03
Sep
2012

Balancing market expansion and brand perception in China

The recent poor results from Burberry were blamed fair and square on China and a slowing economy, and although brands like LV have avoided commenting on the subject of a slow down and the potential affect on their business, others show signs of following suit. By contrast, other brands such as Hermes saw its performance increase by 28% in China and appeared not to be worried. Their biggest fear is losing their exclusive status in the eyes of the Chinese consumer, hence their considered and steady store opening programme.

So why might Burberry be suffering? Two potential reasons relate to their consumer base in China. Their consumers are typically 35 to 60+ women whose husbands are ‘gold collar’ senior company executives or business owners and CEOs. It’s quite probable therefore, that cultural fear of unknown economic times ahead has caused the household purse strings to be tightened. Equally, there is a very strong argument that this group of consumers are also those more likely to have taken a holiday in London this year to see the Olympics or perhaps anywhere else in the world for that matter, when they also planned to buy luxury goods whilst abroad because exchange rates and tax rebates mean savings, hence sales in China in June and July would be depressed. It would be interesting to see whether brands like Burberry turned in better YOY sales in London when the Olympics were taking place. For a further possible reason of poor results in the summer for some luxury brands, take a look at the Tan Lun (gossip) section of this review!

The challenge of maintaining exclusivity faced by brands in the luxury sector should not be ignored by Burberry. Their bumper 2011 results may well have indirectly backfired on them and in effect created a negative view in the eyes of the luxury consumers that they are too ‘common’ as a brand. Assuming that luxury consumers particularly in tier one cities will just keep on buying because of your brand name, is becoming more of a risk, which is supported by regular comment in the media that high end consumers want less stores from brands like Hermes and LV, not more. The fine balance between a large enough nationwide presence to be seen as trusted and being on every street corner like 7 Eleven in order to extend the brand reach, is one that many organisations are now pondering in China. The adage ‘less is more’ is beginning to ring true here.

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