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Discrete is profitable, and fashionable

If you have already read the Fashion and Accessories section in this month’s Luxury Insights China, you will be aware if you weren’t already, that most of the big brand names in China posted results for Q3 that were lower than predicted as consumers apparently voted with their wallets. The reasons for the slow down in the market according to others and us is as a result of the general caution about the economy, and the recently completed party leadership elections.

The party leadership, at least at the very top is now defined, so one of the areas of consumer concern has been slightly negated, although no new policies have been introduced or announced yet. For Chinese very wealthy consumers, there has been a higher level of confidence than perhaps for the middle and upper middle classes, some of which is to do with connections into the networks of power that wealthy people have, and some just because they have relatively more money which brings relatively more confidence.

It would appear that those with a lot of money have still been spending it, although more cautiously than before, but this caution has in turn resulted in them investing in specific types of luxury products or brands, and in particular those that are more understated, niche and less obvious. This is a good thing in our view, as these consumers are now taking the time to learn about brands and to appreciate their specific values rather than just buying something because they can, so every cloud does have a silver lining.

What has also been fascinating to watch is the difference in attitude between the more visible brands whose year on year results in China have been in single digits, and those who have retained a level of discretion and exclusivity. Ever since Hermes has been in China it has maintained a slow and steady approach to expansion that may have been difficult for consumers to understand initially because compared to its competitors. It retained a low and modest profile, and never pushed itself on the market in a glitzy manner.

Another brand that has maintained a relatively discrete presence, although it does have many stores in China, is PPR’s Bottega Veneta that turned in great results for Q3, and had year on year growth of 35.1% for H1 2012. It almost invisible logo and understatement have made it very popular with celebrities which in turn has made it popular with consumers as a sign of being fashionable and having good taste.

The challenge for those brands whose results for China were low, but for whom, on China they rely is not to panic. Reading the situation better than perhaps they did earlier this year is important, as is staying calm. Consumer attitudes were already changing last year and early in 2012, the concern among those who can afford luxury products has just moved the concept of selectivity forward more quickly. People learn fast in China, because they have had to, so luxury brands need to take this on board and deliver products and services that match the needs of 2013. Living in the good old days of 2011, will no longer cut it.


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