Luxury brands worried about declining sales in their traditional markets in the face of ongoing economic uncertainty in the west should perhaps turn their attention (and marketing budgets) eastward.
As the Chinese economy continues to expand, the nation has quickly become one of the hottest markets for luxury goods and services, currently forming about 10% of the global luxury market.
Harrods, London - Image via Michael Caven on Flickr
Social status and aspiration
While the average income in China is still considerably less than in most western countries, the small percentage of the Chinese population who do control the bulk of the country’s wealth (and even segments of the middle class which have grown more affluent in recent years) are extremely status conscious.
Luxury products and brands with elite cachet are seen as a necessary display of their own social and financial position. Thus, designer clothes, accessories and other products are seen as hugely desirable purchases – even if this entails a great deal of scrimping in other aspects of their budgets.
As a result, luxury brands such as Louis Vuitton and Mulberry are expanding their operations in China, opening a range of new shops in major spending centres such as Beijing and Shanghai. However, luxury products are taxed at a very high rate (between 20% and 50%, depending on the product), and many Chinese shoppers still prefer to go abroad to purchase luxury products at their point of origin.
Thousands of Chinese travellers visit such cities as Paris and Milan – which have a solid reputation for high-end shopping – on specialised shopping tours, arriving at designer showrooms by the busload. The theory is that a better selection of the very latest designer creations is available outside China, plus the travel itself has social prestige and lends added allure to the resulting purchases.
The problem of supply vs. demand
While this new market is good news for luxury retailers who are worried about their bottom line, the trend does create some unanticipated problems, especially for such top-end brands as Louis Vuitton, whose largest single consumer group is now the Chinese.
During peak travel periods, the arrival of busloads of Chinese shoppers can lead to inventory problems for some of the more popular shops in Paris – sometimes making it necessary to ration more popular items – as well as create staffing issues, as shop assistants struggle to provide the same high-end experience to all shoppers.
Similarly, the Scotch Whisky Association is predicting that the massive increase in exports to Asian (and chiefly Chinese) markets could lead to shortages in supply, especially as whisky is facing a ten or fifteen-year lag in production. The spike in exports is again attributable to whisky’s image as a status symbol for the image-conscious.
Adapting to the new super power shopper
Still, most shops welcome the business. Britain in particular is courting its increasing number of visiting Chinese shoppers, with VisitBritain last year staging a promotional tour in Shanghai and Beijing to introduce luxury British brands.
On the home front, larger department stores like Harrods are employing Mandarin-speaking staff to assist their new Chinese customers, while Bicester Village has taken things a step further by offering a Mandarin-language concierge service to help smooth the shopping experience.
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February 7, 2012
lifestyle