This week, the FT writes that a renewed push to drive domestic consumption in China is creating a new generation of increasingly savvy and demanding consumers, less willing to pay for low-quality, low-end goods. Noting that both Chinese and international brands have had to change their long-standing policy of dumping low-end inventory on the mainland China market, the article holds that more discriminating shoppers have brought about a sea-change in the country's luxury market, which has long been plagued by a flood of counterfeits. According to a recent survey by the fashion brand Escada, Chinese consumer willingness to buy fakes has plummeted in recent years, from 31 percent in 2008 to only 12 percent in 2010. Quoting Max Magni, head of McKinsey’s Chinese consumer goods practice in Shanghai, the FT adds that the market for luxury fakes is growing at a snail's pace compared to the authentic market, and companies are finding that Chinese consumers are simply getting harder to please.
This shouldn't be much of a surprise to anyone who has kept an eye on the market's fundamental development over the past few years. Nor is growing brand-savviness and sophistication the only factor making it necessary for luxury brands to try harder in the China market. High import and luxury taxes -- which add upwards of 40 percent to the price of luxury goods in mainland China -- necessitate higher prices for individual items, as do stratospheric rents, and as such brands can't simply stock unpopular leftovers that won't sell. But with China becoming such an important part of the global luxury market this year, as European consumption may slow this year, it pays to consider which luxury brands will benefit from a more brand-savvy, quality-minded Chinese consumer in 2012.
Though, as the FT article points out, "Chinese shoppers still like an extra dose of bling on everything," a trend that we expect to see continuing to spread from top-tier to second- and third-tier cities is "logo-less" or less conspicuous luxury. As Jing Daily wrote of this trend in December:
This progression is perhaps natural, and not terribly surprising, since lower-key luxury has been the name of the game in developed markets like Europe and North America since the financial crisis of 2008. Some of China’s more sophisticated shoppers have gone this direction anyway, in response to the growing ubiquity of Louis Vuitton and Gucci over the past several years. As Richemont Group CEO Geoffroy de la Bourdonnaye said this February, many of China’s wealthier consumers are “now looking for the brands that are not necessarily on the top of the radar screen.” Look for the wealthiest Chinese consumers to turn to less visible, but still very much luxurious, brands in 2012 for this very reason.
For clues about which brands may benefit this year, it's generally best to look at what's happening in top-tier cities, since what happens there tends to spread inland after a few years. While second-tier cities like Nanning celebrate their first Louis Vuitton store, Beijing has recently welcomed brands like Alexander McQueen, Maison Martin Margiela, Marni and Lanvin, and will soon get its own Alexander Wang and Sergio Rossi boutiques. Less well-known (or counterfeited) in mainland China, but popular elsewhere in Asia as well as Europe and North America, these brands should see encouraging growth rates in China in the year ahead. Already, we're seeing signs that top-tier consumers are losing some interest in rushing to Hong Kong to wait in line and fight with other tourist-shoppers for inventory that is often sold out. However, wealthy Chinese tourist-shoppers weary of major luxury brands have increasingly turned to a select few high-end multi-brand retailers like Lane Crawford and Joyce in Hong Kong, which stock a better-curated range of prestige brands, and have stuck with these brands when they return home.
For this reason, despite higher prices in cities like Beijing or Shanghai in comparison to Hong Kong (or New York, or Paris), in 2012 and 2013 we expect to see these top-tier urban shoppers display a greater interest in (and demand for) logo-light but high-priced brands like Céline, Valextra, Delvaux, Chloé and Proenza Schouler. They probably won't cut back on their beloved Chanel or Gucci completely, but they'll definitely broaden their horizons.