Where’s the money?

Naturally, we don’t hear luxury brands moaning about business conditions in China; that would be unprofessional and provide the sceptics a chance to say ‘I told you so!’ But it’s clear that many of the better-established and well-known names are not doing particularly well here at the moment. The days of double-digit growth and sales figures are now a long gone memory, and their challenge is how to attract better travelled and more knowledgable consumers to spend with them?

Increasing prices in Europe and lowering them in China is one approach I grant you, but is it not a little like shooting yourself in the foot? We are all aware that in fact the Chinese consumer is still spending significant sums of money overseas even if they are being frugal at home. Operating costs for the brands are increasing significantly in China, which is also eating into margins and lower sales. But will bringing prices down in China increase demand, or will increasing prices overseas annoy the Chinese consumer to a point where they boycott those brands that they feel are taking them for a ride?

So where is the money? Well its actually in the hands of the Chinese consumers. It hasn’t gone, there is still plenty of opportunity to tap into it, but it is now being spread more widely across their luxury lifestyle that includes the purchase of products, but now involves spending on experiences and feeling good. They have many handbags, shoes, cloths and watches, and although they will not stop buying these altogether they understand that traveling to a location where the air is fresh and clean is as much a luxury as is buying yet another watch.

What many luxury brands seem to be missing is the concept that they are selling lifestyle and communicating this with the consumer, rather than selling them a product. Promotion appears to be very two-dimensional and often with little or no context, so the consumer ignores it. The concept of a luxury lifestyle may not be totally clear to the consumer, but given visual references, they will learn fast. Brands need to learn to keep up with the Chinese consumers changing attitudes and experiences and importantly to follow the money.

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.