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Jun
2015

The affordable luxury sector in China

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The affordable luxury market

In China, the traditional luxury brands are still ‘luxury’ to the majority of consumers, and in their eyes, existing fast fashion brands cannot meet the requirements of quality and design. So the affordable luxury market fills the gap between the ‘Luxury market’ and ‘Mass market’.

The concept of affordable luxury was first introduced into China in 2008 when Coach increased its investment in the market. The industry generally didn’t understand Coach’s positioning, and thought the concept was just self-hype from Coach to associate itself with luxury, and increase brand awareness. However, after its continuous growth in China since that time, people have realised that Coach did identify a huge and untapped affordable luxury market.

The influence of the social circle among Chinese consumers has a significant affect on ‘face-consumption’ and ‘social-consumption’ is common in China, and therefore any merchandise regard as, or related to ‘luxury’ is sought after by consumers. However, as they are not as wealthy as those in Western countries, affordable luxury is therefore relatively more easily accepted by the Chinese market for its lower price. Again, due to strong social attitudes, Chinese consumers can be influenced and educated, so that when a brand enters China with successful promotion and marketing that establishes the feeling of luxury, consumers tend to have a perception that this is a luxury brand, and do not question it.

In our blog at the beginning of 2013 we stated that, as the traditional luxury industry slowed down, we expected that this year may be the year of affordable luxury. Brands such as Michael Kors and Kate Spade as competitors to Coach, are increasing their investment in China. Michael Kors for example plans to open 100 stores in the next 3-5 years. The affordable luxury influence is sweeping across China and not only has the concept been mentioned frequently in the media, but also dozens of stores have opened in first-tier cities like Beijing and Shanghai or second-tier cities such as Hangzhou and Changsha positioned within the sector.

In our opinion, affordable luxury will overtake fast fashion and become the new growth area of China’s fashion industry because:

  • As the economy slows down, people are more cautious in their spending and some mainstream luxury consumers decide to purchase affordable luxury brands instead.
  • With the luxury market slowdown, brands and retailers start to promote affordable luxury sub-brands.
  • Consumers are more educated, and are now not only looking for big brands or logos; they want something that fits their style.
  • The media hype associated with it and as a result, others will naturally follow.

The trend

The affordable luxury market will be a rapidly growing sector in China. According to the McKinsey’s report, ‘Winning the battle of China’s new middle class’, the middle class* has accounted for 68% of urban households, and the upper middle class** accounted for 20.5% in 2012. It estimates that by 2020, this proportion will reach 75% and 45%.

Affected by their own economic situation, the middle or upper middle-class may save a month’s salary or more to buy a luxury item to reward themselves, but they will never buy a large number of luxury items. More often, they will choose cheaper and more cost-effective brands, however mass market brands or fast fashion brands cannot meet their requirements of design and quality, and affordable luxury becomes their best choice.

In particular, mass market products greatly increase the risk of wearing the same kind of dress as another woman. A recent authoritative fashion website survey indicated that 89% of the 26,500 users regard wearing the same kind of dress as someone else, as the most embarrassed thing when purchasing clothes. The exclusive, personalised, stylish affordable luxury brands will be their best choice, particularly for the upper middle class.

Insiders are also generally optimistic about the market.The former president of Dior fashion and current Chairman and CEO of Michael Kors Greater China, Patrick Lee is reported to have said “In the next 10-20 years, China will enter the educated luxury consumption era, and affordable luxury brands will become the main force of the luxury market. The current China luxury market is similar as the Japan luxury market 10 years ago, which is personalised, and rational now. China will follow that principle.”

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What is affordable luxury in China?

Naturally different people have different definitions of affordable luxury, and brands also have a wide range of product lines at different price points, therefore agreeing one clear definition for affordable luxury is not easy. Based on our experience, we consider the following are the key features of affordable luxury:

Original design
Original, personalised, but not extreme, it is suitable for daily wear and takes into account that consumers are young with relatively fast changing attitudes. It is also relatively exclusive.

Excellent quality
High-quality fabrics, well-made product with a finished quality much higher than that of premium and fast fashion brands

Brand value
Heritage is important. The affordable luxury brands should either has a long heritage, or founded by a famous designer name with their own unique history and heritage, alternatively it should be a sub-brand of a mainstream luxury brand

Affordable price
The major difference between luxury and affordable luxury is the price. Affordable luxury is semi-exclusive, and reaches a broader range of consumers. The price may range from 2000 to 10,000 RMB per item.

Quote from a middle class consumer:

We pursue a better experience through shopping, but will never become impulse or shop for vanity. Our income is not necessarily high, but we like, and are willing to buy some high quality items that we can afford, we are rational consumers of luxury goods. It was named as ‘affordable luxury’. Its not about money, status, occupation or age, it is all about attitude, its part of our life.

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Affordable luxury consumers

The affordable luxury touches consumers from many backgrounds; beginners to experienced fans, white-collar workers to HNWIs. They have some disposable income, connoisseurship, and in particular, a certain understanding about fashion.

  • Due to the economic slowdown, typical luxury consumers are now more cautious with their spending, they may buy some affordable luxury and mix-and-match it with their existing luxury items. It still fits their status without spending too much money.
  • Ordinary gold-collar or upper middle-class are the major consumers of affordable luxury. They have the money to buy some luxury items, but to buy luxury goods for daily use is beyond the capabilities of most of them. While the mass or fast fashion products cannot meet their requirements of a quality life, affordable luxury has become their preferred choice.
  • Ordinary white-collars workers are more likely to reward themselves with high value items after hard work. The luxury brand is too expensive and therefore an increasing number of them choose the more cost-effective affordable luxury items.
  • And there is a small portion of students who will buy affordable luxury goods after graduation from university, not just to reward themselves but also to leave a good impression on their new boss or colleagues.

Compared to typical high-end luxury buyers, the average age of affordable luxury buyers’ is lower, and generally young people will buy affordable luxury after they start work. However the style of affordable luxury in China is relatively young and not suitable for older consumers. These older consumers also have the wealth to buy luxury. Therefore, the target age range for affordable luxury brands in China is from their early 20’s to 45.

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Affordable luxury brands

As the focus of the global luxury sector, many international luxury brands want to enter China, and develop a profitable position, and plenty of brands in the sector give consumers a great deal of choice. However, at the current time these brands need to put more effort into clear positioning and to become more recognisable to the middle classes. In this very competitive market, the media and word of mouth can easily affect consumer perceptions and first impressions.

With the concept of affordable luxury and the growth of the sector, some Chinese and foreign brands have leveraged and aligned themselves with the term to raise awareness, brand image, and importantly, their sales price immediately.

Brands that actively position themselves as affordable luxury

Danish shoe brand: KBY

Spanish fashion brand: Haberdasher Y

Chinese designer brand: Defaut

Those that have established affordable luxury positioning of their existing brands

Inditex Group(Zara): Massimo Dutti

H&M Group: &Other Stories

Cabbeen (Chinese designer brand): Cabbeen Chic

Septwolves: Mingshi bespoke

Brands that have used affordable luxury to increase their sales price

Ochirly, A Chinese female fashion brand, that In 2012, LVMH Group bought a 10% share in

How perception in China can ‘box in’ a brand

The subject of getting brand positioning correct before entering China has been discussed at length in Luxury Insights China before. A great deal of effort is required to set this in the minds of the media and consumers pre-entry, or they will set it for you, after which changing it can be very difficult. Here are two brands that should be seen as luxury, but are labeled as affordable luxury in China.

Roger Vivier as a famous French luxury shoe brand is frequently mentioned as affordable luxury across the Chinese network media

Mulberry may want to loose the affordable luxury label it has in China, but still has a way to go.

Opportunities for the brands outside China

China’s huge and rapidly growing affordable luxury market is an opportunity for foreign brands that have not yet entered or are currently just entering China. Over the past 20 years, the luxury sector has rapidly developed and the brands that entered earlier, regardless of their current sales situation hold a strong position in the heart of consumers’ and a firm foothold in the market. New names are faced with overwhelming advertising of the big luxury groups, which makes it difficult to attract the attention of consumers.

However, due to the slowing economy, consumers are taking a more cautious view on spending. But with years of luxury consumption experience and a more mature consumption attitude, they are more selective, open minded and likely to accept less well-known affordable luxury brands of good quality and design. The difference from the west is that Chinese consumers learn new things quickly, and as importantly, can be influenced relatively easily. Coach succeeded in shaping the image in China that their luxury was ‘at your fingertips’ through effective marketing and advertising.

Apart from the promotion of the brand, the powerful propaganda from media and shopping malls will also attract the attention of consumers’ and help affordable luxury brands to establish greater visibility. Some of Beijing’s high-end shopping malls often cluster several good domestic or international designer brands together in one sales area. The Hangzhou Tower, a domestic high-end market leader, is also in the process of redeveloping its tower C, so that in October a number of affordable luxury brands will appear together in this part of the mall.

With Luxury brands reducing their expansion, shopping mall developers and operators need more brands to fill the available space, at the same time re-orienting their positioning to a lower level. This situation has created opportunities for affordable luxury brands that may have not be available in China before.


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