Why is OTB closing several stores in China?

China has stopped, in recent months, being the mega-engine of global luxury spending that it has been over the past ten years, and many European industrial groups are trying to cope with the consequences of this crisis. Even a recent survey by Oliver Wyman revealed that 57% of middle- to high-income Chinese respondents plan to spend much less on their international shopping, and 47% also want to cut back on travel, with overall luxury customers planning to tighten their purse strings – which is beginning to pose a problem for European luxury. For example, Jing Daily recently reported on how the OTB group, which owns Maison Margiela, Marni, and Jil Sander, has begun to close some of its stores in mainland China and Hong Kong. Among the most significant closures were Maison Margiela's locations in Kunming, at Shanghai's IFC mall, and Hong Kong's K11 Musea, while Marni exited Hong Kong's Landmark, Sogo in Causeway Bay, and MixC in Xiamen. Jil Sander also shuttered stores in Xiamen and Chengdu. According to Jing Daily, OTB chairman Renzo Rosso recently noted that the industry's slowdown has delayed a potential IPO from 2024 to 2026. Despite a 72.4% sales increase for Margiela in China last year, market changes have prompted OTB to reorganize and aim for better positioning in an unstable market through a strategic realignment.

The reorganization of OTB indeed signals broader trends affecting luxury in China, hampered by reduced consumer spending, intense competition, and changing customer preferences, with more consumers turning to dupes and domestic brands. The Chinese luxury clientele, historically drawn to innovative and cutting-edge brands, now seems more selective, seeking to invest more wisely and thus preferring more established and classic brands; on the other hand, they are also influenced by luxury shame pressure. OTB's decision to close some stores aims to maximize impact in key locations, enhancing brand exclusivity and resonance with affluent demographics. The closures represent the final phase of OTB's strategic investment in China two years ago, which saw the opening of 103 new stores now being selectively trimmed by closing underperforming locations.

And while OTB's strategy of targeting a younger audience seeking distinctive and creative designs has worked very well so far, setting the group apart from competitors like Kering or LVMH who have relied on mega-media campaigns and high-profile influencer partnerships, the market cooldown poses a dual challenge for OTB: maintaining relevance and deepening loyalty with its existing clientele while wisely calibrating the distribution of its resources across various distribution channels. Today's Chinese market requires both strategic flexibility and a long-term ability to cultivate and strengthen customer relationships, fostering increasing loyalty.