American Brand Expanding Rapidly In Second- And Third-Tier Chinese Cities, Trying Harder To Compete In Top-Tier Cities
Virtually every major global luxury brand is expanding into smaller second- and third-tier Chinese cities, opening new flagships in Beijing or Shanghai, kicking up their digital outreach and generally trying to convince mainland Chinese to buy locally rather than abroad or online. However, we find the China strategy currently being deployed by Coach — the American luxury house that specializes in what can best be described as “middle-class luxury” — of particular interest.
As Jing Daily noted earlier this year, although Coach executives certainly aren’t putting all of their energy into China expansion, also drafting plans to increase the company’s footprint in Europe as well as the U.S., CEO Lew Frankfort and China Region President Andre Cohen (who joined the company in 2008) have big plans for the Middle Kingdom:
Over the last year, Coach has invested heavily both in the mainland and Hong Kong markets, announcing last spring that the company intends to add nearly 50 retail outlets to the 37 it currently operates in mainland China, Hong Kong and Macau, appointing luxury veteran Andre Cohen as China Region President, and launching a large-scale Chinese-language online promotional campaign.
Part of the reason that Coach’s China offensive has been so pronounced over the past year is the brand’s relatively low recognition in the Louis Vuitton-mad Chinese market. Coach’s less flashy designs make it less of an immediate status symbol, and as such the brand appears to be positioning itself within the mainland and Hong Kong markets as a more attainable luxury — lower-priced than the most popular luxury brands but still of superior quality — and is using its association with popular American television shows like “Gossip Girl” to its advantage.
Though the fundamentals look good for Coach’s China ambitions, many companies engaged in rapid expansion efforts are finding out that growth in China’s potentially lucrative second- and third-tier cities can alienate wealthier (and more fickle) shoppers in top-tier cities like Beijing and Shanghai. As a Hexun article (original / JD translation) on Western brands considered mediocre at home yet upmarket in China recently indicated, Coach must fight the perception among some Chinese “luxury gourmands” (as defined by Chadha and Husband) that the company isn’t a true luxury brand on par with its European rivals.
Phoenix Online (PO): What’s the difference between the China market and the Japanese or American markets?
Andre Cohen (AC): The biggest difference is that the rate of growth [here] really is too fast. The global luxury handbag and accessories market is around US$24 billion in size, of Greater China, including Hong Kong and Macau, accounts for about 10%.We estimate that within another three years, which is to say by 2013, the global luxury and handbag market will rise to roughly US$29 billion, and the proportion of this coming from China will rise from 10% to 20%.
PO: What kind of position does Coach occupy in China?
AC: Currently, our market share [in China] is around 3-4%, and our goal is for Coach to become one of China’s top three luxury handbag and accessory brands within the next three years. By 2013, we expect our entire operations in China to do US$250 million in business.
PO: Does Coach have any particular strategy for the China market?
AC: We have a three-part strategy in China. The first is to build organic sales growth, so for example we release new products every month regardless of season. Second, we are expanding the scope of our distribution, because the places where different customers go to shop differ, and we’ll have to employ different distribution methods to reach these customers.The third is to increase brand awareness. Because without prompting, only about 8% of consumers in China know the Coach brand, versus 70% in the U.S. and 60% in Japan.
PO: What features do you notice among Chinese luxury handbag and accessories consumers?
AC: Chinese consumers display huge diversity in different parts of the country. We used to only do consumer research in Shanghai, but we have recently begun to do consumer research in Beijing and Chengdu as well. Consumers in these three cities are very different. For example, people in Chengdu have a more laid-back lifestyle; Beijingers are more concerned with status and often purchase branded products to elevate their status; and Shanghai consumers are less concerned with status yet are more concerned with quality. They’re more self-confident.
If you compare Chinese consumers with those in other global markets, I think they’re quite similar. Chinese women who buy Coach products are already very internationalized, not unlike their counterparts in New York or Tokyo. The biggest difference is that there’s a higher proportion of professional women in China, much more than in the U.S. or Japan. They want a more practical handbag, one that can hold a laptop or A4 files, but one that they can still carry after work.
Coach is a New York brand. The culture of New York itself is very dynamic yet relaxed, fun-loving, highly confident and democratic. Our research found that female consumers in China are highly receptive of this kind of approachable culture.