In China, Luxury Is About More Than High-End Labels

In China, Luxury Is About More Than High-End Labels


There was a time, not too long ago, when all a luxury goods maker had to do to make a sale in China was to make sure their label was prominent enough. Customers wanted quality, of course, but what they wanted as much or more was the caché that such a purchase conveyed. Those days are over. Like the Chinese economy itself, the country’s luxury goods sector has matured. What matters now is style—and it matters a whole lot more than you might think. Chinese buyers now account for about a quarter of all global luxury goods sales, a larger share than any other country, according to Credit Suisse’s luxury goods analyst Rogerio Fujimori. The success or failure of a high-end brand now depends as much on satisfying the whims of China’s increasingly discerning consumers as it does on the Fashion Week in New York or Milan.For proof of this fact, one need look no further than Apple’s gold iPhone 5s. The precious metal is an important signifier of affluence and upward mobility in Chinese culture, so much so that China is poised to overtake India this year as the world’s largest gold importer. Despite questions from skeptical Apple-watchers in the lead-up to the launch, it turned out that the Cupertino tastemaker once again knew better than the rest of us, and Chinese customers have been in a frenzy to get their hands on what they see as the ultimate status-symbol accessory since its release in September—iPhone sales in China surged 25 percent year-over-year in the quarter ended Sept. 28. Chinese media have gone so far as to dub the new phone “Tuhao Jin,” which translates as “local tyrant’s gold.”

So Apple is in on the streets of Beijing and Shanghai. What’s out? The logo-emblazoned designer handbag. Louis Vuitton developed the Chinese market from scratch when the brand opened its first store there in 1992, but according to the latest China Luxury Survey from Credit Suisse, its logo-heavy wares are starting to lag more subtle latecomers. “Louis Vuitton and Gucci are more established in China than other labels,” explains Fujimori. “But today, they’ve got real competition. Prada, in particular, is doing well with its less flashy, more low-key style.” Others making inroads, according to Fujimori: Bottega Veneta, Burberry, Chanel, Coach, Hermès, Tiffany, and Hong Kong-based Chow Tai Fook.

The challenges facing two other storied brands, Rolex and Cartier, are quite different. “Luxury watchmakers have been hit hard in the last 15 months,” Fujimori says. Watch companies selling mid-priced timepieces, on the other hand, such as Tissot and the rest of the Swatch Group, are excelling. That’s not because wealthy customers suddenly can’t afford Rolexes – it’s because of a major crackdown on official corruption by China’s top leadership. That, in turn, put a brake on sales of the high-end timepieces that served as the gift of choice for those seeking to curry favor with government officials.

Coach and Tiffany are the only American luxury brands currently hitting the right notes in China, says Fujimori. And the powers that be have taken note: U.S. Vogue editor-in-chief Anna Wintour felt the need to encourage American brands to make a bigger push in China during a November 2010 speech at the Central Academy of Fine Arts in Beijing. Not that Wintour had exactly raced there herself – the trip was her first-ever visit to the country.

Luxury brands have another problem in China, though, and it’s that unlike in the U.S. and elsewhere, Chinese women do not necessarily do what Anna Wintour tells them to do. That role belongs to a bevy of local actresses, models and retailers, such as 25-year-old Liu Wen, the first Asian model to walk a Victoria’s Secret show in 2009, and who was dubbed “China’s first bona fide supermodel” by the New York Times last year. A black leather jacket from a capsule collection called ‘The New Icons” that Wen helped design for H&M sold out rapidly.

With 57 million fans, 34-year-old actress Yao Chen is the most-followed person on Sina Weibo, China’s enormously popular microblogging service. When she posts photos or comments from a fashion show, her preferences are re-shared by millions of young women. Vogue China’s editor-in-chief Angelica Cheung is also an active user, as are Wen and another popular model, Sun Fei Fei. Savvy brands have embraced the service, too. Louis Vuitton launched a Weibo presence in October 2010, followed in 2011 by Burberry, Chanel, and Gucci.

Earlier this year, high-end online retailer Net-a-Porter launched a Chinese site helmed by Adrienne Ma, the youngest daughter of Hong Kong fashion maven Joyce Ma. The elder Ma opened Joyce Boutique in 1970 and brought labels like Prada and Giorgio Armani to Hong Kong. Her daughter wants to do it all over again in China, but this time over the Internet, selling currently hot brands like Miuccia Prada’s Miu Miu and the French label Chloe.

While broadband access and e-commerce are both skyrocketing in China, consumers have yet to fully embrace the purchase of ultra-expensive goods online. That’s for three reasons, says Fujimori—concerns about authenticity, the desire for a sumptuous shopping experience and a price advantage that comes from buying abroad. “In China, you need to worry more than in other countries about fakes,” he says. “Plus, luxury shopping is all about the experience.” Many shoppers choose to have that experience overseas, rather than online. The Chinese are buying more luxury goods in Europe than ever before, partly because international travel is on the rise, but also because luxury goods are actually cheaper in Paris or Milan than in Beijing or Shanghai. Still, the desire to serve customers who can’t or don’t want to wait for a European vacation to splurge has created fierce competition for prime retail locations in Shanghai and Beijing, proving that brick-and-mortar is still king in the Chinese world of high-priced designer clothes and accessories. “Perhaps more than any other market, flagship stores really are the face of the brand in China, so you need to be in the right location,” Fujimori says. Stores are ramping up customer service and offering VIP areas and special events, he explains, all aimed at maintaining an air of exclusivity for well-heeled shoppers.

If Chinese consumers’ new selectivity has made it a little harder for luxury goods makers to make each and every sale, the good news is that the total number of those sales is only going to get bigger. China is home to less than 4 percent of the people worth $1 million or more in the world, but the proportion is expected to rise to nearly 47 percent by 2073, according to Credit Suisse’s Global Wealth Report, which projected how the world’s wealth distribution would change in 60 years if current growth trends continue. It’s always hard to predict how tastes will change in a rapidly expanding market, but one thing is for sure – as European fashion houses and other luxury purveyors shape their lines in coming seasons, it will be with Chinese consumers in mind.

The Financialist is a digital magazine presented by Credit Suisse that looks at the trends and ideas that drive markets, businesses and economies.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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