360° Coverage : The China Luxury Downturn Is Real - Global Luxury Brands Must...

1 Updates
The China Luxury Downturn Is Real - Global Luxury Brands Must Adjust

The China Luxury Downturn Is Real - Global Luxury Brands Must Adjust

Jan 17 2014, 11:46am CST | by

吃苦 (chī kǔ): To Eat Bitterness.  For centuries Chinese people have used this term to teach and remind themselves and their children that it is important to endure hardship, to develop a thick skin...

Filed under: news

 
 
 

40 weeks ago

The China Luxury Downturn Is Real - Global Luxury Brands Must Adjust

Jan 17 2014, 11:46am CST | by

吃苦 (chī kǔ): To Eat Bitterness.  For centuries Chinese people have used this term to teach and remind themselves and their children that it is important to endure hardship, to develop a thick skin and to keep persevering no matter how many obstacles are put in your way, and ultimately you will get through tough times and succeed.

Luxury companies currently operating in China and those who are considering market entry are looking back on 2013 as a period where growth in the premium luxury market slowed and the trend is looking to continue in 2014.

Things were especially hard for companies that depend on gifting (an important cultural and business practice in China) and for high end restaurants and beverage purveyors.

I have preached Chi Ku as a corporate philosophy to the hundreds of companies that I have worked with on entering and growing in China over the last twelve years and advise Luxury brands to internalize it now as well.  While there is an overall downturn, marked by steeper drops in some categories than others, and marked by upticks in others, the overall trajectory of the luxury industry, like that of the overall consumer market in China is still pointing up.

Here we will look at why there has been a downturn, why luxury companies should stay the course and where the opportunities for continued growth are even during a slowdown.

A number factors have driven growth down to about 2% from 7%-15% over the last few years.

1.    President Xi Jingping is intent of making a huge dent in the endemic corruption in Chinese politics and business.  Luxury items are sometimes used as a form of currency for favors and Guanxi (recipricol relationships).  One way Beijing is enforcing its anti-corruption edicts is by cracking down of gift giving, government group buying and conspicuous consumption.  They also see luxury buying as an outcome of officlas receiving Hongbao (payoffs.bribes). All of this is making some wealthy Chinese private citizens and public employees think twice about buying and wearing $50,000 watches and $10,000 suits and drinking $1,000 bottles of Baiju at nightly banquets.

2.     The desire for and increased sales of “Accessible Luxuy” brands (a sub-category of luxury below premium luxury) has been a key growth driver in the China luxury  market.  This trend is also fueling a desire among the nouveu riche as well as emerging middle class luxury consumers for the casual luxury of American brands and lifestyle living. This has had an effect on top-tier luxury products but has also been a bright spot.  Brands like COACH, Michael Kors and Tory Burch are thriving in China.

3.    Chinese luxury spending on the mainland is down in part because Chinese global consumer purchases are up in the rest of the world. Almost 60% of all luxury purchase made by Chinese citizen happen outside the mainland.

4.     Chinese luxury consumers are turning increasingly toward spending their ample disposable income on lifestyle purchases in addition to pure social status products.

Roy Graff, an expert in Chinese luxury travel and hospitality and founder of China Edge also points out that “the intense competition among established and new entrants to the Chinese luxury market” has affected growth for established brands and that “the growth of e-commerce has driven prices and value down for many of the previously highly desirable brands.” Online sales of brands like GUCCI and PRADA have increased and are not always sold through brand sanctioned platforms.

This has made some Luxury companies nervous. Some are considering slowing their China growth and others are even considering pulling out altogether.  Sidelining, shrinking or avoiding China is a huge mistake for luxury companies as this slowdown is a temporary situation and long-term China is and will be the most important luxury market in the world.

Some key reasons for luxury brands to continue investing in China as a long-term growth market and not to make impulsive short-term decisions are:

  • China’s
  • After 30 years of exponential  economic growth and development, China’s economy is slowing, but this is relative, from 10% to 6%-7%, which is still robust – luxury purchases will continue to grow with the economy in general.
  • Urbanization and an ever enlarging middle and upper class is fueling further growth for the best things in life – While 1st Tier cities and regions have been saturated, the new growth will come from Tier 2, , 3, 4 and 5 cities, representing another potential 300 million new luxury buyers.
  • Current events and government policy are always fluid in China.  When the differences between legitimate and illegitimate purchases are sorted  out “this too shall pass.”
  • The accessible luxury market will continue to grow and prosper

Sage Brennan, co-founder of  the consultancy China Luxury Advisors and an expert in Chinese luxury branding and retail says that “nothing has really changed, there are always ups and downs in the China market, this is a down, but the consumer is still spending, they just might not be spending where the brand is investing”.  Brennan also notes that “Growth over the last few years has come from lower tier cities and that will deep and be long-lasting trend, along with overseas spending.  “Brands need to focus on these realities.”

There are some key strategies luxury brands can implement to prosper in a temporary downturn that will also have long-term positive benefits.

  • Invest in identifying, attracting, serving and retaining the Global China Traveler. More than 100 million Chinese will be traveling abroad in the next couple of years and almost 60% of Chinese luxury purchases are made outside the mainland. Luxury brands must invest in the global and lifestyle desires and needs or Chinese luxury consumers.
  • Integrate domestic, global and China operations more closely.
  • Invest in more robust e-commerce and social media strategies inside the China market.
  • Rethink product lines, price points and merchandising.
  • Focus on Tier 2,3, and 4 cities.

Roy Graff also says that “brands must better manage a global inventory and sales system that understands how Chinese approach luxury purchasing. The Chinese customer is now global. The sooner those companies understand this the better. In most cases, China is a separate profit center, competing with other regions for the same customer. Thus, they do not share data across national borders.”

The premium luxury market has definitely slowed, but it will pick up again soon and in my opinion may grow even faster in the next ten years because of the established luxury demographic cohorts and the 300-400 million more potential buyers coming on line.  Luxury brands and retailers need to stay the course , continue to invest in China, but need to adjust their strategies for both short and long-term growth. Luxury companies must “eat bitterness”  for now with promise of sweets served for dessert.

Source: Forbes Business

 
Update
1

8 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

N-deal possible in a month: Iranian president
Tehran, Oct 28 (IANS) Iranian President Hassan Rouhani has said that a final nuclear deal between Tehran and the six world powers may be possible within a month.
 
 
Sleeping with more women reduces prostate cancer risk: Study
Toronto, Oct 28 (IANS) As compared to men who have had only one partner during their lifetime, having sex with more than 20 women is associated with a 28 percent lower risk of being diagnosed with prostate cancer, research shows.
 
 
Population reduction no answer to environmental problems
Melbourne, Oct 28 (IANS) Policies targetting population reduction will not immediately solve issues of global sustainability simply because the world population is now so huge that there is no quick fix to the "virtually locked-in" population growth, a reserach has said.
 
 
Google offers free access to satellite images
New York, Oct 28 (IANS) Tracking melting glaciers, deforestation or disappearing elephants has been made easier as Google has now allowed access to real time, updated satellite images through its Skybox programme.
 
 
 

Latest from the Network

Pistorius prosecutors to appeal verdict, sentence
Johannesburg, Oct 28 (IANS/EFE) South African prosecutors involved in the Oscar Pistorius case will appeal the verdict and sentence on the double-amputee Olympic athlete's manslaughter conviction, which resulted in a...
Read more on Politics Balla
 
Racers from 24 nations to compete in Mexico's Baja 1000
Mexico City, Oct 28 (IANS) The 2014 Baja 1000 off-road race through Mexico's Baja California Peninsula will feature competitors from 24 countries, organisers said. The competition, now in its 47th edition, will take...
Read more on Sport Balla
 
Pakistanis protest India's 'occupation' in Kashmir
Islamabad, Oct 28 (IANS) Pakistanis across the world held demonstrations to mark the anniversary of what they termed as India's invasion and occupation of Kashmir Oct 27, 1947, media reported Tuesday. The Pakistani...
Read more on Politics Balla
 
New Zealand, US to hold joint military exercise
Wellington, Oct 28 (IANS) New Zealand and the US will conduct a month-long joint military exercise next month to test their deployment agility. The New Zealand Defence Force (NZDF) Tuesday said that its army and air...
Read more on Politics Balla
 
Pakistan prepares to cope with cyclone
Islamabad, Oct 28 (IANS) Pakistan is gearing up to cope with a cyclone headed its way. National Disaster Management Authority (NDMA) has been asked to take necessary measures to meet the challenge posed by cyclone...
Read more on Politics Balla
 
Future-focused women fight climate change better
Washington, Oct 28 (IANS) Future-oriented women are more likely to take concrete steps to reduce global warming, says a study. "They are more politically liberal and liberals are more likely to value the environment...
Read more on Politics Balla
 
Infants know what your eyes tell
New York, Oct 28 (IANS) The ability to respond to eye cues develops during infancy - at seven or so months, finds research. "Our study provides developmental evidence for the notion that humans possess specific brain...
Read more on Business Balla
 
US concerned over Israeli decision on new homes
Washington, Oct 28 (IANS) The US is "deeply concerned" by reports that Israel would build more settler homes in east Jerusalem, the state department has said. "Israel's leaders have said they would support a pathway...
Read more on Politics Balla
 
Malaysian diplomat on sex attack charge granted bail
Wellington, Oct 28 (IANS) A Malaysian diplomat accused of a sex attack on a young woman here in May was granted bail on his second appearance since his extradition in the Wellington District Court Tuesday. Former...
Read more on Politics Balla
 
NASA tool to identify drought-resilient plants
Washington, Oct 28 (IANS) The US space agency is developing a new space-based instrument to study how plants react to heat and water stress and identify drought-resilient plants. The instrument called the ECOsystem...
Read more on Business Balla