Why Luxury Boom While Others Bust in China

on March 21 2011 | in Lifestyle Retail Trends | by | with No Comments

Just when you master a list of rules and guidelines about selling and marketing in China–a love of quality, a zest for hypermarts, an acquisition lust for status–a new list emerges that wipes out the earlier list. The best advice a foreign marketer can take is that there are no hard and fast rules, that China’s rising and wealthy classes are dynamic, and that a lot of care and homework must be done as a result.

The electronics retail market is a telling example. The news in the recent months that Best Buy was putting the Closed sign on stores may have puzzled many not familiar with the nuances.

How is it that luxury brand retailers like Prada and Gucci are on an expansion roll yet Best Buy is not? While world-famous luxury brand retailers are crowing over great success, Best Buy had poor results.

Best Buy last month closed all nine of its branded stores in China after five years in the market. B&Q and Home Depot also left China for similar reasons: an inability to compete with entrenched local competition. (Best Buy will focus on the local chain 5-Star it acquired several years ago.)

China Market Research Group offers a numberof reasons why some industries, unlike luxury clothes and accessories, do not thrive. In the case of electronics, no matter how you tag and dice the reasons, the reasons boil down to price.

China’s consumers might put away hundreds of dollars to save for a Louis Vuitton bag or Prada scarf, but they want to pay the least possible for the same item, like a smartphone or DVD player, that they can find in numerous local stores for less.

Local retailers in China find price undercutting easy because they pay less in salaries, benefits, rent and electricity. Unlike Best Buy, a local shop might not only be selling a laptop at a bargain price but may be willing to load pirated software on it too.

Another reason is failure to be unique. There is little reason to buy something at Best Buy if the item is as easy to pick up at a local shop anywhere around town.

One important exception is Apple’s enormous success in this competitive market. Like a Louis Vuitton belt or Prada scarf, Apple has brand power or capital. The real Apple, not any counterfeit Apple, is special and unique. Apple’s army of fans in China flock to Apple stores because they know they are getting the real thing. Fact: Apple’s new store in Shanghai sells more iPhones per square foot than any other store in the world, despite the phone being priced 30 percent more than in the United States.

Just when you think these principles stick, along comes the latest news that the foreign retail story in electronics continues to draw hopefuls, in spite of the Best Buy experience.  According to the Financial Times, Media Markt, the German retailer, will expand in China. Media Markt plans to add another store to its flagship store in Shanghai and plans another 10 stores next year.

[financial times]
photo credit: jiaart.net

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