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  • Why Does China Consume but not Produce Luxury Brands?

    Post by : expatree

Following 50% discount of Gucci's offering in Shanghai, Givenchy, YSL, Prada started 70% off promotional campaigns in Hongkong. Suddenly all these luxury stores were seething and crowded with Chinese consumers. "Crazy" might be a best word to describe this situation.    

Time goes back, to Chinese traditional mind Hong Kong can be a shock to the first comer, with billboards flashing Swiss watches and Italian shoes dominating the skyline. Louis Vuitton’s lights square up against Burberry’s cinema screens. This Vegas like glitter reflects the novelty of luxury in China, and the country’s new importance to luxury. Today nearly one third of all personal luxury goods sold worldwide are bought by Chinese consumers. Their spending is divided more or less equally among the mainland, the Chinese speaking territories of Hong Kong, Macau and Taiwan, and the rest of the world. Mainlanders become familiar with the brands through marketing and shopping centers at home. Nearly one third of all personal luxury goods sold worldwide are bought by Chinese consumers Chinese shoppers came to the rescue when the financial crisis in 2008 cast a pall over luxury. Since then 70-­80% of global growth in the sector has come from China, according to Barclays Capital.
 
Once fading European brands, such as Britain’s Aquascutum, which makes traditional clothing, have sought second lives there. Others, like Lancôme, a cosmetics maker, are presenting themselves as more luxurious there than they are seen at home. “Now our culture is so imbued and involved in good and bad ways by luxury penetration,” says Yi Zhou, an artist who has collaborated with luxury brands. “Instead of the theatre we go to store openings…I feel like I live in an airport.” The rush to China intensified after the 2008 Beijing Olympics, with luxury brands swarming into shopping malls as fast as they could be built. It was a “game of space invaders”, says Erwin Ram Bourg, a banker and author of a new book, “The Bling Dynasty”. President Xi Jinping’s crackdown on corruption, along with slower economic growth, has now changed the mood. His antiextravagance measures amount to a mini cultural revolution. Chinese newspapers report falling sales of such delicacies as hairy crab and sea cucumber as banqueting halls go quiet. Hotels have asked to have stars knocked off their ratings.  

The luxury market in mainland China, worth $18.9 billion in 2013 (see chart 3), will shrink for the first time this year, predicts Bain. Still, few brands are thinking of giving up. Mr. Arnault says it will remain “one of the most promising markets”. But it is becoming more complex, more sophisticated, more international and harder to navigate. Luxury in China began as a male oriented pursuit, centered on liquor and wristwatches, but is now becoming more feminized, with handbags, shoes and fashion featuring strongly. Experienced consumers are graduating from bling to sophistication with a speed that Mr. Arnault describes as “spectacular”. But many Chinese idiosyncrasies will persist, including a penchant for shopping abroad and a big discount market that mingles the real with the fake. Luxury brands have to work out how to cover that range. One promising group of consumers is the offspring of the one­ child­ policy era, born in the 1980s and 1990s. They are the single focus of attention for their parents and often two sets of grandparents, giving them access to plenty of cash.
 
The first generation of luxury goods managers spent their time negotiating with landlords, who decided which brands would occupy their shopping malls (and gave preference to Vuitton, Gucci and Chanel). The new climate demands executives who are good at visual merchandising and customer service. It is telling that the newish chief of Louis Vuitton in China, Christophe Sadones, has come from the hotel business. Why pay more? However tempting the displays at Beijing’s Shin Kong Place and Shanghai’s Plaza 66, Chinese consumers will do most of their shopping elsewhere. Luxury goods prices in China are 40­-50% higher than in Europe, in part because of high import duties and consumption taxes. Two thirds of Chinese visitors to Britain in 2011 went to Bicester Village, an upmarket discount mall near Oxford. Sightseeing is a secondary concern. Mainlanders in Hong Kong spend 73% of their budget on shopping, says Mr. Rambourg.

China’s commerce ministry has proposed cutting import and consumption taxes to discourage the grey market and boost domestic sales. But in a political climate which frowns on luxury, that is unlikely to happen, so black and grey are likely to remain fashionable colors.
Date:2015-06-05 13:38:45
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