Managing Director Of Hong Kong Trading Firm Jebsen Group Discusses Challenges Of Luxury Business In Mainland China
Earlier this year, Jing Daily translated an interview between Helmuth Hennig, Managing Director of the Hong Kong trading firm Jebsen Group, and the China Times, in which Hennig indicated his bullishness about the capacity of the Chinese luxury consumer to buoy Western luxury house profits in China for the medium- to long-term. According to Hennig, the buying habits of Chinese consumers are very much tied to perceptions of their country’s economic performance:
[P]urchasing luxury goods also reflects a positive and optimistic view of the future. Since consumers in China are optimistic about the future, they’re finding it an opportune time to buy luxury goods.
Hence, even in the wake of the global economic crisis, as China’s economy made a comparatively quick comeback, Chinese shoppers continued to splash out for high-priced luxury goods. Looking to take advantage of this trend, in the last year many luxury brands have redoubled their China efforts, opening flashy new flagship stores, branching out into second- or third-tier cities, creating China-only limited edition collections, launching Chinese-language websites, and staging elaborate events not only to cash in on Chinese “shopoholism,” but to make clear their commitment to the China market and try to build stronger brand loyalty.
WSJ: What’s the biggest challenge in China for you right now?
Mr. Hennig: One of the biggest issues is this irrational exuberance. China has suddenly become the fix-all for everything. At the end of the day we tell our suppliers nothing goes upward forever, there are always bumps in the road. China is still wary about opening up the floodgates. They have their own rules that you might even call non-tariff barriers where they limit market access. Also, it is changing from being a city-based market to much more a regional market based around greater Beijing, greater Shanghai, the West, the middle part of China around Wuhan and Chongqing. All that needs to be dealt with from a distribution, sales and marketing perspective.
WSJ: Why did Jebsen make the shift from distributor of industrial products to luxury brands?
Mr. Hennig: We’re a privately held company and don’t have access to financial markets so we need to build on our own capabilities. Ten years ago we started with Porsche in China. There was nobody who wanted to touch Porsche at that time but we had been doing Porsche in Hong Kong for 45 years. I think we were overtaken by events at the end of the day as China’s car market exploded. I’m not saying it will happen the same way in every other business.
WSJ: Is it possible to know which brands will work?
Mr. Hennig: That would be a recipe you’d keep to yourself. It’s more about as a brand whether you are committed to China. You have to be willing to accept the rules they play by and to sustain your initial impact. If you look at the brands that have been there a long time, the ones that have sustained it over 10 or 20 years are the most successful today. If you enter now it’s very cluttered.
Despite being cluttered, brands looking to differentiate and grow in the China market would be well served by paying attention to the “five critical areas” that must be addressed for success, as outlined by Bruno Lannes and Xuan Wang earlier this year:
1. ) Build brand awareness by investing to educate consumers about product quality and brand heritage. Emphasize unique traits to differentiate the brand in a crowded field. Weaker brands won’t be able to compete with a well-orchestrated campaign. In Bain’s 2006 study of “most desirable brands”, Rolex was ranked No. 10. In the 2009 survey, Rolex moved up to No 4. This improved ranking is directly related to its brand building efforts.
2.) Develop a strong retail talent pipeline, with processes in place for attracting and retaining employees, especially in Tier 2 and Tier 3 cities where there’s a severe talent shortage. For example, leading brands offer international rotation programs to their store managers. Sales employees have the opportunity to enjoy a true luxury experience during special training sessions. LV even developed a specific training program for new Chinese graduates that introduces them to retail operation management.
3.) Use customer relationship management tools to personalize customer relationships and add value to services. Outstanding service encourages customers to do more of their luxury shopping domestically. One way to win customer loyalty is to provide better service when they shop abroad by beefing up the number of Chinese-speaking salespersons. Several brands are developing a global database for VIP customers by collecting personal data, including the customer’s name, nationality and purchase history. The database allows brands to recognize their VIP customers wherever they shop and give them top-notch service.
4.) Invest in the Internet as a powerful communications channel. Use third-party platforms with caution. In the seven categories we studied, 70 percent of the top 5 brands have simplified Chinese websites offering product information and brand news. Some brands such as Lancôme go one step further. Lancôme pioneered an online beauty community, “Lancôme Rose Beauty,” with over four million subscribers…
5.) Localize products and marketing for Chinese consumers, while striking the right balance to maintain the value of the brand. Asia localization has already happened for example through the introduction of a wide range of skincare whitening products, specialized sizing and fit for clothing, and products emblazoned with brand logos for entry-level consumers..In addition, several brands have allowed local teams to select what they want to offer in Chinese stores. Last, brands reach out to Chinese shoppers by using Chinese celebrities in their marketing campaigns– Ziyi Zhang for Omega, Bingbing Li for Gucci and Qi Shu for Hugo Boss.