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A China Strategy for Small Luxury Labels

by Aun Koh
April 20, 2012, 5:10 AM
Shutterstock_96602833

The second annual Men's Fashion Week, an SGD$8 million gathering of global designers and Asian pop stars, is currently underway in here in Singapore. I was very happy that one of my friends, a British tailor turned lifestyle engineer, was invited to take part. Over dinner the other night, the hot topic of conversation was how and when my friend should expand into Asia. Whether he should or not wasn't a question at all. Any luxury designer or retailer worth his salt knows by now that the future is in Asia. Not only are people in this part of the world still dropping pretty serious cash on luxury goods, the number of newly wealthy people in this region seems to only be increasing.

The biggest bear on the block is obviously China. Chinese consumers have become the major force in global luxury consumption; in 2010, they spent more than US$33 billion on luxury goods. CLSA Asia-Pacific Markets, one of Asia’s leading independent brokerage and investment group, forecasts Chinese demand for luxury goods and travel will account for 44% of global sales by 2020, up from 15% in 2011, which will make it the world's number one luxury market/consumer.

"So, what should my China strategy be?" mused my friend over a glass of Chateau Phelan Segur. Well, the obvious answer might be stores in Shanghai and Beijing, followed by outlets in China's second cities. But, for a brand like his--an emerging luxury label with cult appeal that is underpinned by great craftsmanship and a somewhat understated, old-world elegance--rushing headfirst into China might not be the best solution. For many reasons, chief among them the challenges of entering into business in China without the right partners with the right, shall we say, friends and networks.

One suggestion, made by another dinner guest, that made a lot of sense, was to consider setting up a first Asian flagship in a city like Singapore or Hong Kong, both favourite shopping destinations of the mainland Chinese, but each with its own local and sophisticated population. With a shop in a city like Singapore or Hong Kong, designers could get access to a much more diverse audience than they could ever achieve with a domestic Chinese outlet. Further, for many Chinese, there is a growing attitude that purchasing luxury goods overseas is somehow better than buying them at home. I won't get into the psychological issues here, but suffice it to say that spending while abroad both gives consumers something to brag about to friends and strangers, but helps give overseas trips an extra added sense of purpose and accomplishment.

Of course, the nouveau riche attitude of bragging about where one purchased something is hardly just a Chinese trait. One of my favourite (fictional) examples of such showoffiness is from the very-much-forgotten 1999 horror movie starring Liam Neeson, Catherine Zeta-Jones and Owen Wilson, The Haunting. Watch this clip below and fast-forward to 7:06, when Lili Taylor's character Nell tell's Zeta-Jones' Theo how much she likes her boots. The response is classic. "Prada. Milan, not New York," said with just the right melange of dismissive superiority.

Data released in February this past year has demonstrated that the Chinese spent US$7.2 billion on luxury goods abroad during the Spring Festival (the Chinese New Year period, celebrated over 2 weeks in either January or February each year). Domestic spending on luxury goods during this period stood at just US$1.75 billion. That's a pretty substantial difference.

So where are the Chinese shopping? Well, Singapore is one preferred destination. In fact, it has become the top global destination for the Chinese to purchase luxury watches and jewellery. According to the latest statistics, the average spend on watches and jewellery by each Chinese tourist came to just under US$7,000. Other favourite cities that the Chinese like to plan shopping holidays around are, rather logically, Hong Kong, London and Paris.

While large luxury houses--many of whom have had a presence in Asia for decades--can afford to make headlong plunges into China, for small and emerging brands, wooing the Chinese market in other Asian markets--in places they like travelling to for shopping--might be simpler, less costly, and may even make the brands even more desirable. Of course, brands that do adopt this strategy need to plan carefully. Boutiques have to be planned out to appeal to both local audiences and overseas shoppers. Staff too will need to be able to communicate in multiple languages and understand the cultural norms of their different customer groups. But these are all things that can be planned out pretty thoroughly.

One very real question young and emerging designers and artisans need to ask themselves is whether their products will appeal to Asia's newly wealthy, and in particular, Chinese consumers. But that question, and whether designers should be purposely engineering their products for these audiences, is a whole other discussion.

 

Photo credit: ZINQ Stock/Shutterstock

 

A China Strategy for Small ...

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