The Real Reason Louis Vuitton Is Launching Its Global Exhibition in Wuhan | BoF Professional, China Decoded

SHANGHAI, China – For most people outside of China, the city of Wuhan is known for one thing and one thing only.

As the first city struck by a widespread outbreak of Covid-19 at the beginning of this year, Wuhan is now saddled with an unfortunate reputation. As the epicentre of a pandemic that has impacted almost everyone on the planet, the capital of Hubei province urgently needs to project a new narrative to rebrand itself both within and beyond China’s borders.

Enter Louis Vuitton and brands like it clamouring to be part of the phoenix-rising-from-the-ashes story that the Chinese government want to promote as a lynchpin in the broader narrative of China vanquishing the virus. Wuhan’s 2020 profile makes it seem like a less-than-luxurious destination, but as a prosperous tier-two city of 11 million people, which before the pandemic was described as “the Chicago of China,” it was long considered a natural home for luxury shopping.

In fact, given the city’s strategic location on the Yangtze River and its economic rise in the years leading up to 2020, it is unsurprising that the iconic French brand chose Wuhan as the first stop of its new travelling exhibition See LV, which charts 160 years of the brand’s history.

Set within local luxury mall Wuhan International Plaza, the exhibition, which opens on October 31 and runs until December 6, presents a digital portrait of a young Louis Vuitton (the founder) made up from more than a million images of his native Jura region in France. One room is devoted to ready-to-wear; another to leather goods. All together, seven parts of the exhibition bring together an impressive array of 20th century trunks and collaborations with Chinese contemporary artists Liu Wei and Zhao Zhao.

In one sense, the introduction of a large-scale exhibition from Louis Vuitton in the city of Wuhan can be seen as a goodwill gesture. International brands across the board, and Louis Vuitton particularly, have been vocal about their support for the city this year.

In the earliest days of Wuhan’s lockdown, on January 27, Louis Vuitton’s parent company LVMH announced that it had given $2.2 million to the Red Cross Society of China. Then, on February 18, Louis Vuitton launched a campaign on Weibo that featured multiple Chinese celebrity brand ambassadors encouraging Wuhan residents and supporting frontline medical workers.

The city, which bore the brunt of China’s virus outbreak, saw 3,869 deaths from Covid-19 as the city’s hospitals were overwhelmed by the number of sick people seeking treatment and a strict lockdown was imposed on the city for months.

The decision is about much more than just goodwill and ‘guanxi’ with the government.

Showing solidarity with the people of Wuhan plays well with Chinese consumers, who make up the single most important segment of luxury industry sales, and is also a subtle way of showing solidarity with the Chinese government, an entity every major international company needs on-side if they have ambitions to grow a business in the Chinese market.

For its part, the Chinese government has made it clear that Wuhan’s recovery in particular is central to its efforts to see the whole country economically bounce back from its coronavirus outbreak. This goes some way toward explaining why the recent October Golden Week holiday period saw more than 18 million domestic visitors flock to Wuhan, making it one of the most-visited locations in the nation over that period.

But Louis Vuitton’s decision to debut the See LV exhibition in Wuhan, its first stop on a worldwide tour, is about much more than goodwill and ‘guanxi’ (deep connections and relationships) with the government. It’s also smart business.

Louis Vuitton was contacted by BoF, but was not able to respond to questions prior to publication.

Luxury Cities of the Future

In the years prior to the pandemic, Wuhan, already a city larger than New York or Paris, had seen international fashion, luxury and beauty brands flock to shopping centres such as Wuhan International Plaza, Wushang Square, Wushang World Trade Center and Wushang Square Zhongyuan.

Gucci, Hermès, Prada, Cartier, Hugo Boss, Max Mara, Tiffany and Louis Vuitton all boasted boutiques in the city, attracted by its young, professional and upwardly mobile population. Automotive and tech companies abound in the city, fed with talent from numerous local universities and bolstered logistically by the city’s transportation networks, including an international airport.

“If we had spoken a year ago and you had asked me what is the next wave [of cities] to come, I would have pointed to Wuhan… It’s a prosperous city with a lot of wealthy people and it has been a driver of luxury growth,” said Daniel Zipser, senior partner at McKinsey & Company and Greater China consumer & retail practice leader.

As China’s luxury industry bounces back, buoyed by re-shored spending from a population unable to travel abroad, international luxury brands have been quick to re-evaluate the best ways in which to serve Chinese consumers through domestic channels.

This involves not only the widespread adoption of e-commerce and digital solutions in China, but also requires a serious examination of the physical retail footprint on the Mainland to identify which locations in which cities brands should make their focus next.

Bruno Lannes, a partner in Bain & Company’s Shanghai office and head of the firm’s consumer products, retail and luxury practice for Greater China, says that along with first-tier cities and provincial capitals such as Hangzhou and Nanjing, in other important cities with wealthy populations, including Suzhou and Ningbo, “there is potential for more stores.”

Rather than penetrating too deeply into the lower tiers of China’s cities, Lannes anticipates many brands to expand their footprint in cities they have already identified as suitable markets for physical stores.

“So far, many of them have selected one [store location] in the most premium shopping mall in that city, but I think now there are opportunities to open a second one,” he said.

Unsurprisingly, the list of Chinese cities with the largest number of “affluent-plus” households, according to 2018 data from McKinsey Global Institute (MGI) is topped by Shanghai, Beijing, Shenzhen and Guangzhou. They are followed by Hangzhou, Nanjing and Suzhou, with Wuhan coming in at number 13.

Chengdu (number 12 on the list) is obviously important as a strategic location in the Western China region, while provincial capitals such as Xi’an (with its SKP department store outpost) and Kunming (where Hang Lung properties last year opened its Spring City 66 development and the arrival of SKP is anticipated in coming years) are also growing in importance.

If you had asked me a year ago what is the next wave [of cities] to come, I would have pointed to Wuhan.

Kunming, the capital of China’s Yunnan province, which is known for its natural beauty and minority cultures, can reasonably expect to be a beneficiary of China’s domestically focused travel agenda to boot. It is also strategically located as the gateway to the Southeast Asia region.

Meanwhile, just this week, Galeries Lafayette announced the location of its third store, after openings in Beijing and Shanghai, would be Guiyang, the capital of Guizhou province, which was once known as one of the poorest areas of China, but in recent years has seen its GDP growth rate explode.

Another obvious beneficiary of domestic travel retail, the duty-free island of Hainan, is a priority target for luxury expansion. “I think some of the bigger brands are just wondering what they should be doing in terms of Hainan Island,” said Lannes, with the potential for a resurgence of daigou grey market sales if brands have price differentials between their duty-free stores on the island and duty-paid stores on the mainland.

“That’s a new development this year and we are going to see how that pans out [but] clearly Hainan will see a huge development of luxury spending and offering over the next few years. The question for brands is: How do you manage this in the context of your overall national footprint in China?” Lannes added.

A Word of Caution

There are other risks complicating plans for luxury brands looking revamp their physical retail footprint to better reach domestic shoppers.

“The biggest risk I really see is too-small store formats, which are not luxurious enough, in sub-luxury environments, which may actually impact the brand,” Daniel Zipser explained. “The idea [that some brands have is to enter a city market early and] save the cap ex (capital expenditures) with a small store. Even though the retail environment is not ready [they] still want to be there, [but] that’s not necessarily going to be advantageous for the brand.”

The reason being that, “ultimately when the city is ready, a competitor is going to come in with a store three times the size in a nice environment, so I’m not sure there is a first mover advantage necessarily,” he added.

Though Zipser says unreservedly that there is an opportunity for brands to carve out a larger physical footprint in China, he contends that winning domestic consumers in their local market is about more than store openings and events.

The biggest risk I really see is too-small store formats which are not luxurious enough in sub-luxury environments.

There’s no doubt that showing the Chinese market they are a priority by hosting major events, as Louis Vuitton did by staging its men’s show in Shanghai last August, or Dior’s hosting of its “Designer of Dreams” exhibition, which became the first major international luxury event in China since the coronavirus outbreak when it opened in July, continue to be important tools for communication and brand building. But the priority should be unique, better quality events, in order to give Chinese consumers the luxurious experiences they are craving with travel taken off the table.

“It feels like every day there is an event right now, but how do you make sure those events are different and memorable? How do you succeed in converting from those events an increased likelihood of getting people to spend? There are a lot of questions and we don’t have the answers to them yet because it wasn’t needed historically,” when people were travelling internationally and primed to purchase luxury goods on annual trips to European shopping capitals.

Now that those travellers have been redirected to domestic destinations, will they be as ready to pull the trigger on major luxury purchases without the accompanying international experience?

“It’s very different to the experience of being in Paris, being on the Champs-Élysées, waiting for an hour in line at the flagship store, then I buy my bag there in that prestigious location,” Zipser explained.

This means there is a need to invest in flagship experiences in the cities Chinese tourists are flocking to domestically – including Shanghai, Shenzhen and Guangzhou – because these have become the new “window to the world” for brands looking to reach Chinese consumers, as well as creating innovative experiences, pop-ups, exhibitions and events.

“My number one advice to luxury brands in China, and globally by the way, is to learn how to create luxury experiences [locally, meaning] within Mainland China,” Zipser said.

Louis Vuitton, for one, is aiming to do just that this week, in a Wuhan still bruised but resurgent in the shadow of its deadly encounter with coronavirus. Whichever way you look at it, it’s a smart move.

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