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Jun
2015

The men’s sector is on the rise

2012 wasn’t a completely miserable year for many brands after all. The slowdown of the Chinese economy and the perceived unsatisfying performance of the Chinese luxury sector, seem to have stirred a lot of media concern. However, businesses need to be realistic about the double-digit growth rate. Here is what a Chinese business owner and luxury consumer said about the market in China: ‘ When money is easy to make, our focus is just about how to make more. As the market has become more difficult, we need to think of new ways of development and focus on quality.’ We hope that the executives of luxury brands have the same attitude.

man luxury

We see the beauty of it

After all, it is not a bad thing. For people who live, breath and work in China like ourselves, we see the beauty of the market; the growth potential across different product categories, and the existence of different levels of products that suit consumers of different sophistication. The Chinese Luxury market is now facing a new era of consolidation, which means looking for new growth potential while increasing the standards across the board, from product quality and uniqueness to retail service.

Over the past few years the needs of Chinese men have been acknowledged more than ever. Their growing luxury consumption is estimated to represent over 50% of the overall Chinese luxury market. In our January/February Luxury Insights China report we discussed luxury SUV consumption, and with watches and cars being considered the symbol of men’s status, we have seen tremendous double digital growth in both these sectors in the last few years (except for watches in 2012). For a 30 something young local businessman, owning several Porsche’s, a Ferrari and a Bentley is not unusual.

Luxury brands have been looking for new growth point, and for them the male sector is on the rise.

What has driven the market changes?

Women have been the focus of growth luxury sector in China most of the last decade as they have elsewhere in the world. However, with more choices available to them, low brand loyalty and more opportunities to shop overseas, luxury fashion and accessory brands have naturally moved their attention to men. In China, male consumption is still quite heavily influenced by women; especially in terms of skin care, perfume, and fashion, while watch consumption remains a male domain. Based on our research, over two thirds of high-end or luxury skincare and perfume purchase’s are made by women for men. On many occasions and in certain cities, the female would choose fashion brands and styles for their partner. Therefore, to create an extension of the current female line, leverage the brand awareness and trust that has been invested in and created in recent years, is a logical approach.

And of course Chinese men are changing. Their luxury consumption originated from business needs. In early days, it showed through wearing watches, clothing and bags featuring big logos to demonstrate their personal wealth, which then evolved into the current trend of wearing brands with recognisable features. Their purpose, to enhance their position in business, ensuring they are seen or included as one of a group, giving luxury products as gifts to business partners that recognise his or her value and demonstrate their own taste and wealth.

While Chinese have become more international, more business people have travelled overseas (The Travelling Chinese, October Luxury Insights China report), studied overseas themselves or sent their children to study internationally, and as a result have started to observe, understand and become inspired by what they see. From our market connections, we know that there are many local connoisseurs of wine, watches and shoes, and a growing group of relatively sophisticated consumers who now know more about brands, style and what would suit them best. More consumers of all ages are concerned about how they look and prefer slim cut clothing, wanting to look younger, stylish, and tasteful.

In discussions with wealthy consumers we have seen the trend that men are spending more heavily on leather goods than before. In addition to leather bags, hand-made shoes have also become an important growth focus and have very high loyalty among male consumers. From our study, the men’s sector has certainly moved towards personal consumption, although the business gifting market will still continue to exist. Male luxury consumers have become more selective and rational in their choices.

If the male consumers in tier one cities are more in charge of their own purchase choices, their peers in smaller cities are quite different, and at least five years behind. These men have less international experience and follow a relatively traditional lifestyle. Purchase choices for clothing and accessories are mostly influenced by their wife or partner, and are for business use in the main. Also amongst this group, brands with a higher awareness and bigger geographic reach are still favoured.

This geographic and demographic tapestry is what we would regard as ‘the beauty’ of Chinese market; different tier cities and consumers are on a conveyor belt, they are at different development stages on their path to greater knowledge and confidence, which as a result creates greater growth potential for brands operating here.

The market response to growth in the male market

Menswear brand Ermenegildo Zegna first opened in China in 1991, and has enjoyed high brand awareness alongside of several other long established menswear brands such as Dunhill, and Hugo Boss. Of the 50 new stores Zegna opened in 2012, one third were in China. Its 28% sales growth in 2011 was almost halved in 2012, however, we would support the sentiment of The CEO Mr Gildo Zegna that the market growth doesn’t stop because of the general slow down of the economy and what matters is to adjust to a more realistic growth rate of 10-15%. In 2012, growth for the brand was fueled by the demands from tier two and three cities.

Brands that have always catered for both male and female consumers have also put more focus on the menswear sector. Ferragamo opened its first Chinese men’s only store in Urumchi, Northwest China in 2008, and added two more stores in 2010. In the January/February Luxury Insights China report, we wrote that Burberry had reported that its men’s clothing sales in Asia was up 50 percent over the previous three months of 2012, and that sales of men’s accessories including handbags, shot up 40 percent.

Italian leather goods brand Bottega Veneta only started its male-only stores globally in 2011, its first store in China opened in Shenyang, Liaoning Province that year, and was followed by opening the second in Shanghai in 2012.

To benefit from the male market growth opportunity, Gucci introduced a men’s tailoring service globally in 2011, in the same year it opened its men’s only stores. At the end of 2012, it had six in total, two in China and four in Asia. The two stores were opened in Shanghai and Beijing respectively in 2012, offering clothing, bags, shoes and tailored suits and shirts.

LVMH group also intensified its investment in menswear brand Berluti to leverage the market potential, opening its first store in Beijing in 2005, and now has seven stores in Mainland China. Currently one third of all the Berluti stores globally are in China, and half in Asia.

Amongst all the new comers, Dior Homme is a rising star. Although at a high price point, with its simple and slightly retro style, it appeals greatly to Chinese fashion seeking male consumers. The brand has adopted a strategy to leverage the success of its female lines that are popular here, and by opening male stores next to its female ones. Currently 30% of Dior male stores are in China representing 70% of all its Asian outlets. Geographically, five of its seven stores are located in North and Northeast China, which are very much male orientated regions.

On the affordable brand level, Coach has been pushing sales to men aggressively over the past 24 months, and appointed Lee-Hom Wang as the brand Ambassador. He is particularly popular with young Chinese consumers, as mentioned in the December Luxury Insights China report. The brand opened three men’s only stores in Shanghai and Shenyang, Northeast China. Since 2010, it has introduced the male collection throughout 69 of its stores. It is also reported that the brand will continue with its expansion into tier two and three cities, enhance its men’s product line and expand its e-commerce capability.

Male consumption is no longer focused purely on clothing, expanding from formal and casual wear, brands have been busy adding shoes, handbags, and watches, to their existing product lines, aiming to retain their existing consumers and expand sales revenues.

Who are the big spenders?

Men in their 30′s and 40′s have always been the biggest male spenders in China due to their earning potential and the greater variety of product purchases they are able to make. While all the luxury brands are chasing successful businessmen and celebrities, the middle class is not a group that should be ignored. The Chinese middle class is aspirational and constantly thinking of how to build and live a life of quality, ownership of luxury products is considered a sign of success for career high-flyers and mostly as self-reward by women. This mentality is key for brands that are to develop in China and more discussion on the topic can be found in the fellowing section of this report.

As we all know, Chinese luxury consumers are younger than their equivalents in the west. Many of the urban younger generation middle class are spending more on leather goods and accessories, they have good jobs and benefit from financial support from their parents. They are cash rich and willing to spend sometimes beyond their means. They are the generation looking for individuality more than brand names. This has become a challenge for many brands trying to reach down to them, although they may wear some formalwear, they typically want something more casual and relaxed. Brands like Zegna have reacted by introducing Zegna Sport, and others have followed similar approaches.

The market opportunities

It would be very wrong to generalise about the male luxury consumers in China. However, there is a clear trend
that this consumer group is evolving; some have become more sophisticated and most are still developing their appreciation towards luxury. We believe that brands will need to understand them better, and continue to differentiate the offering.

Successful businessman in their 30′s and 40′s, have already had the opportunity to show their wealth, and now they have a need to demonstrate their taste and social associations. They are progressively moving up the brand ladder are looking for what they consider ultimate luxury. In discussion with HNW consumers recently, they reinforced our view that, in their eyes, luxury consumption is now about experience and not just the product. Men are relatively loyal to brands, and want a better understanding of what the brands stand for, and will remain with that brand specifically for this reason. The opportunity for some brands here is to organically grow their reach through this type of male consumer, their peers and circle.

There are many local operations of luxury brands loosing this group of consumers to their overseas stores due to the increase in overseas travelling and price difference. Our expectation is that these brands will still enjoy the growth in tier two and tier three cities, but where they need be cautious within the next 12 to 24 months, is that a good percentage of this group will move up the luxury ladder and may leave them.

Luxury brands will still remain the attraction for the growing aspirational middle class, but unless product prices in China decrease, the price sensitive middle class will still retain a preference to purchase overseas. The younger generation have disposable income and are an important demographic. By comparison to their peers in the west, they spend large proportions of their earning on luxury leather goods and accessories, but less on expensive clothing. We see a clear opportunity for affordable premier brands and designer brands to provide them with a good story and the individual style they seek.

Summary

The Chinese market offers something for all brands. However, even though the men’s market is on the rise, delivering value is important for brands to thrive. Returning to the quote from the Chinese businessman at the beginning of this piece, his words reflect the fast growing luxury sector in China. It is now time to differentiate, understand more about the customer, show them you care and deliver value they demand.


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