Despite shop closures, Chinese hunger for branded goods unsated

November 23, 2015 08:44
Louis Vuitton still maintains a presence across the mainland. Photo: Flickr

In the 1930s, novelist Lu Xun wrote that "face" was in the DNA of the Chinese.

Nothing has changed -- 80 years later, the Chinese are the biggest buyers of luxury goods in the world and will spend more than 84 billion euros (US$89.3 billion) on them this year.

This will give comfort to Hong Kong’s many vendors of luxury brands and offset the bad news that Louis Vuitton, one of the world’s biggest producers of them, has closed one of its two flagship stores in Guangzhou.

The Financial Times said it had closed other outlets in Harbin in Heilongjiang province and Urumqi in the Xinjiang region and was planning to shut others in the mainland.

The closures do not reflect a weakening in the desire by the Chinese for luxury goods but a maturity of the market, a wider selection of brands and the wish to buy them abroad and not at home.

About 80 per cent of Chinese buy luxury goods outside the mainland.

In a report published late last month, consultancy Bain & Co. said the global personal luxury goods market this year would grow 1-2 per cent to 253 billion euros, down from a rise of 3 per cent last year, at constant exchange rates.

In 2011, the sector’s growth at constant exchange rates was 13 per cent; in 2012, it was 5 per cent; and in 2013, it was 6 per cent.

Chen Ke, a partner at Roland Berger, said during the last year, the domestic stock market crashed and the anti-corruption campaign continued.

In addition, foreign travel and buying for others abroad has flourished.

All these factors put pressure on shops selling luxury brands in the mainland.

“In the future, many luxury shops in third-tier cities will close, and those in second-tier cities that do not make money will be changed,” he said.

In an editorial, Guangzhou's Southern Metropolis Daily said another factor was dissatisfaction with after-sales service at outlets in China.

Goods could not be replaced, only repaired; with few materials on hand, the shops had to send them to Europe, which meant the customer received her item back one or two months later.

“This is why the number of complaints in the outlets in China are over 65 per cent more than in Europe,” it said.

Zhou Ting, director of the Fortune Quality Research Institute, said LV was one of several big brands under pressure.

“Consumption is becoming more sophisticated and buyers more mature," she said.

"People have more variety of choice and want something suited to them individually.

"The era of dominance by five top brands, including LV, has ended. Now there are about 30 luxury brands."

Zhou concluded: “We cannot say that the consumption ability of the Chinese has fallen."

That was borne out by the figures announced last month by LVMH, the parent company of LV showing global sales in the first nine months of this year were 25.89 billion euros, an increase of 18 per cent over the same period last year.

Management of these products requires completely different skills to that of low-price, mass-market goods.

For those, the strategy is to have as many items in as many locations as possible, especially those with a high density of population.

For luxury goods, it is the reverse.

They must not be too cheap or too available.

The buyer must feel that she is purchasing something out of reach of the vast majority of people and in an ambience of calm and privilege -- the opposite of the queue at the supermarket or McDonald's.

The story goes that, several years ago, the head of LV was told that the Japanese accounted for over 50 per cent of purchases of its goods, at home and overseas.

In response, he said: “That means the goods are too available and too common. We must reduce the supply in Japan.”

The DNA of the Chinese has not changed since the days of Lu Xun.

They have more spending power than at any time in their history and have long replaced the Japanese as the biggest purchasers of luxury products -- the best way to show one's superiority over other people.

These luxury brands are the preferred gift – or bribe – at the upper end of mainland society.

But two decades of rising wealth has made buyers and recipients more discerning and more selective.

They look for new designs, new styles and new brands.

In this context, the closure of several mainland shops is a matter of no great significance.

LV will keep at least one flagshop store in the cities where the wealthy are concentrated – available but not too available.

They can also serve as a shop window for clients to decide what they want to buy on their next trip to Tokyo, Paris or London.

Hong Kong belongs on the list too, because it is not in the mainland.

The trick for LV is to stay ahead of the field, to make new and beautiful products that appeal to their Chinese clients.

The demand – and the DNA – has not changed.

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A Hong Kong-based writer, teacher and speaker.