Long gone are the days when China was simply “the world’s factory”, churning out cheap, low-end products for sale in the West. These days brands have seen the spending power in China and cannot afford to ignore “Made for China”, a very different and better strategy for them than just “Made in China”.
The fact is that the Chinese love luxury brands, especially women who are enjoying greater status in society and the workplace than ever before. Those brands with a European heritage are especially desirable. Research from KPMG (Luxury Brands in China, 2007) shows that the Chinese regard owners of luxury brands as successful and having good taste, that they do not regard them as “superficial”, and that over half of their respondents said they longed to buy luxury goods even if they couldn’t afford them at present.
Hermes is one brand that has recently responded to this yearning for affordable luxury in a highly innovative move that sees them being the first foreign fashion brand to launch a new label in China. Their new label, “Shang xia” (Up and below), was launched in Shanghai in September 2010 and has its own design team. It will make and sell clothes and accessories based on Chinese styles and know-how and with the kudos of Hermes behind it. The move is expected to give them a unique competitive advantage against brands such as Chanel and Louis Vuitton which are already well established in China.
Burberry, a brand with a popular and distinctively British sensibility, have drastically changed their strategy by buying out their franchise partner in China in a £70m deal, enabling Burberry to take control of its own customer services, marketing and IT strategy. The group has 50 stores in 30 cities which contributed towards total sales of £75m in 2009 and operating profits of £14m. Their intention is to complement their drive for sales in these and new stores with digital marketing.
Having worked with Burberry translating some of their contracts, we can see how important careful planning and detailed contracts are when establishing a presence – or implementing a new strategy – in China.
Without this clear understanding of the Chinese market and attitude to luxury brands, other companies have faced some problems. The Cath Kidston brand is popular in China, as well as in Hong Kong, Japan and South Korea, but it is very easy to buy counterfeit products on-line and even in the local food markets. Some of the counterfeit versions were even available before Cath Kidston’s official launch of the new season’s range. Perhaps a strategy of providing an “affordable luxury” version of the brand as Hermes has done would help.
That said, Cath Kidston is still one of the luxury brands that is managing to defy the global economic downturn with a strategy of international trade. With above-average growth for this sector in Asia substantially attributable to the Chinese hunger for luxury goods, it is becoming an even more attractive proposition for UK and European brands to capitalise on creatively.
So what should you be considering if you decide to take this plunge?
Even with brands boasting sales on the scales of Burberry and others, the Chinese luxury market is still in its infancy. As the emerging middle class moves away from long-held habits of putting savings first and foremost to a trend towards rewarding themselves for their success, it is going to grow much further. KPMG suggest that brands should look out for these profiles of customer:
- The traditional business elite – typically male, over 35 and holding senior positions;
- The new luxury shopper – newly rich, between 20 and 40 and with a different mindset to their parents, much more willing to spend on brands and less concerned with saving for old age;
- Empowered women – including business women, celebrities and newly independent rich wives whose buying power is predicted to rise;
- Little Emperors – the most brand-conscious of all, this generation of only-children is emerging into teens and early adulthood accustomed to having a household’s disposable income spent on them.
Marketing and branding are essential to establishing yourself in the luxury market. Strategies could include developing diffusion or local lines to attract those customers who want little piece of luxury without the cost and to start to build their brand loyalty. Using a local partner can be important for brands that need some extra support in establishing their foothold and “Made in China” can become an advantage again if working with local suppliers suits your strategy.