Promising Chinese Luxury Market I

       When talking about luxury goods, most people think about the famous designer original in Europe,  long brand history, always owned by the celebrities and wealthy people.  Now a days, the China and Chinese consumers also become one of the keywords related to luxury. Actually, more and more younger and richer generations prefer to own a luxury good, pushing the luxury products sales in China. As incomes rise, China’s burgeoning middle class is adopting previously unattainable high-end lifestyles and is transitioning from a saving to spending culture.  A CLSA(Asia-Pacific Markets) survey of 340 consumers and 31 luxury store managers in China’s Tier 1-3 cities found that more than half have made or are planning a luxury purchase. Those who bought luxury goods in the past 12 months spent an average 10-12% of their total household income on these items, demonstrating a high propensity to spend.



       Luxury goods companies are expanding rapidly in China to accommodate demand that will account for half of their forecasted global growth in the next 10 years. Handbags, leather goods, watches and jewellery are expected to see the fastest growth. Louis Vuitton’s biggest customers are already Chinese buyers, while Greater China(China and Hong Kong) represents  22% for Richemont, 18% for Gucci, 14% for Bulgari and 11% for Hermes. All these numbers shows that China is a relatively mature market for the luxury goods. 


     Western luxury brands, recognizing the enormous opportunity among upscale Chinese consumers, have been focusing their attention on mainland China for the last few years. Burberry, Coach, Ferragamo, Vivienne Westwood and others have added boutiques and stores in China.

      

     These standard luxury brand has been aware of the importance of brands that originated in China as well.  Last September, Hermes launched a independent Chinese brand, Shang Xia in a partnership with Chinese Designer Ms. Jiang Qiong Er. The meaning of the brand means "up and down" in English which offers the traditional Chinese cloths in a modern style and other Asian craftsmanship and design. Shang Xia began by offering furniture, decorative objects, accessories, garments, and tea tool. 
     

     It seems that Hermes jump into the promising luxury market and attract young rich generations by developing a different luxury brand endorser with Hermes that offers a Chinese tradition style fashion item. However, I doubt about this new business model. First of all, even though there is an increasing number of demand on the Chinese luxury market and the competition becomes fierce, it doesn't means Chinese consumers accept all the offerings which were tagged as "luxury". Most consumers cater the western brand because it can show their taste, social status and their wealthy. And "Made in China" label might be an disadvantage to persuade the consumer that it's Hermes brand product.  But this new brand can not meet any of these needs.  Secondly, some people has luxury collecting habits such as the key chain and handbags. Most of people in this group are the fan of the specific brand and keep a long-term loyalty to this brand. It's difficult to convince them to switch to a new brand. Thirdly, some people prefer the luxury goods due to the fashionable appearance and makes them feels different from others. They'd like to follow the current trends which are introduced by the fashion magazines, TV shows and website information. But for "Shang Xia", its Chinese style will keep a large number of potential customers away.  Last but not least, when talk about luxury, the first thing comes into consumers mind are high price. However, for Shang Xia, the price strategy is different. Although it wants to meet the massive market at a relatively lower price, consumer do not accept such "discounted price". They treat it like a higher price brand product rather than luxury brand, which is totally different from the original business offerings.


     Even though Hermes seems to enter into a new market by the Chinese oriented brand, this strategy can hardly reach the increasing young and richer generations. The luxury always means history and story to the Chinese consumers. In order to switch the consumers perception, , Shang Xia needs to  work with the media to educate those potential customers, do the customer research to find out what those customers needs to identify themselves by using  its product and convincing the consumers that they will be special and highly differentiated from other people. More important, do not get rid off your luminous brand.