China is about to usher in the Year of the Horse, leaving behind the Year of the Snake -- a turning point for many luxury brands, and one they'd rather forget.
The government has pushed an anti-corruption campaign for public officials, cracking down on extravagant gift-giving, fancy banquets, high-end hotel stays and even over-the-top funerals. Watch companies and foreign liquor brands have suffered badly.
Mainland China's slowing growth fed into the dynamic, too. Luxury goods, not counting cars and liquor, were estimated to grow only about 2% in China in 2013, compared to 7% in 2012, Bain & Company said.
While the runup to Chinese New Year is traditionally a time of big spending, brands are prepared for more disappointments. Here's a look at some trends worth watching as the Year of the Horse opens on Jan. 31, and how luxury players are adapting.
The cooldown: not just a temporary thing
China's wealthy spent 15% less in 2013 than 2012, and 25% less on gift-giving, according to a survey of China's luxury consumers released this month. The reduced extravagance "is here to stay -- this is the new way forward," said Rupert Hoogewerf, who tracks the lives of China's rich as chairman and chief researcher of the Hurun Report.
Mr. Hoogewerf says consumers are shunning displays of wealth, and China is moving closer to Western attitudes about gifts for officials.
Officials are also being cautious of the impact of social media: In September, a provincial official was sentenced to 14 years in prison for corruption after photos of him wearing pricey watches went viral and netizens questioned how he could afford them.
Don't be a tuhao
While officials are being told to tone it down, ordinary consumers are shunning bling as well. The online buzzword of recent months was tuhao – nouveau riche. The word is "very reflective of a new era of Chinese consumption – you no longer buy the most expensive product because your mates will say, 'you're such a tuhao,'" Mr. Hoogewerf said.
"Logo fatigue" has set in among China's consumers. Two brands known for insignias on their products, Louis Vuitton and Gucci, are "moving away from logos and trying to be more discreet in their designs," said Shaun Rein, founder of Shanghai-based China Market Research Group.
"The problem is both of those brands still have a lot of people toting bags with those logos on them," he said. "The peasant who bought an LV bag three years ago is still going to be toting it for the next eight years."
Mr. Rein cites Burberry, Coach, Miu Miu and Tiffany as strong performers in China. Brands have had success targeting "younger women, who are the most optimistic consumers right now," he said.
A bright spot: jet-setting shoppers
The Chinese still are buying – when they travel outside the country. Bain & Company says China's consumers make two-third of their luxury purchases when they travel abroad because prices are lower there. Harrods department store in London has Chinese-speaking staff and a strong presence on Chinese social media. On WeChat, a popular social app, Harrods clients who scan the same product codes can chat about their purchases together.
Fixing the China shopping experience
Opening new luxury stores in China used to be enough to drive growth. Not anymore. Bain and Company estimated that retail openings by global brands dropped by about a third in 2013. Retailers are now concentrating on fixing the shops they have.
"Window displays have to be impeccable," said Charles de Brabant, CEO and founding partner at Saint Pierre, Brabant, Li & Associates, a human resources consultancy focused on luxury and creative brands. "Staff have to know more than consumers … We all know service is not the greatest in China, since under the one-child policy kids grow up to be served and not to serve."
If all else fails, lose a star
Five-star Chinese hotels, hard-hit by the government frugality campaign with revenues down 14% in 2013, have an odd turnaround plan, state news agency Xinhua reported. Fifty-six hotels have pushed to downgrade their rating -- so public officials can stay there again.