Luxury goods: Is the shine off ?
Sales of luxury goods from foreign retailers in China are in a slump, causing some to either reduce their operations or avoid entering the fray until things improve, China Daily’s Liu Lian reports from New York.
It’s the largest consumer market in the world, and potentially the largest market for luxury goods. But 2013 was a tough sell for many luxury retailers in China, the world’s second-largest economy. In the footsteps of the country’s lower economic growth, the luxury goods market declined to around 2 percent growth from 7 percent in 2012, with expectations of similarly slow growth in 2014, Bain & Company found in a recent study.
Despite the general slowdown in China, Chinese shoppers are the biggest buyers of luxury goods when they go abroad, according to the Bain study.
For foreign retailers selling luxury goods in the world’s most populous country or who are considering setting up shop there, it may be decision time: Stay and reduce operations? Or stay out until there is a rebound?
“I don’t think brands are going to pull out or new brands will stop investing in China and not be considered to be part of the future,’’ said Gregory J. Furman, founder and chairman of the Luxury Marketing Council. “But I don’t think brands are going to invest aggressively in retail as they were before.’’
“Most people who have been following the news should be having the sense of potential in the long term, which is always the Chinese strategy. Any luxury brand that looks for the long term is not going to be daunted or discouraged by the momentary setback,” said Furman. equation, said Furman, “Why this is valued at 12,000 dollars and why great things command premium price. China is moving in that stage very quickly, much more quickly than any other nation.
“In China, more and more people are moving into the authoritative phrase. They can tell experts what their opinion is and start feeling comfortable knowing what luxury means.
“Meditative is about the experience, the memory of a great product or a service story — the intelligence of being able to say I am in the know, I understand what luxury is. And it’s a reward to oneself for having achieved the ability to understand what luxury is and share it with one’s family.
“It took the US from the late 1970s till the 1990s to get to this meditative stage. China is going to be there in the next five to 10 years. The mainland consumers are moving at a record pace that more and more people will get more and more sophisticated faster and faster.
“It’s a good sign for luxury products and services. Because if people understand inherent value of the craft, the thought, and the imagination that have gone into a product or a service, if they understand that truly, then price does not matter. They will pay anything.” Customers’ preferences
Luxury brands need to have a fundamental understanding of Chinese customers’ likes and dislikes, said Sun. “Some argue that it’s a buying pattern that Chinese like to show off with logos, but I don’t think it’s unique to China.”
“It’s a process by which people move up the food chain in terms of how they view the luxury product and services and how much they are willing to pay for it,” Furman agreed, “it’s a learning curve.”
Where is that education going to take place?
“I think the retail experience is probably THE primary experience of luxury in China because it’s the easiest way with properly trained staff, which is a big issue by the way, to educate the highly sophisticated consumers — the mainland Chinese consumers, the aspirational consumers who want to move up the food chain and spend money on luxury goods. It’s the most direct way to educate the population what luxury is,” said Furman.
In the West, the luxury education is often done by newspapers, magazines, radio and TV. “But in China the media structure has not evolved to the same level yet. To the point that retail is probably the most important and the most powerful way to have customers experience the brand,” he said.
“Chinese are a bit touchy-feely,” said Sun, “they like to feel and touch an item before they bring it home.”
“That’s why a lot of brands invested early on aggressively because they realize that the presence is as much ‘advertising’ as it was a retail business,” said Furman, “many brands were willing to invest even the metrics, meaning the number of the retail performances, was not equivalent what one would experience in the west. But it’s better than advertising.” Online shopping
E-commerce is another arena that luxury brands in China cannot stand to lose. In Bain’s study, 73 percent of consumers use the Internet to learn about luxury goods purchases, and 36 percent of mainland Chinese and 34 percent of Hong Kong respondents indicated that they preferred to shop for luxury online, according to Ruder Finn and Ipsos.
China’s online shopping market is dominated by domestic operators. The biggest two players, tmall.com and 360buy.com, occupy 50 percent and 21 percent of the total B2C market, whereas international online shops represent less than three percent of the market share, said the Knight Frank and Woods Bagot report.
“There are three formats of e-commerce for international brands to operate in China, and they are not mutually exclusive,’’ said Sun. “Brands such as Ralph Lauren opened stores on established e-channels. Some chose to build their own shopping site such as Zara and Coach, and some partnered with e-retailers such as Macy’s 2012 investment in VIPStore Co. in order to launch its brand products on Omei.com.’’
But launching an e-store for luxury brands on one of China’s highly popular domestic e-channels is a double-edged sword. “You don’t want to appear too available to lose the luxury status,” said Sun.
On the other hand, brands may miss out on exposure to a massive customer base and open the door to imitators selling products that masquerade as their own, found the Knight Frank and Woods Bagot report.
“It took Harry Winston five years to do market research before launching its first store in Shanghai,” said Tu.
“The key factor is — and always is — to understand what the Chinese want,” said Young.
“For every one that has failed, there are probably 10 more who have succeeded,” said Lee. Contact the writer at lianliu@chinadailyusa. com
Pedestrians walk past an Hermes store, operated by Hermes International SCA, in Beijing. The French company defied the slump in the sales of luxury goods when it reported record fourth-quarter earnings in China.
Visitors walk past a luxury products dealer’s booth at an event in Beijing.