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Opportunity for Luxury Brands in China

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Opportunity for Luxury Brands in China The European Financial Review Opportunity for luxury brands in China By Ronald Jean Degen China has become the world's second larg- est consumer of luxury goods surpassing in 2008 the U.S. to become, along with Japan, the world's largest purchaser of luxury items with annual growth in demand of 20%. tional French labels and expensive watches. According to the Time global luxury survey (2007), 22% of affluent consumers in China own a Rolex, 66% of affluent Chinese men have bought at least one watch in the past six months, and have paid an average of $2,253 per watch. The most owned luxury fashion brands in China are Lacoste, Valen- The reason Chinese affluent men and with annual growth in demand of 20%. To- tino, Chanel, and Bally. The top luxury beauty women buy Rolex watches and Louis day’s China has an estimated 18 thousand brands are Estée Lauder, Lancôme, and Guer- Vuitton bags are not simply because of billionaires, 440 thousand multimillionaires, lain. More than 50% of the affluent Chinese the Swiss craftsmanship or French de- and a fast rising middle class of around 250 consumers own either a Lancôme or an Es- sign. Their motivation to buy these luxury million who have high purchasing power tée Lauder product. On average, affluent Chi- brands has its roots in the more complex and are eager to spend in luxury goods. nese consumers spend up to USD 280 for a Confucian values and demand for social These wealthy Chinese spend USD 8 billion single skin-care product. Skin care is almost recognition, and the growing influence of on luxury goods in 2007 (Morisset and Lee three times as popular in China as makeup Western values… 2008). and account for 26% to 35% of total cosmetic Chinese yuppies are driving the demand, sales. Luxury market in China buying everything from expensive watches Despite the present gloomy international China has become the world's second larg- to imported cars. Enjoying the sudden eco- economy in the Western countries or emerg- est consumer of luxury goods surpassing in nomic freedom, the newly rich capitalists are ing economies, the still-robust Chinese mar- 2008 the U.S. to become, along with Japan, eager to demonstrate their social standing ket offers the brightest prospect for luxury the world's largest purchaser of luxury items buying the obvious luxury must-haves: tradi- goods in the near future. A good example of 50 August - September 2010 optimism in the Chinese luxury market was the Auto Shanghai 2009 where luxury car The quest for luxury brands in China is the combine of tra- maker Mercedes Benz presented a record ditional pursuit of fine art and craftsmanship, and moder- high number of premieres along with an im- nity represented by the western luxury industry, explains pressive lineup of 35 models. Its rival BMW presented two world debuts, Xiao Lu. three Asian premieres and a sport model es- pecially for China. The general believe is that the rest of the world. Given the scale of the is still present in many cultures where a per- China’s auto sales in 2009 will continue grow- Chinese market, luxury brand that are able son with an Univesity degree is considered ing from the 9.38 million units sold in 2008, to gain and maintain a preferential share of having a superior status to a person doing break the 10 million barrier, and overtake the the Chinese affluent consumers will be able manual labor, the traditional western white US as the world largest market (LI, Fangfang, to sustain their global image and compete in collar and blue collar social difference, and GONG, Zhengzheng, and XIAO, Ma, 2009). equal terms with the future emerging Chi- the lingering suspicion of merchants that The world has become harder to forecast nese luxury brands. don’t produce anything but make a profits and seize future opportunities. The high-end The Chinese will certainly not continue on other people’s work. Veblen (1899, p. 37) consumption and specially the luxury market simply as buyers of western luxury goods. describes this low esteem of labour by the is definitively the area with the highest uncer- It is to be expected that in the near future western social elite: … there are few in the tain factors. The facts are that China has been they will use their rich cultural heritage to better class who are not possessed of an in- the first economy to show improvements develop their own luxury brand to compete stinctive repugnance for the vulgar forms of from the devastating industry downturn that worldwide. They may start with forming joint labour. began in the second half of 2008. The Chi- ventures in other markets or simply acquiring The scholar-bureaucrats of ancient China nese government stimulus policies are start- overseas luxury brands to learn to develop according to Xiao Lu (2008) understood the ing to take effect. In the case of the automo- their own. For this reason it is important for beauty of life and in their leisure time enjoyed bile industry, the stimulus package was felt in established or aspiring Western international classical gardens, lacquered ware, faience the first quarter of 2009, when domestic sales luxury brands managers to understand the and porcelain, gold and jewelry, decoration surpassed the US market for three months in Chinese affluent consumer and how to win and stationary, furniture, white spirits, and a row making China the top automaker of the in the luxury market in China to be sustain- gastronomy. Many scholar-bureaucrats were world. The monthly sales in March reached a ably successful in the global market. also famous poets, painters, and calligraphers record of 1.11 million vehicles, an increase of as can be seen in the in the impressive col- 34.1% from February, and a 5% increase from Luxury consumption in China lection of the Shanghai Museum. They were last year (LI, Fangfang, GONG, Zhengzheng, China has a much longer history of luxury both artists and the patrons-client of artists. and XIAO, Ma, 2009). This means that China consumption by its upper class than the The quest for luxury brands in China ex- will continue to grow and with it the luxury Western world, as can be readily seen in the plains Xiao Lu (2008) is the combine of tradi- goods market. many Chinese and Western museums dis- tional pursuit of fine art and craftsmanship, China being the second largest market playing Chinese bronzes, ceramics, paintings and modernity represented by the western in the world for luxury goods means that no and other historical artifacts. The traditional luxury industry. He points out that the life established or aspiring international luxury Chinese society was organized according to style of the ancient elite still remains in the brand can ignore the Chinese market. Lux- the doctrine of Confucianism and an elite mind of the Chinese people. This explains ury brands to continue or become success- class of scholar-bureaucrats that helped why the rapidly increasing numbers of Chi- ful must win in China to continue wining in the emperor to manage the country. These nese affluent consumers have such a de- scholar-bureaucrats, selected from the young mand for imported western luxury brands, China has a much longer talented people by a national examination but also represents an opportunity for aspir- system, were able to obtain tremendous for- ing Chinese luxury brands to recall the life- history of luxury consump- tune and power through their educational style of their ancestors from China’s long and tion by its upper class and cultural accomplishments. They formed splendid past. than the Western world, as the early Chinese leisure, class as character- can be readily seen in the ized by Thorstein Veblen (1899) in his book Chinese affluent consumer The theory of the leisure class, by incorporat- The generations of Chinese that came to age many Chinese and West- ing conspicuous leisure and consumption in over the last half century have been deeply ern museums displaying their daily lives. affected by massive and social upheavals Chinese bronzes, ceramics The scholar-bureaucrats were at the top starting from the formation of the Republic and paintings. of Confucian social ranking, followed by the of China and the end of the Qing Dynasty in farmers, the artisan, and, last of all, the de- 1912 that put an end to over two thousand spised merchants. Remains of this hierarchy years of imperial rule, the war of resistance www.europeanfinancialreview.com 51 The European Financial Review today’s China education and the prestige of the university attended is Affluence a key factor toward social prestige and better paid employment in the tradition of the scholar-bureaucrats of ancient China. 4. Young emperor generation refers to those born after the marked reform started in 1978, and after the ‘one child’ policy was introduced in 1979 by the Chinese government. This generation was born into a new era in China represented by the marked economy and in a family context where a single child is the norm. They were Professional Entrepreneurial Political inheritance dubbed the ‘young emperors’ because they grew up spoiled as no pathway pathway pathway children in China had for generations. This because their parents dot- ed on their single child, assisted enthusiastically by the grandparents. This generation is the best educated, most confident, and ambitious among all the living generations in China. They are self-centered, fre- quently self-indulgent, and the most avid and savvy consumers. This generation is also called the ‘one child’ or ‘me’ generation. The last three generations – Cultural Revolution, upward mobil- ity, and young emperor generations – have clearly abandoned the revolutionary ideals for collective prosperity and socialist equality for personal affluence by one of the three possible pathways illustrated The cultural revolution, upward mobility, and young emperor generations in Figure 1: the professional pathway, the entrepreneurial pathway, and the political inheritance pathway (Hedrick-Wong, 2007, p.
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