How Can Luxury Brands Entice Mainland Shoppers To Buy Locally?

    China's comparatively high luxury tax has been something of a double-edged sword for the government as the number of middle- and upper-middle-class urban Chinese with an appetite for luxury goods has soared.

    Brands Re-Conceptualize Outreach Efforts In China In Effort To Make Mainland Boutiques More Profitable#

    China's comparatively high luxury tax, which Jing Daily has covered extensively in the past, has been something of a double-edged sword for the government as the number of middle- and upper-middle-class urban Chinese with an appetite for luxury goods has soared. While the luxury tax encourages less confident shoppers to consider buying domestic brands, and brings in a considerable amount for the government in tax receipts, China's luxury tax has also led a significant percentage of luxury buyers to do their shopping abroad or in the special administrative regions of Hong Kong or Macau. According to Bain & Company's recent "China Luxury Market Study," in 2008 spending on luxury goods within mainland China made up only about 40% of the total for the country, with the other 60% spent overseas (including Hong Kong and Macau).

    Interestingly enough, the Chinese government likely cares less about domestic shoppers buying from foreign companies overseas than these companies themselves do. Over the past 20 years, as more international brands have entered the mainland market and more -- and more elaborate -- malls and shopping venues have been built throughout the country, buyers have continued to shop outside the mainland or, in more recent years, online rather than in mainland boutiques. As a result, many of the gleaming, modern boutiques that brands like Chanel, Bottega Veneta and Coach have opened in the last year function simply as glorified showrooms, where potential buyers window-shop before purchasing items online or on a cross-border shopping jaunt.

    So what can luxury brands do to get more Chinese luxury buyers to shop at home? This week, Forbes China looks at some possibilities, noting what Jing Daily has said before -- that luxury brands should stop trying to convince themselves that wealthy shoppers in Beijing, Shanghai or Guangzhou will suddenly start shopping at home when they can easily do so overseas, and these brands should look to emerging second- and third-tier cities for future growth. From the article:

    Mainland retailers are hard-pressed to compete with foreign merchants who offer significantly discounted prices and broader product selection. For example, the discounted price of one luxury brand during seasonal sales in Hong Kong is about 60 percent of the regular price in mainland outlets.

    The most dramatic opportunity for new growth in China is not in Shanghai, Beijing and China's other largest cities. The new battleground for the luxury market is fast becoming Tier 2 cities such as Zhuhai, Shaoxing and Wuxi. There are about 330 prefecture "Tier 2" cities, Among them, 120 have urban populations larger than 1 million.

    Consumers in these areas have both the buying power of shoppers in China's largest urban centers as well as similar interests in the quality and reliability of luxury brands. But to realize the growth potential, luxury brand makers must surmount three major hurdles: a scarcity of high-end retail space, the lack of well-trained luxury sales staff, and local malls that understand the unique needs and standards of luxury brands.

    The article goes on to identify five key areas that luxury brands must address now in order to ensure sustainable profitability in the mainland:

    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.

    While many of the suggestions made by Bain & Company tread the same ground as previous articles on this subject -- particularly this one by China luxury expert Patricia Pao -- it is extremely valuable because it looks more at the technological aspects of luxury retailing than the marketing aspects. We would think that the "VIP database" mentioned in the article would be popular among Chinese luxury shoppers, as it would encourage more brand loyalty, playing on the love of personal service among Chinese luxury buyers.

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