Public perception, a crackdown on corruption, and a increasingly politicized environment around foreign luxury goods is creating issues for luxury goods manufacturers (including some luxury autos). Luxury items by and large are doing well in China but those that are tied to a political or cultural issue have ran into problems that quickly escalate beyond simple criticism.
Below are a few recent incidents in which foreign luxury goods have been found in the spotlight.
Versace’s T-Shirt Incident
Versace became the target of Chinese Netizens recently over a T-Shirt that displayed Hong Kong as a separate entity in Hong Kong. Likely not intended to support the protest movement the timing of the incident sparked widespread condemnation against the brand from mainland Chinese. This prompted Versace to pull the T-shirt and issue an immediate apology. Many other luxury brands, including coach, have also been criticized for the error.
This is similar to the recent crisis for airlines when cities in Taiwan were referred to as separate entities than China. This threatened the direct business with China is the issue was not fixed. What once was a small discrepancy for many is becoming national news and businesses are caught in the cross-fire.
Dolce & Gabanna’s Chopstick Crisis
Dolce & Gabbana saw the closure of over 50,000 sales channels in the span of a week following a cultural issue surrounding a series of advertisements leading up to a December fashion show in 2018. The series of advertisements depicted a Chinese actress in a red dress trying to eat Italian food with chopsticks. There were some sexual innuendo’s thrown in but more importantly, Chinese netizens reacted strongly calling the advertisement racist. Making matters worse, one of the founders, Stefano Gabbana, had allegedly messaged someone referring to Chinese in a derogatory manner. It’s unclear if the messages were real or not, but the ensuing crisis led to a near complete social protest against the brand. Sales are still creeping along but not nearly at the same level pre-incident.
Luxury Auto Sales
Audi seems to be doing really well, but if you look at the market potential for Ferrari and Lamborghini, gross displays of extreme wealth are hurting sales to high-end luxury automakers. China only accounts for 8% of Ferrari sales and Lamborghini only sells a few hundred units a year in China. This is likely the case for other exotic brands. One cause is the public perception around owning an exotic super car brings negative publicity even though the China market could be significantly larger.
In the early 2010s, Ferrari found itself tangentially part of a scandal when a Chinese socialite was found to have been siphoning money from the Red Cross. Owning a Ferrari was one of the key indicators something was amiss. While luxury automakers have been able to stay outside of the main conversation the secondary consequences mean Chinese buyers are pausing at the exotic luxury auto space.
You Need to Have a Crisis Management Plan in Place
These are cultural issues just as much as a political ones. We have seen the same thing in the United States. Certain celebrities wearing or driving a luxury good creates a controversy causing others to blame the brand or the industry. The only difference is the pace and size of the Chinese social media and consumer market. Understanding what the hot topics are and having a crisis management plan in place can be the difference between getting through a temporary issue or having a full-blown crisis.
About the Author
Brandon Hughes is a U.S. Businessman and CEO/Founder of FAO Global (www.FAOGlobal.com) specializing in cross-border ventures facilitating business ventures between the U.S. and the Asia-Pacific. He has more than a decade of experience working on international projects and has spent 5 years in Asia working in private, public, and non-profit roles. He speaks Mandarin Chinese and was one of the first U.S. graduates of China’s Elite Tsinghua University for a Masters in International Relations/Political Science pilot program. He has a B.S. in International Business and is completing an Global MBA through Columbia University, London Business School, and Hong Kong University.
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