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Jun
2015

A new luxury retail business model — luxury goods are linked to daily shopping consumption

The concept of selling products of luxury brands in a high street supermarket is likely to be regarded as sacrilege in most places in the world, how can products that sell for many $100’s upwards sit in close proximity to fresh fruit, meat, cans of beans and rice? Nobody with any marketing experience or common sense would do such a thing would they? Well, in fact they just might and in Hangzhou they have!

The regular readers of Luxury Insights China will know that we have on more than one occasion pointed out that in China, often they way things are done can be the complete opposite of what those of us from western cultures might expect. Solving a problem that others might consider impossible, and working around the regulations are typically the Chinese way.

So if we consider the challenges facing the sales and consumption of luxury in China at this time, and in particular reduced spending by middle class consumers in general, and greater restriction and control of the budgets and spending of government departments and staff on ‘luxury’ items, we start to see the practice of a supermarket selling luxury products as a possible solution.

Lianhua is a large national supermarket chain in China, and it has an agreement with Okay City a local multi-brand department store that is partnered with Italian department store Mario Bruschi and that sells luxury brands such as GUCCI, Prada, Burberry, Bottega Veneta, together with other well-known names. Okay City provides the luxury products to Lianhua in Hangzhou that it sells at prices 5-10% lower than the mall, because Okay is an authorized partner of the brands, it must only get marketing permission in order to sell via the supermarket. The relationship so far appears to have been successful, as stock of particular Prada items sold out in under an hour.

Brands are in effect selling more products all be it through a very untraditional channel, but what is it doing for their reputation and position in the minds of consumers? Luxury brand enthusiasts Miss Lee told reporters of the local newspaper, “If luxury goods are sold in supermarket, I think this is no longer a luxury. A supermarket is a place full of general merchandise, which is completely different positioning from luxury malls.”

We now have supermarkets in China selling luxury goods, could this be a positive for the brands, and does this make them more attainable to mass consumers? Or does it alienate the very wealthy consumers by making their products ‘common’? If we consider the use of VIP cards in a country like China, the people who have them are usually relatively big spenders by local standards. The Lianhua supermarket has a VIP card as do many luxury shopping malls, and naturally it offers special discounts to cardholders who spend well.

It’s not surprising therefore that four out of six purchases of luxury products have been made on the stores VIP card. The consumer saves money on a luxury product, the supermarket takes more cash, and the brand sells product that perhaps it might not otherwise in the current market situation. The last point of this piece relates to the new regulations restricting gifts given to and purchased by government officials, departments and state owned businesses. It is a common practice that a ‘perk’ of working for the government is money given towards living expenses that increase in amount the more senior a position that person holds.

Unsurprisingly as part of a monthly subsistence allowance, government officials are given a pre-paid Lianhua VIP card, to use as they choose in the supermarket! So there we have a Chinese solution to two challenges facing the luxury sector at this time, and who would have expected supermarkets to be the answer?


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