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.

China Daily (Canada) - - IN DEPTH -

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, and, 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’’

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.

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