Chinese Demand Continues To Propel Luxury Goods Companies

by Patricia Pao, Aug 1, 2012, 7:30 AM

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Since 2009, we have been able to survey the attitudes and usage behaviors of China’s 353 newly minted billionaires towards designer handbags, watches and fine jewelry. And they are very generous about providing us with access to their views and attitudes towards luxury goods and beauty products.

China’s economy is slowing down, which has caused marketers to ask questions regarding the viability of their brands in the Chinese market. Interestingly, despite the slowdown in China’s economy, the appetite for luxury goods continues to increase. In the July 27 issue of Women’s Wear Daily, journalists Miles Socha and Samantha Conti report that LVMN Moet Hennessy Louis Vuitton and PPR had reported strong first half results and issued bullish statements for the balance of 2012. Importantly, the LVMH chief financial officer, Jean-Jacques Giony, cited “no change at all in the global trend” in China, where growth stood at 15% across the first and second quarters.

So how do these companies engage the affluent Chinese customer?

• Offer entry price points. Coach, especially, has been successful at offering price points below $1,000
• Provide wide but shallow assortments. When it’s gone, it’s gone. This insures variety and that the buyer will not see herself coming and going. LVMH results should be even stronger in the second half of 2012 with their polka-dot Vuitton leather goods collection.
• Offer limited editions. The Chinese are very status conscious and buy luxury goods to stand out
• Start them young. The single-child policy has spawned the “Little Emperors,” who are doted and fawned upon by their parents and grandparents. These “Little Emperors” often have six income streams (two parents, four grandparents), thereby insuring them plenty of disposable income. LVMH is particularly adept at moving their customer from the Louis Vuitton franchise into their other brands. This can be seen by the performance of Celine, where the brand is on track to post 2012 revenues in excess of $500 million. And I expect to see equally great results for Christian Dior in 2013 under the direction of Raf Simons.

And how do they get the affluent Chinese to buy more?

• Discounts are the affluent Chinese person’s preferred promotional vehicle. Over 60% of our respondents said that they were most motivated by discounts
• The Chinese love to bargain. I call it “The Art of the Deal.” It makes them feel proud of their purchases
• It’s important to note that offering a discount is more important than the actual size of the discount. I once toured a market with a newly minted billionaire and watched for over 20 minutes while he bargained to receive $2 off of a $20 blanket!
• As most luxury goods manufacturers do not offer discounts, they need to offer gifts. However, the gift needs to be unique and desirable and can’t be purchased. One of the best gifts I have seen was a Louis Vuitton snow globe, where the inside was a trunk and the “snow” was LV logos.

The bottom line: China while slowing down, is still thriving for luxury goods.

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