By Andrea Felsted
FOR LUXURY BRANDS, worries about Chinese politics switched last week from the impact of Hong Kong street protests to the output of their own design studios.
In the space of a couple of days, Versace, Coach, and Givenchy have all had to apologize for failing to respect the country’s territorial integrity. The offending garments were T-shirts that listed Hong Kong, Macau, and Taiwan as separate from China. Beijing wasn’t amused, and neither were lots of social media users who threatened boycotts of the western fashion houses. Liu Wen, a Chinese Supermodel, ended her brand ambassador relationship with Coach — which is owned by the US firm Tapestry Inc.
Putting aside where you might stand on Beijing’s intentions toward Taiwan, it’s surprising for big global companies (Givenchy is owned by France’s LVMH Moet Hennessy Louis Vuitton SE and Versace by the US-listed Capri Holdings Ltd.) to make a diplomatic gaffe like this given China’s increasing touchiness on this subject. After all, they have legal teams and public affairs departments who should be on top of potential political pitfalls and any incidents that emerge elsewhere in the industry.
In fairness, it’s difficult when you’re running complex organizations that span creative and corporate functions. It can be hard to keep tabs on every garment produced for every catwalk show or department store. But the fashion industry has picked up a habit of annoying Chinese shoppers. The Italian fashion house Dolce & Gabbana caused outrage last year when it ran a promotional video showing a Chinese model struggling to eat spaghetti with chopsticks.
All of this suggests the luxury groups need to employ people with oversight of their creative teams who have a proper understanding of the places in which they operate. Ben Cavender, managing director of China Market Research Group, goes further, saying that companies should appoint a “chief culture officer” to combat the industry’s recurrent problems.
The western companies are reliant on Asia for much of their profits. Chinese consumers are by far their biggest customers, accounting for about one-third of total spending on luxury goods. Coach owner Tapestry gets 12% of its sales from greater China, while LVMH gets 33% from Asia, when excluding Japan.
Chinese shoppers are also extremely active on social media, so campaigns against particular labels are potentially very damaging. The research firm Gartner L2 found that Dolce & Gabbana’s Chinese social media engagement fell 98% in the first quarter of 2019 after the spaghetti outcry.
The T-shirt controversy is badly timed given that the luxury companies are already having to manage the impact of the Hong Kong protests on their sales in the city. The protests have shut stores and deterred Asian shoppers from travelling there, with the airport brought to a standstill this week (bad news too for duty-free purchases). Hong Kong by itself remains a significant market for high-end goods, accounting for between 5% and 10% of global luxury sales, according to analysts at Bernstein.
With sensitivities running so high, and sales channels already so challenged, the big brands have little margin for error. Beijing’s demands last week that Cathay Pacific Airways Ltd. bar any air crew who supported the Hong Kong protests from working on China flights shows how far the political situation is starting to affect business. This is a moment for careful management.