been in China since 2011 via joint ventures but still has only a limited presence in the country. There is clearly room for expansion; over 80 per cent of its sales come from the US (see chart) and Coach CEO Victor Luis cited the brand’s “untapped global growth potential” as a justification for the purchase.

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Luxury back in style

Success for Kate Spade in China is not guaranteed, however. Its popularity has fallen sharply over the past year among younger Chinese consumers — a demographic it needs to target — and we are not convinced that it is positioned for growth (see chart). Mr Luis has reportedly cited Kate Spade’s low brand recognition in China as an argument for its potential, but our data highlight the popularity of other smaller names, some of which have little to no physical presence in China but are available online and through daigou agents, who shop overseas on behalf of domestic consumers.

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Brands such as Acne Studios and Mansur Gavriel are building a following in China, helped by plugs from popular fashion bloggers, as younger shoppers look for greater individuality in their luxury goods. But sales of high-end luxury brands have also partially recovered in recent months as the government’s anti-corruption campaign has reduced in intensity and the economy has picked up on the back of surging house prices.

Sales have also been helped by a narrowing price gap between China and overseas markets, as well as marketing campaigns targeting younger consumers. Popular singer and actor Kris Wu has become the brand ambassador for Bulgari while fashion blogger Gogoboi has promoted labels such as Louis Vuitton and Dior.