Do Luxury Brands Need a Game-Changing Strategy in China?

on June 6 2012 | in Retail | by | with No Comments

Rising inflation and depressed securities and real estate markets have affected Chinese income and consumption, said Zhou Ting, executive director of the research center for luxury goods and service at the University of International Business and Economics in Beijing.

“It is difficult to forecast how long the decline will last and maybe it is time for many luxury brands to change their strategy in China,” Zhou added. The top luxury brands have already begun to do so.

“The Chinese market is evolving very fast and we need to be able to react to that changing market,” said Patrizio di Marco, president and CEO of Gucci. He cites this as one of the greatest challenges for Gucci in China. Gucci plans to open 10 new stores in the country this year, down from 12 last year. “It’s not (store) numbers, it’s how you engage with your customers that counts,” Di Marco said.

“Fortunately, we already established a large market share here,” he said. “Our objective is now to consolidate our market share.” Gucci, which pulled 22.6 percent of its total revenue from China in 2011, will focus on enlarging and relocating some of its China stores. Di Marco said Gucci will open more stores targeted at men and children.

Zhou Ting said that in addition to luxury goods, high-end consumers want a better shopping experience. The after-sales services available in China for international brands has long been considered lackluster. But Zhou believes, “The weakest link may be the easiest one to change.” In February, Gucci launched its customer service hotline in the mainland.

Gucci is not the only brand in need of a game-changing strategy. The first-quarter report issued in April by LVMH, the world’s leading luxury products group, showed that Asia excluding Japan did not rank among the top three growth regions for the group’s fashion and leather goods department, which is comprised of Louis Vuitton, Fendi and Marc Jacobs.

The growth of China’s luxury market will be about 20 percent this year, down 10 percentage points from last year, according to a Bain report.

“International luxury brands are cautiously optimistic about the future of China’s market, because of uncertainty in the whole economy,” said Bruno Lannes, a partner at Bain & Company.

photo credit: gucci

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