Luxury brands’ new China challenge

Growth in China’s luxury goods market is having an unexpected side effect: the more available brands such as Louis Vuitton become, the less they are in demand by cashed-up ‘elite’ shoppers.

When rumor says that even maids can afford to buy a monogrammed Louis Vuitton handbag, the very rich are reportedly making a switch to less high profile merchandise from Chanel, Hermes and Prada. The trend is itself a sign that a maturing Chinese market for luxury goods is no longer just supplying up-starters with “must-have” items, according to analysts. Recent consumer trends in the upscale market highlight discrete refinement and personal style.

Vincent Liu, partner at Boston Consulting Group, phrases it thus: “In the past, it was just a checklist. If you were one of the top five brands out of some magazine, you found that people in China just checked the checklist and bought according to the list. Going forward, people will be more selective. They know what and where and when to use which brands and products.”

Shaun Rein, MD of China Market Research Group has also observed this so-called ‘elitist trend’: “The truly wealthy, the real millionaires, they will not want to buy Louis Vuitton or Gucci because they are too commonplace. Rich people are getting richer and they want exclusiveness and more self-indulgence.”

Partner at business strategists Monitor Group, Torsten Stocker says that exclusivity is embedded in the notion of luxury. Consumers don’t want something everyone else has.

“It’s always a fine line that the brands need to tread.”

However, due to their constantly widening consumer base, established brands under Louis Vuitton’s parent LVMH and Gucci’s PPR SA are still enjoying a highly profitable presence in China’s luxury goods market. LVMH is the bigger player in the market with earnings about double those of Gucci. Hermes is the third most preferred luxury brand.

The growth forecast in China’s market for luxury goods is 18 to 20 per cent this year. At the present rate, it will overtake Japan and the US as the world’s largest luxury goods market in just three years: reaching 180 billion yuan (US$28.25 billion), up from at least 160 billion yuan (US$25.11 billion) today. China has 38 Louis Vuitton stores, Japan  about 57.

With the opening of a new store at Plaza 66 in Shanghai, LVMH will, according to the company, “gain a brand new lead on the market”.

But analysts warn that to continue to grow, the company needs to re-emphasise its brand exclusivity by ensuring consumers do not perceive Louis Vuitton is easily accessible and easily copied.



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