Jenny Chan 陳詠欣
Apr 15, 2015

Have luxury brands been erecting 'churches' in China?

CHINA - Is the luxury industry facing an identity crisis? Probably yes, if the industry doesn't adapt its marketing strategy to the new demands of Chinese consumers, according to participants in a panel discussion hosted by the French Chamber in Hong Kong yesterday.

A Chanel makeup tutorial
A Chanel makeup tutorial

Last month, Chanel lowered prices in China due to the falling value of the Euro, but exchange rate fluctuations are only masking the real crisis: the democratisation of luxury. 

The current weakness in the luxury industry is not a cyclical phenomenon, according to Francis Gouten, director of Gouten Consulting, who retired from Richemont in 2006.

"Yes, we have a crisis, Gouten said. "The market has drastically changed in the past 15 years from the time when China was a vacuum where everyone can go into."

The maturity of the Chinese moneyed classes, the standardisation of luxury advertising and the anti-corruption campaign in China all make up a "perfect cocktail" that has left luxury brands with a hangover—and the realisation that they have reached a new norm of single-digit growth.

"We have to live with it," said Anson Bailey, principal of business development across the KPMG China practice, speaking at the event. "We've already seen several years of double-digit growth, and some luxury brands have grown fat and lazy."

The luxury market has had it "too good and too easy", agreed Gouten. The legacy definition of luxury many years ago, to him, was a family business producing small amounts of quality goods. "I don't like the word 'luxury' anymore; everyone is using it. It is supposed to be about exclusivity. Exclusivity is luxury's raison d'etre."

Gouten dismissed Apple's bold attempt to disrupt the luxury watch industry for the same reason. "If millions of Apple Watches are sold, they are not exclusive," he quipped. "They are not luxury (and they are ugly)."

As the concept of luxury echoes increasingly more with the mass market thanks to the rise of digital, new questions arise: what does real luxury stand for? Does the industry have to move away from one-to-one marketing? How can luxury firms communicate with their consumers in a way that does not compromise their core values of high-end exclusivity?

Sometimes, exclusivity works against luxury marques because it scores lower points with accessibility and engagement. "Our sales teams become smiling robots," said Mimi Tang, who founded Wing's Share Company and was previously the president of Kering Asia Pacific.

Tang recounted a shopping experience at Muji, considered an anti-luxury brand since its minimalist offerings are meant as an "antithesis to the habits of consumer society". Muji's service to Tang was individualised, and that made it memorable for her.

"The cashier reminded me to check out the homewares section while she put away my purchases for me," Tang recollected. Such a simple gesture was the personal touch that luxury stores ironically lacked nowadays.

"Luxury retailers are very, very polite, but having a warm atmosphere like Muji is something they don't have," Tang said. "The key is not just get service staff to smile, but to tackle issues like being overly financially driven, disconnection with customers and the unattractiveness of merchandise."

For Julien Gaubert-Molina, managing director of Same Same Hong Kong, the crisis is how premium brands, whose positioning difference between luxury goods is not as obvious as one might think, are "playing the luxury cards" and creating confusion among potential Chinese buyers. Michael Kors (see below) is one premium brand that appears to be "trying too hard to be luxury", according to some.

The labelling of brands as bona fide luxury versus premium is subjective, of course, and a consensus for classification may not be clear. However, luxury marketing to Gouten has become boring. "They all use the same messages, artists, images," he complained. "They all look the same."

Indeed, while share prices of luxury companies remain high in their home markets, the purported crisis may not be felt as acutely as it should be with the weak euro giving stocks a nice cushion.

Luxury brands have been erecting churches, said Gouten in an unforgiving tone. "Business from China was so profitable that headquarters thought they don't need local management, but you still need to understand localities and not control everything in a top-down appraoch by the brand's 'Pope' in Europe, who never comes to Asia."

To cope with China (which Tang called a democratic market), she advised seeing Shanghai differently from Harbin, for example. "Luxury operators have to be extremely sensitive to the changes within China," she said.

When Western luxury brands enter China's lower-tier cities, they forget that there is a big gap in awareness, pointed out Gaubert-Molina. "Many locals don't even know how to pronounce the name of the brands, much less know about their heritage. They basically forget that China opened up only quite recently," he said. 

 

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