Fashion China: promised land for luxury goods!

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According to the Boston Consulting Group, China will become the world’s largest luxury market in 2012. The superpower of the Middle Empire beckons and sparks all interest. Last December, a conference organized by the international Luxury Business Association exposed expected changes in a “strategic” population.

Up until 1820, China was the world’s first power. Everything indicates that it will soon become the first world power again. The annual GDP growth rate (8%) clearly surpasses the world’s economy. However, the case of China divides. Will its growth continue? If so, at what pace? Even it all goes very quickly, China is huge, very heterogeneous, and extremely complex: so many elements that should not be overlooked. Françoise Lemoine, Senior Economist at CEPII, bases here statement on three studies (Goldman Sachs, Standard Chartered BK, CEPII) saying that “the Chinese economy could surpass the United States in twenty years if the growth rate continues at the same pace”. Two closely related factors prove her right: urban development to accommodate a predicted 300 million new urban dwellers between 2010 and 2030 and the inescapable increase in purchase power. “Average income could be multiplied by four by 2025”, she points out. As for high-income social classes – “those that are currently the fastest developing will create an increasing demand for high end import products” Jean Marc Bellaïche, partner and managing director at BCG, confirms: “In 2020, 330 Chinese cities will have a higher standard of living than that of Shanghai”. He continues. “Growth in the luxury market will correspond to new consumer, 1/3 already in purchases.” Because this market – estimated at 40 billion euros in 2010 – is in full expansion. This year, bags, jewelry products was also half as important as that of intangible luxury products, also called experience products, including travel, fine restaurants, spas, high technology for which the Chinese are fonder than the Japanese…a strong indicator, according to Jean-Marc Bellaïche, “China is clearly a maturing country”.

“Luxophile”

Luxury, appearing at the end of the 90s, is a fairly recent yet major notion in Chinese culture. To better understand it, Rémy Oudghiri, Manager in the luxury sector at Ipsos, says that the Chinese of today are the Japanese of yesterday…those from the 80-90s when the Nipponese archipelago became the world’s leading luxury market. They share surprising similarities: flawless optimism, total self-confidence, the certitude for 81% of Chinese that through “hard work, you always succeed in the end”. In a society where the group and what others think rules, luxury, like a supreme reward, is a concentration of all values: social success, power, prestige. “It is perceived as a necessity”, adds the expert. “It valorizes the individual”. Therefore, it is no surprise that the Chinese are the most “luxophile” people in the world, especially since the majority of consumers are young (25-40), informed and avid for news products. China even holds the record for “young millionaires” – 80% are under 45. Currently, Chinsese men account for 70% of consumers, which particularly explains the huge amount of watches in the sector. The Chinese consumer travels more often and one out of two Chinese consumers now purchases luxury products outside of continental China. While Jean-Marc Bellaïche predicts “that luxury products will triple” pleasure shopping is increasingly becoming a national sport…65% state that they adore shopping. We should not overlook women who are also attached to brands, logos, western luxury brands, logos, western luxury labels, and quality. All are essential criteria for investing in China. Although the Chinese consumer as still very recently considered a “poorly educated consumer”, consumer education has stepped up. The Chinese consumer wants to know everything about brands and likes to “evaluate” brand notoriety while travelling abroad, spending an average of 2H/day on the web where the consumer has already started purchasing products – online sales increased 117% in 2009. “The elite class is probably going to become sophisticated faster than it did in Japan” adds Rémy Oudghiri, “because globalization accelerates luxury education for the consumer”.

The challenges that await companies

Jean-Marc Bellaïche: “Maturation will be accelerated. Therefore, it is important to take position quickly. It is difficult to find the right pace for setting up a shop. You have to go to China on a regular basis, find onsite advice. In order to reach 80% of the middle class, you need to locate in many cities. Even though marketing is difficult, the Chinese consumer likes brands and wants to know them. When investing in the Chinese market, you should not neglect other mature markets, such as the United States and Germany”.

Rémy Oudghiri: “Companies will have to adapt their offer to the diversity of consumers. They will also have to resist going for easy money without compromising on quality. The Chinese love well-made products and a lower price depreciates brand image for Chinese consumers. Companies will have to be vigilant about counterfeit products that are well rooted in Chinese culture. Controlling distribution is the best defense for avoiding attacks on brand image.”

Text: Nadine Guérin

Publication: Sacastar.com French online bag store.

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