China’s new economic concerns aren’t all that’s giving brands like Louis Vuitton, Gucci, and Burberry a headache. “Consumers are still spending in China but they’re spending differently,” said Uché Okonkwo, executive director of Paris consultant Luxe Corp. Some of the problems these brands are encountering stem from their images in China, and revamps aren’t so easy.
Logo saturation is not new for Western luxury good retailers. The same boredom with bling happened in Europe and the United States in 2008. To meet with the new demand for tasteful, subtle luxury products that retain their value, the popular European brands that first descended upon the Chinese scene have to evolve quickly. “Luxury companies have to work harder to sell to them than they did five years ago. It’s a question of balance,” Okonkwo said.
Simply raising the stakes is not enough. Gucci recently launched a python shoulder back with a ticket price of $4,100, and Burberry has bought out a $9,700 alligator clutch. But still the brands struggle to project an expensive, exclusive image. Vuitton, Omega, and other “megabrands may start to show signs of suffering brand weariness owing to their early entry into several markets,” wrote HSBC analyst Erwan Rambourg. “We term this the ‘first-mover disadvantage’.”
Part of the reason Chinese shoppers see megabrands’ products as gaudy is because they see too much of them in general. In China alone, Vuitton mantains 39 boutiques, Gucci 54, and Burberry 66. On the other hand, Hermes has just 21 and Prada has 20, supporting many analysts’ theories that over-exposure saturates the market, while exclusivity drives sales. “The beauty of luxury goods is they’re scarce and therefore they’re reassuringly expensive,” said Rahul Sharma, founder and managing director of Neev Capital. “You don’t just want something that’s expensive that’s not scarce.”
LVMH’s second-half sales growth at its fashion and leather-goods unit is projected to grow 5 or 6 percent, compared to 10 percent from the first six months of 2012, estimates Eva Quiroga of UBS. She has downgraded the company to neutral. In comparison, she predicts that Hermes will grow by 12 to 13 percent, and Prada by 15.
The “absolute luxury segment” – featuring Hermes and the rest of the priciest goods — is the fastest-growing part of the market. Bain & Co. predicts it will keep outperforming other areas until at least 2014.
photo credit louis vuitton