Is it true that the mainland Chinese market for luxury brands is already maturing?
World Luxury Association is a non-profit group based in the United States with offices in more than 10 countries that aims to improve luxury brand management. The group is saying that Louis Vuitton and Gucci are losing their allure with the mainland's wealthy set who are now interested in things that are more exclusive and chic.
"No matter how much you love your Louise Vuitton bag, you'll dump it when you find people from a lower social status than you are using it as well," said Ouyang Kun, chief executive of the association's China office.
He says LV and Gucci now have to retain the loyalty of China's big spenders and protect their market share. These two brands are the most popular luxury brands on the mainland. In a survey of 50,000 Chinese consumers, 78 percent said they made regular purchases at Louis Vuitton shops and 63 percent said they had bought Gucci goods more than once.
"But over the next one to three years, the market will experience a reshuffle," Ouyang said. "The two brands may need to switch their focus to tier two and three cities in China as their sales in tier one cities fall."
Conversely, French brands like Chanel and Hermes that are more expensive and yet less well known among the Chinese have loyal customers in major cities like Beijing, Shanghai and Guangzhou.
"For those top level customers, luxury goods are part of their social image. So the higher the prices, the more sought after they will be among this group," he said.
In addition, Chinese consumers in big cities are becoming more knowledgeable in their brands and prefer to buy what they perceive as something exclusive rather than mass market.
According to the World Luxury Association, the Chinese spent US$10.7 billion in the first quarter of this year and this excludes private jets, boats and cars. Luxury spending in Europe by Chinese consumers surged over the same period to US$50 billion. Now is this group sure that they were not mistaking Japanese for Chinese customers and lumping Hong Kong Chinese and overseas Chinese in the same group? Nevertheless those are gob smacking huge numbers.
While Japan is still the number one luxury market, consumption there has fallen since the March earthquake and tsunami and so luxury companies are now putting more focus on China.
On a side note, the association is setting a joint commission with the China Council for the Promotion of International Trade to publicize the luxury industry and help introduce Chinese luxury brands to the global market, starting with Chinese tea, liquor, furniture and jade jewellery.
One wonders how well that will go considering so much of what China makes now is f-a-k-e...