China is now a two sided medal for luxury brands
According to a Wall Street Journal report, the overall demand in China for top luxury brands is slowing. On the other hand, second tier names are busy and leading a new trend
As we all know, China has started an anti-corruption campaign and this has led to a change for the top ranking luxury brands.
American Bain & Co. expects luxury goods sales in China still at USD 21 billion, or up by 2.5 % (20 %). Top brands have created themselves a overexposure in China’s cities and this presence is starting to harm their business. For instance Louis Vuitton has more than 40 stores in China, however it is present since 40 years. From Gucci we know that sales were down in China in the third quarter.
China seems to remain a market of opportunity to luxury brands. However this is only one side of the medal. The reverse side of the medal tells us, that the more sophisticated the market will become, the more second tier brands will be doing better. For instance, handbags from Coach costing only a third of the ones made by Louis Vuitton, these were up 35 % in the third quarter of 2013 as against 2012.
It is certainly not only the question of cheaper priced luxury, rather that the Chinese customer is becoming more selective and knowledgeable. Chinese start also to look for more value for their money, as well as for products that others don’t have and for new ways to express themselves.
Givenchy, to some degree less known in China than Louis Vuitton, will triple its stores to 30 in China over the next two years. British designer label Stella McCartney (with Kering as a stakeholder) launched a flagship store in Beijing in the ongoing year and expects to add one in Chengdu.
It is no longer the decision to be taken how many stores a company will open in China, it is a question to be innovative by finding new ways to offer a product and to design it, in other words to rejuvenate the offerings and to cater more to Chinese tastes.
Swarovski (jewellery) has commissioned a survey that reveals that more than 75 % of Chinese consumers favour trying new brands, in the U.S. this mark is slightly over 40 %.
Blue Bell Asia Ltd., running franchises for European brands in Asia, sold five years ago its interest in the Chinese joint venture of Italian fashion house Moschino, but finds now it is time to return to Chinese market. Ashley Micklewright, President and CEO of the company states: “Before, the biggest challenge was to find good retail space in China, since it was limited and landlords were going with safe bets – this being the big boys. Consumers wanted the most well known brands as they experienced luxury for the first time.
All in all it is obvious that the Chinese market is not only influenced by economic conditions, but more and more by consumer sentiment and taste, also in the luxury brand sector. In addition there is to note that Chinese travel a lot more abroad than they ever did before and they learn to compare. Finally, they tend to find unique things and not the same products all over the world, just as probably every one of us is feeling the same!