ed ratcliffe who’ll bet on brexit battered britain...out, it’s survival of the fittest....

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CHINA DAILY | GLOBAL EDITION Monday, January 21, 2019 | 13

Luxe style ain’t what it used to beFuture of luxury brands is already here for those that adapt to how technology is changing the way people buy

In a market upswing, every-

one’s a genius. “Only when the

tide goes out,” Warren Buffett

warned his fellow investors,

“do you discover who’s been swim-

ming naked.” The upswing of the

Chinese market over the past three

decades has been so perpetual,

businesses in China seemed

immune from global turbulence.

That held true until the tide went

out for Apple, which cut its sales

forecasts for the first time in 17

years, citing the unforeseen “mag-

nitude” of the economic slowdown

in China.

But if the big West Coast tech

company is feeling the squeeze,

then Europe’s biggest luxury

brands — Louis Vuitton, Gucci,

Hermès, Burberry — must be bra-

cing themselves for a long winter.

This does not come without warn-

ing. In October, the French luxury

goods conglomerate LVMH saw its

share price decline, despite robust

sales growth overall, when the Chi-

nese showed the first signs of wan-

ing demand for high-end handbags.

Collectively, luxury stocks are down

by about 11 percent since the start

of October, wiping out some $150

billion in combined market value.

When demand wanes, supply

must shrink. In an industry shake-

out, it’s survival of the fittest. Unfor-

tunately, there are those, like me,

who would say that luxury brands

are not exactly well-known for their

operational excellence.

They have corporate headquar-

ters full of brilliant designers who

are determined to take on the fash-

ion challenge of changing consum-

er tastes, only to find the sales

organization battling against their

brilliance because it makes no

sense for the local market. Who’s

right? Who knows? But it would be

quite a miracle if it all works out for

everyone.

This sort of tug of war seems fine

for those familiar with the business

of haute couture. But it’s the sort of

nonsense that Jack Ma from Aliba-

ba doesn’t allow. In 2013, Alibaba

bought an 18 percent stake in Wei-

bo, a Chinese microblogging web-

site that is a combination of

Facebook, Reddit, and Twitter, with

a bit of YouTube and livestreaming

thrown into the mix. Alibaba’s

online shopping website (Taobao)

has since integrated with Weibo,

allowing merchants to “hang” doz-

ens if not hundreds of new items on

virtual racks. These merchants,

who in turn are followed by their

fanbase, curate pictures and stories

of their lifestyle, aesthetics, and

travel, not unlike Kim Kardashian,

Jessica Simpson, or Bethenny Fran-

kel. They explain to their fans how

to pair a style with the rest of the

wardrobe, give makeup tips, and

provide in-depth descriptions of the

stitching or detailing on apparel. At

other times, these celebrities on

Weibo talk about their feelings and

worries and their personal relation-

ship with “realness”.

A week or two before launching a

sale, Weibo celebrities closely gauge

interest in new items, such as by

posting a shot at dinner wearing a

new sweater. Fans discuss these

items on display, debating between

different styles, colors, and cuts. If a

certain color is discussed more

than expected, the brand can then

produce a larger first batch; if fans

ignore something, it may get

dropped. Thanks to Alibaba’s auto-

mated supply chain infrastructure

(Ruhan) and Chinese factories ran-

ging from a single sewing machine

in a small room off an alleyway to

world-class manufacturing site that

handle orders from Burberry and

Louis Vuitton, merchants can make

clothes in three to seven days, usu-

ally in small batches, with low mar-

ginal cost and exemplary quality.

That on-demand supply is also

met by an AI-powered chatbot,

AliMe, that Alibaba launched in

2016. Using a variety of machine-

learning techniques from semantic

comprehension, context dialogues,

knowledge graphs, data mining,

and deep learning, the chatbot

learns about products within mer-

chant webstores, is well versed in

return policies, understands deliv-

ery costs and how to change an

order or delivery destination, and

can find solutions to resolve a cus-

tomer’s inquiry and then execute

them without human intervention.

This lack of human action allowed

AliMe to shoulder more than 95

percent of customer questions on

Alibaba’s Singles Day on Nov 11,

which generated more than $30 bil-

lion in sales within a 24-hour peri-

od, surpassing Black Friday and

Cyber Monday sales in the US by a

wide margin.

“The future is already here. It’s

just not evenly distributed yet,”

wrote novelist William Gibson. In

this future of retail and branding,

European luxury brands have fallen

behind, because the new genera-

tion of consumers expects well-cu-

rated product personas across all

social media channels with sponta-

neous user engagement. Mean-

while, the squeeze of tighter

economic conditions requires an

agile supply chain that can quickly

pivot with emerging consumer

preferences. Above all, Alibaba’s

operation relies on data analytics

and advanced automation, without

human meddling in the name of

“expert judgment”. This amounts to

a radical leap for the fashion indus-

try into a new knowledge frontier.

In my book LEAP: How to Thrive

In a World When Everything Can

Be Copied, I documented how Stein-

way & Sons, the best piano maker in

the world, relied on timely craft-

manship to build pianos that Arthur

Rubinstein and Lang Lang desired.

However, Steinway saw its sales

decline from 6,000 pianos a year in

the 1960s to some 2,000 in 2012.

The company was forced to auction

off many of the historic buildings

that had once been part of the Stein-

way Village in northern Astoria,

Queens. The original campus was

reduced to one gritty red-brick fac-

tory at the end of Steinway Street.

A poignant story, perhaps. But it

doesn’t need to be this way. Through

five principles — including “leverag-

ing seismic shifts” and “experiment-

ing to gain evidence” — pioneering

companies can in fact thrive if they

are prepared to rethink the way

they do business. Being best at what

you do has never been enough.

Being best at something different —

over and over — is key to flourishing

over generations.

The author is professor of Manage-

ment at IMD Business School in

Switzerland. The author contribut-

ed this article to China Watch, a

think tank powered by China Daily.

The views do not necessarily reflect

those of China Daily.

ED RATCLIFFE

HOWARD YU

Through five

principles —

including

“leveraging

seismic shifts” and

“experimenting

to gain evidence”

— pioneering

companies can in

fact thrive if they

are prepared to

rethink the way

they do business.

SHI YU / CHINA DAILY

Who’ll bet on Brexit battered BritainWill the UK lose its attractiveness to Chinese investors when it leaves the EU?

At the time of writing, it

remains unclear whether

the United Kingdom will

leave the European

Union with no deal, a Norwegian

deal, a Canadian deal, another deal,

or whether it will even leave at all.

Given this uncertainty, there are

understandable concerns about the

impact Brexit will have on invest-

ment into the UK, including invest-

ment from China. The UK remains

one of the largest recipients of Chi-

nese investment globally, and the

largest in Europe.

However, the story so far con-

cerning Chinese investment may

provide some encouragement. The

specter of Brexit does not seem to

have spooked Chinese investors.

Chinese investment into the UK

more than doubled to over $20 bil-

lion from 2016 to 2017, and business

interest and real estate investment

enquiries have continued to rise

through 2018.

The investment of personal for-

tunes into UK residential real estate

has made headlines, but there have

been plenty of significant invest-

ments into global giants such as

Barclays and BP and more domes-

tic-oriented businesses such as Piz-

za Express and House of Fraser.

Unlike the investments of foreign

manufacturers in the United King-

dom such as Nissan or Airbus that

rely on “just-in-time” frictionless

trade, the rationale behind many of

the Chinese investments in the UK

appears not to have been directly

related to EU membership.

Outside of the worst-case disaster

scenarios, the attractiveness of Lon-

don-listed equities for Chinese

investors may not change drastical-

ly. In fact, the sliding sterling has

resulted in some stocks rising, and

while some London-listed compa-

nies will be impacted by restricted

access to the EU Single Market,

many of the FTSE100 companies

draw their income from diverse

international sources.

The reputation of the London

Stock Exchange as being well-regu-

lated, especially for protecting

minority investors, is indicative of

the broader suitability of the UK as

an investment destination — rule of

law, pools of professional expertise

and an educated population more

broadly, and overall ease of doing

business. Chinese investors have

capitalized on this with continued

investment in R&D and other pro-

curement from the UK.

In any case, the City of London

will be seeking to maintain its posi-

tion as the pre-eminent interna-

tional financial center — a prospect

that may be unshaken, if not actual-

ly supported, by some Brexit sce-

narios.

However, it is evident that unless

the UK can guarantee frictionless

trade with the EU, investment

opportunities in businesses that

rely on “just-in-time” supply chains

or unfettered Single Market access

will be less attractive. However, the

UK’s relationship with the EU itself

may not be the most important var-

iable. Other factors — the conse-

quences of Brexit for the economy,

consumer confidence and foreign

policy — could have a greater

impact on the opportunities for

Chinese investment and UK-China

economic relations more generally.

The success and attractiveness of

domestic-oriented investments, as

well as the prospects for emergent

Chinese consumer brands such as

Xiaomi (emergent in the UK, at

least), will rely on the health of the

UK economy and UK consumer

spending power, which are not

guaranteed in the more negative

Brexit scenarios.

While a “Hard Brexit” would be

disruptive, it may open a window of

opportunity for foreign investors.

If the UK economy takes a hit,

a combination of lowered

asset prices and a weak

currency could be inter-

esting for Chinese inves-

tors with a longer-term

view.

Conversely, a deal that

gives businesses certainty and

opportunity could see Brexit’s

potential negative impacts curbed,

and investors who were holding off

due to uncertainty may have the

confidence to move forward.

There are wider forces at work,

too, which could impact on Chinese

investment to the UK post-Brexit.

As Britain goes it alone, it may find

itself choosing, or being pressured,

into much closer trade relations

with the United States. Given the

current US-China trade tensions, it

is possible that Washington may

seek to extend its own China con-

tainment policy through the UK’s

trade policy. In this scenario, things

may become very difficult indeed.

Another challenge that risks

being overlooked is that coming

from China itself, as companies are

incentivized and encouraged to

keep their cash at home. If this situ-

ation is exacerbated or Chinese

companies are encouraged to

engage more heavily in Belt and

Road Initiative projects, the UK will

need to find other ways to increase

its attractiveness.

Whatever the shape of Brexit, it is

highly unlikely that UK companies

will abandon their positive senti-

ment toward China. The UK gov-

ernment will likely follow suit.

However, although the UK should

retain its traditional suitability for

foreign investment, the health of

the UK domestic economy could be

the main variable based on the sto-

ry of Chinese investors in the UK so

far.

The author is head of Research and

Advisory for Asia House, a London-

based consultancy. The author con-

tributed this article to China

Watch, a think tank powered

by China Daily. The views do

not necessarily reflect those of

China Daily.

LI MIN /

CHINA DAILY