Gucci Pastries, Porsche Phones: Luxury Brands Expand Portfolios To Fend Off China Slowdown

    Brands known for high-end bags, cars, or jewelry are increasingly putting their names on a wide range of new ventures in China as they search for the next big source of growth.
    Luxury brands are crossing over into other products, and offering branded furniture, phones, and even restaurants. (Flickr/paulamarttila)
    Shuan SimAuthor
      Published   in Finance

    Luxury brands are crossing over into other products, and offering branded furniture, phones, and even restaurants. (Flickr/paulamarttila)

    When it comes to selling traditional luxury items, high-end brands have always strived to promote a “lifestyle” along with their handbags, clothing, and jewelry. As luxury companies like Versace, Gucci, and Bulgari diversify their portfolios to include restaurants, hotels, and even phones in hopes of boosting revenue, this takes on a more literal meaning—especially in China, where sales growth of traditional luxury goods has slowed.

    According to Chinese business news site, top luxury brands have been putting their name on a wide range of products and services extending far beyond their typical items in recent years. According to real estate research group RET Rui Yi De China Commercial Real Estate Research Center, the most common areas of luxury brand expansion include dining, furniture, electronics, entertainment, and real estate, and China is a major target.

    For example, Gucci and Bulgari flagship stores in Shanghai feature not only leather goods and jewelry, but also cafés and restaurants. Armani’s interior design studio, Armani/Casa, is building luxury apartments in Chengdu furnished entirely with Armani home products. Porsche released its mobile phone in Hong Kong in January this year, while Lamborghini introduced its own luxurious model to mainland China last year. Meanwhile, Versace and Karl Lagerfeld have both entered the luxury hotel market in Macau.

    These crossovers, the article says, make a lot of business sense because the companies have already established brand recognition. The increased range of product categories and price points help to raise revenue, which is needed amidst China’s luxury slowdown. As these brands have already established brand recognition, it is easier for them to branch out into new categories.

    These categories can include both ultra-luxe and aspirational items. While some, such as the Armani apartments or Lamborghini’s $4,000 phone are clearly targeted toward the super-rich, some lower-priced crossovers are meant to “lessen the distance between the idea of attaining luxury and the general public,” according to Winshang.

    Luxury marketing site Luxury Daily says that creating new products with lower price points can help brands attract the attention of younger consumers and possibly recruit future higher-end customers. “This strategy has been an interesting approach on behalf of brands because it allows them to connect directly with their aspirational market through affordable products and increases brand loyalty for future, larger purchases,” said Fashion Institute of Technology professor Dalia Strum. “By purchasing items in these additional product categories, consumers feel a stronger connection to the brand and the lifestyle that it represents.”

    Not all crossovers are necessarily successful, the article notes, saying that even as everyday products become branded by luxury, they still come with a hefty price tag. When Versace’s Versus Caffe in Shanghai, Jinan, Guangzhou, and Wuhan attempted to sell cups of coffee for over 50 yuan ($8) each, customers felt that the prices were too high, and the underperforming cafés eventually shuttered. While consumers are willing to pay a premium for luxury, says the article, there are still limits.

    However, broadening horizons appears to be worth the risk for luxury brands. As pointed out by Winshang, the costs of expanding product categories are relatively low, but the potential returns are high. Given the shaky status of some of the more “traditional” luxury goods in China, spreading luxury into lifestyle makes not only revenue sense, but also is good for long-term development.

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