International luxury brands are going to great lengths to engage the Chinese middle class, writes Geoff Tink from Shanghai.
The exclusive Ferrari was decorated with Song Dynasty Ge kiln pottery patterns and for
extra authenticity, Lu Hao used a “cracked glaze” pattern, with raised ridges designed to simulate cracks in the surface of ancient porcelain. The interior featured the traditional Ferrari ‘Start’ button on the steering wheel, but this time it was jade-encrusted and accompanied by a rev counter written in ancient Chinese Xiao Zhuan script.
“This work embodies my understanding of the essences of Chinese culture and Ferrari,” said Lu Hao of his work – An Italian sports car brand, and ancient Chinese pottery. Apart from the extreme repair costs, the similarities seemed a stretch.
Pictured: Lu Hao’s hand-painted Ferrari.
Luxury brands are committing to China like no market ever before. The reasons are obvious. In 2009, at the height of the Global Financial Crisis, luxury sales in China increased by an average of 16 percent – only marginally down on the 20 percent growth seen a year earlier. A key driver of sales growth for luxury brands in China has been brand expansion. This year, Porsche opened its 39th Porsche Centre in China and plans to have more than 100 by the end of this decade. And it’s not just the car market. Louis Vuitton now boasts 36 stores across 29 cities, up from only 10 in 2005. Gucci has expanded even faster, increasing from six stores early in 2006 to 39 today.
The increased wealth of consumers has also played its part. Studies have shown that the ranks of the very wealthy (those with an annual income of over RMB 1 million and assets of RMB 10 million or more) are growing at over 20 percent a year and will increase to over one million by 2015. This demographic alone will account for 38 percent of growth in the global luxury goods sector. With increased access to wealthy consumers, in early 2010, China passed Japan as the world’s second largest luxury market, now trailing only the United States. According to a study by PriceWaterhouseCoopers, at current growth rates China is forecast to become the world’s top consumer of luxury goods by 2015.
In recent years, to cater for the world’s largest car market, every premium car brand has launched models exclusive to China – though this engagement extends deeper than simply limited edition models providing exclusivity for a consumer looking to stand out in a growing crowd. In the early years of last decade, it was clear that SUV models were providing some premium car brands with an initial foothold in the China market, offering the spaciousness and versatility demanded by the Chinese consumer. Now, long wheelbase models are meeting further requirements of the Chinese market, providing a more comfortable driving experience favoured by Chinese owners who prefer to sit in the back while another person drives. In the past two years, BMW, Mercedes, Rolls Royce and Volkswagen have all launched long wheelbase models, explicitly aimed at seizing market share in China.
The luxury fashion industry has been a strong supporter of the China market and increased visits by Anna Wintour and her Vogue entourage are not the only sign. The spring 2011 collection from Louis Vuitton was designed by Marc Jacobs and inspired by Shanghai – with mandarin collars, cheong sams adorned in tassels, panda and tiger prints, and fans for the flashing cameras. But in an industry where style can mean more than substance, the critical response was lackluster at best. Many felt that the clothes were “bogged down with Oriental stereotypes.” As fashion critic, Suzy Menkes noted, “By the time the first models had sashayed out in slim dresses slit to reveal the leg, you didn’t need a master’s in Mandarin to get the message that China is hot retail property for Louis Vuitton.” Jacobs noted that the collection was meant to be “camp” but the message was still evident. This was a major brand making itself more Chinese. But why? Sales were rising exponentially, why change a winning formula?
Do all brands have strong business motives for adapting to key markets such as China? Luxury consumers in mature markets such as the United States or Europe are not likely to react well to increasing “China-fication” of their brand. Furthermore, a key attraction of luxury products for the Chinese consumer is an inherent quality, craftsmanship and heritage perceived to be missing from Chinese products – so will Chinese consumers react any better?
A growing competitiveness in the market is a key reason for this closer engagement with China. With a vast proliferation of luxury stores, magazines and websites, studies have shown that Chinese consumers are now familiar with twice as many brands as they were only two years ago. Consumers are becoming more savvy about the relationship between price and quality. The most expensive is no longer automatically considered to be the best. So for luxury brands, herein lies the problem faced across many industries: How best to build an enduring relationship between western products and eastern audiences. Improved marketing practices and better customer service are essential, but building a strong foothold in the China market can not end here. Creating an emotional connection with the consumer is essential.
One famous brand that has taken this task to another level, is the renowned Parisian boutique, Hermes – by creating an entirely new luxury brand for China. Founded in 2008 and named “Shangxia”, their stated aim is to “create a 21st century lifestyle based on the finest of Chinese design traditions.“ Led by a Chinese team, it is the first time that a luxury giant has created a truly indigenous brand in look, feel and experience. It’s a gamble and requires a level of localisation of research, design and marketing that does not usually sit comfortably with premium brands, but if successful, will provide a tangible and enduring link between luxury lifestyle and Chinese heritage.
It’s more than just an attempt to grab news headlines. A recent study by McKinsey & Co. noted that nearly 40 percent of new luxury consumers, and almost 50 percent in tier three cities, prefer products designed specifically for China. Not all attempts to create the priceless bond between brand and consumer will be successful – and as with everything in China, one size certainly does not fit all. But whether it’s Ermenegildo Zegna’s latest collection influenced by the Great Wall, or the launch of a limited edition BMW “Tiger Edition” 5 Series, China’s influence on the luxury market is here to stay. ■
*Geoff Tink has lived, worked and travelled China for over seven years. Originally from Sydney, he has worked with the Australia China Business Council and now manages marketing events and communications for international brands in China. He speaks fluent mandarin and keeps a regular blog on weibo at @T_丁先生.
