September 2011 – The Hong Kong Institute of Certified Accountant has published a relevant article on Chinese Luxury Business. This article is for a broader audience of professionals; especially for valuers and investors looking to assign a number to a luxury brand’s name. Sacha Orloff is quoted in the following article, and would like to add other significant points, which we believe to be relevant below:
By Alexandra Orloff
The Chinese purchasers of luxury brands differs from those elsewhere
The Chinese purchaser differs from any other consumers due to its history of luxury consumption in China. This factor remains profoundly rooted into China’s cultural and sociological landscape. If one goes back few decades ago, during the Cultural Revolution there was a void in the luxury culture, however the same generation would purchase products, nevertheless their taste would be less than subtle and would be a mimic of the western signs of richness and power.
Now that social classes have reappeared, the strong desire of the Chinese constumer is to pursue his dreams of certain grandeur through the embedded tastes of their western counterpart; these principles influence strongly their purchases, thinking that their value system can be
leveled to the Western one. However, these scaled values have to compromise between their own traditional Chinese values, the socialist values and the western values regarded as the trend to follow in order to be seen as modern achievers, successful in their own society and worldly travelled. They still have to find peace and equilibrium between their own society and their personal display of wealth and status recognition inside China.
There are particular difficulties in measuring the value of luxury brands in China , after all, brands that do not command a premium in the West, such as Marks & Spencer, Wrangler and Buick, are considered chic in China
It has been demonstrated that 13 million households in China’s upper middle class offer the biggest new growth opportunity, thus accounting for approximately 12 percent of the market. For the western luxury brands, this new customer segmentation has a higher quality of life. The upper middle class population is capable to acquire luxury products. It might be a mistake on luxury brands to try mould and refined the Chinese customer to their own standard of taste; a great effort should be put in understanding the Chinese mentality to gain their loyalty. One important point also, is that the Chinese consumer is relatively young compare on average of their counterpart in Europe, Japan and other old economies.
All depends of the perception of luxury; in my views, the Chinese consumer enjoys the thought of buying and acquiring luxury brand products, they are prepared and willing to show off their purchasing power, but they lack the know-how to leverage brands to create a sophisticates lifestyle. Now in the Chinese luxury market, with its rapidly increasing incomes, and a great access to internet, there is a wide display, choice and information on available luxury products. I believe than a larger number of Chinese consumers feel comfortable buying all sorts of products which in their eyes are consider as being luxury. A certain refinement has to be acquired by this new upper middle class; only time will tell if the West should not drastically change their own perception to be lined up for the Chinese market.
There is something unusual about the way Chinese consumers approach brands, compared with the West
With a high number of luxury stores, fashion magazines, websites and other use of social media, the Chinese consumer is extensively familiar with a larger number of brands and becomes more aware of the world of luxury goods and brands. In this process of time vs. awareness, the Chinese consumer becomes savvier about the relationship between quality and price. It is a matter of time before their knowledge of refinement will be intensified to the same level of their counterparts in the old Europe.
George W. Russell reports
Luxury-goods makers are racing into China, but the intangible nature of brands – especially on the mainland – spells trouble for valuers and investors looking to assign a number to a name
When Italian luxury-goods company Prada made its initial public offering in Hong Kong in June, it was an unabashed bid to court Asian, and especially Chinese, investors. “An IPO’s location represents the market where we’re heading,” Prada’s chief executive, Patrizio Bertelli, said before the listing.