Luxury's Chinese Puzzle: Overcoming Challenges To Tap Growing Demand

SHANGHAI — Luxury brands may be eager to capitalize on China's expected boom in demand for upscale products; they just have to figure out how.

Despite a continued increase in average annual income, a plethora of Western designer and luxury brands opening stores in Shanghai and Beijing and increased levels of Chinese tourism, there is still no one clear strategy for tapping into the Chinese consumer's growing spending power. Among the challenges brands face are:

• Vast disparities in wealth levels between urban and provincial areas, with much of the money still concentrated in the hands of government officials.
  
• A more conservative attitude toward consumption than other developing markets.
  
• An already developed awareness of prestige brands and of quality.

Many brands remain cautious about even entering the Chinese market, and some executives say Russia and India offer more short-term potential than China. Others say that Chinese tourists will be the first market to tap, but Mainland China is a long-term priority that won't bring benefits for years.

"Luxury is not the most immediate need for China," admitted Gianluca Brozzetti, chief executive officer of A&G Group. "Things like infrastructure and maintaining the maturing economy necessarily come first. But luxury goods are at the top of meeting a need for rewards."

A&G, which owns the Asprey and Garrard brands, has ambitious Asian expansion plans, including shops in Hong Kong, Japan, Malaysia and South Korea. There are no plans for Mainland China until 2006, but Brozzetti is familiar with the market here from his previous position as president and ceo of Louis Vuitton and a 13-year stint with Bulgari.

"With brands like Louis Vuitton and Bulgari, they have been active in the evolution of the Chinese market, the creation of a demand for luxury to satisfy demand for something to reward oneself for hard work ... There is an intelligent way in; China has a culture that brands must be cognizant of."

Brozzetti was among several luxury goods and fashion ceo's who discussed their views of the China market while visiting Shanghai for the Financial Times Business of Luxury Summit last month. As noted, the executives speaking at the conference believe it will be a long time before China overtakes Japan as the most important luxury market in the world.