04
Mar
2014

How will the horse perform?

According to Chinese horoscopes, those born in the year of the horse are considered to constantly work at improving themselves. In my opinion, a parallel can be drawn with the necessary character of the luxury sector in China this year. The market in China in 2014 will remain at the same level as the previous year, not because consumer have less money available to spend, but because Chinese people are fast to learn and adapt, and the past 18 months has taught them new things; in essence their world has moved on.

Consumers now know that the lifestyle experience of travelling and buying luxury is enjoyable and they recognise that they don’t encounter the same experience, or the lower prices at home. Taking their foot off the accelerator has enabled them time to evaluate their spending and purchase choices, and now they seek new, and more rewarding luxury items. Its less about price, although saving money is a cultural pastime, its more about personal reward and satisfaction.

So if 2014 is a horse race among luxury brands, we can expect to see some of them falling at hurdles, by which I mean reaching a point where they are knocked back ungraciously by the market and consumer attitudes. Some brands will also have to pull up and stop because they had gone off too fast and over stretched themselves. These brands may have opened many stores, and found that their business and its growth is not sustainable at that rate. Others may stop expansion and actually reduce their footprint and exposure in the country. For those names that start as favourites to win the 2014 race based on their past performance, they may find that the competition and the course they must follow differs from their previous expectations, so they naturally drop back down the field.

Having said that the luxury market in China will be the same this year as it was last isn’t strictly true. It will still grow at the same rate as 2013, yet more consumers will spend on lifestyle products and travel internationally. But for those brands operating in China they will face the continued challenge of more conservative consumer spending against increased operating costs. Something will have to give, and so I expect those with a significant footprint and multiple stores in the same city to rationalise their retail presence. The greatest area of battle for many brands will be consumer mindshare, because if they cannot make a sale in China, they want to be sure that the brand’s operations elsewhere in the world still take the money.

Those brands with little or no presence in China are being presented with an opportunity to fight on similar, if not entirely equal terms to the incumbents. They need to invest wisely in building brand awareness, and engage with the culturally curious Chinese in a bonding process. Unlike a horse race on a circular track, the race for brands in China is across country, where endurance, adaptability and the ability to look at the near ground, while not ignoring the terrain coming up. Senior executives being the riders will face new and existing challenges that will no doubt test them to the limits, this year as they did last.

Ken Grant
Ken is the publisher of Luxury Insights China, he is regularly asked for his comments and opinions of the luxury sector in China by the media, and speaks at conferences on the subject. His international marketing experience covers 25 years, and most territories of the world.

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