It’s Up, It’s Down: Reading the Tea Leaves on China’s Luxury Market


“Fashion industry struck by China lowdown” reads The Independent headline for a story about British luxury fashion brand Mulberry‘s warning that it “fears Asian demand for luxury goods has peaked.” This peak is likely why luxury handbag maker Coach recently announced its sales in China were up by 40 percent. Wait, what?!

Is China’s luxury market cratering? Or is it the one area that remains booming despite an overall economic slowdown? Could it be both? Grab a glass and pour yourself a stiff one from that $2,000 bottle of whisky from Shanghai’s red hot Johnnie Walker House as we look at the doomed, only-bright-spot of China’s market for luxury brands.[more]

“Nobody knows what’s going to happen in the next six months,” Avery Booker, editor for China luxury blog Jing Daily, told brandchannel. “But while some brands are fumbling in the darkness and happening upon piles of money, others are finding piles of…let’s say, garbage.”

In a recent long breakdown of luxury fashion brand prospects in China, Booker calls out Hermes, Lanvin, Dior, and Prada as “up.” No wonder Prada’s CEO thinks everyone should just “stay calm and be less hysterical.” 

In the “down” category are Louis Vuitton, Burberry, Hugo Boss, and, for obvious reasons, Zadig + Voltaire. For Gucci and Armani, Booker says it is “too early to tell.”

Beyond fashion, other luxury sectors are experiencing the same choppy conditions.

Earlier this year, China was named the world’s top market for luxury watches. Alas, some luxury watch brands have watched in horror as sales fell 50 percent from highs. Exactly what’s to be done about the slowdown in luxury watches is not exactly clear.

Maybe inspired by Luis Vuitton’s recent train-to-Shanghai stunt, watchmaker Breitling is sending jets. Mid-November’s Airshow China 2012 will see the arrival of the brand’s own jet team. The gambit is called the “Brietling Dragon Tour,” because, when in doubt with a China marketing strategy, just do dragons.

If the market for luxury watches is, like Breitling’s promo gambit, “up in the air,” then the market for luxury automobile is firmly on solid ground.

In September, both Audi and Mercedes saw YOY sales increase by double digits. Mercedes saw a 10 percent gain while Audi logged a 20 percent jump. But everyone took a backseat to BMW, which claimed an astounding 59 percent YOY increase in sales. China accounted for a 20th of all BMW’s business in 2007 and the nation now accounts for nearly 20 percent of the German brand’s sales.

Despite its incredible success, BMW Group chief financial officer, Friedrich Eichiner, recently attempted to manage expectations, telling The Economic Times, “Annual growth rates exceeding 30 percent are not possible over the long term, even if we see double-digit growth in the mid-term.”

Meanwhile, Bentley has seen its sales jump 26 percent over last year. The brand does not sell a car for less than $180,000.

And then there is the seemingly perennial growth area of luxury booze. Diageo’s Reserve Brands unit said recently it has seen a “strong double-digit” sales increase in China. Part of that growth is driven by “heritage” brands sold as a lifestyle consumption experience. One example is Diageo’s Johnnie Walker House in Shanghai. Opened one year ago, the posh bar is a spot where well-heeled Chinese drinkers can grab a 1910 Commemorative Edition bottle of scotch, so named to “mark the year that Johnnie Walker was first enjoyed in China.”

Of course in 1910 was the same year the fattened, elite Qing nobility went about their business oblivious to there fact that one year later it would be consumed by a peasant revolution. But if a peasant revolution of any kind in China’s luxury market is coming anytime soon it’s a movement inland and away from the cosmoplitan first-tier cities like Shanghai and Beijing. But emerging luxury brand customers will not jump from driving an electric scooter to a BMW 7 Series. There will also be tiered luxury.

After Coach reported its surprising China numbers, the brand’s CEO, Lew Frankfort, went on CNBC and put its success in perspective: “With regard to China, our position is an accessible luxury brand which means our price points are 40-60 percent lower than the average European luxury brands. So our products are more in reach for the emerging middle class.”

So is China’s next wave of luxury growth going to occur in the “accessible” luxury category?

In a recent interview with Shanghai’s business intelligence firm Z.H. Tank, Andrew Tan of Reckitt Benckiser said that by 2020, much of the predicted 11 percent growth in China’s retail sales sector will come from the middle class living in the nation’s “second and third tier” cities. And a lot of that retail will be focused on luxury and attainable luxury, such as Coach, Starbucks and BMW. Last December, BMW launched its entry model 1 Series in China priced at just 278,000 yuan (about $44,000). In his talk, Tan pointed out that, ironically enough, some of this retail growth in second and third tiers will come from the millions of dollars that migrant workers in first tier cities send back to their families.

Avery Booker echoes this observation, telling brandchannel that a large number of factors are converging now to cause a slowdown for luxury brands in top tier cities. He adds, “Brands that have put more effort in quieter expansion into the interior of the country in recent years, for example Coach and BMW, are simply benefitting from the organic creation of the new consumer class there rather than working any magic.”

The maturation of luxury consumers outside the choked first tier cities is also driving what growth there is in the market. For example, Shangri-La’s most recent luxury hotel is not in Shanghai or Shenzhen, but in Changzhou, Jiangsu Province.


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