China's Luxury Goods Market May Escape the Worst of the Global Economic Crisis(2)
Strategies for success in Luxury goods.
The strong growth reported by luxury heavyweights LVMH, Gucci Group, Versace, and Hermès, combined with the factors above, are reasons luxury retailers can be cautiously optimistic about the China market. Even if sales dip in the short term, China will likely be a major long-term growth engine for the global luxury market. Meanwhile, luxury retailers should consider the following strategies to improve the luxury shopping experience in China, secure the loyalty of Chinese consumers, help weather a sales slump if one occurs, and be well-positioned for stronger growth when demand picks up again.
Prepare to serve a wide range of customers
Luxury retailer on the mainland must be able to serve a wide range of consumers, from the first-time luxury purchaser to the superrich. Salespeople must be able to provide guidance and education to newer entrants to the luxury market, especially for fashion items. According to CMR research, women are generally interested in learning how to apply cosmetics and about the most recent fashion trends, and men are interested in learning how to match items, such as suits with shirts and ties, and choose gifts for wives, girlfriends, and clients or business partners.
Improve Service
In CMR interviews with new luxury shoppers, many respondents have described mainland luxury retail salespeople as unhelpful, intimidating, and sometimes rude. Salespeople must be trained well to make shopping a pleasant and luxurious experience and represent their brands’ lifestyle to shoppers.
Offer lower-priced luxury items
New luxury shoppers also need access to starter luxury items, including signature accessories--such as belts and key chains--and lower-priced bags and wallets. CMR research shows that shoppers want to touch and try these items in the store before purchasing them. Retailers should accommodate these needs by making such items easily accessible.
Offer top-of-the line items too
In addition to starter items for new luxury shoppers, mainland luxury retailers must offer the newest, top-of-the-line items to satisfy China’s seasoned superrich--shoppers who are typically looking for items that will make them feel special and stand out. According to CMR research, many of these experienced luxury shoppers are unable to find the newest products and brands they want on the mainland. Many have been going to Hong Kong, and the superrich have been traveling to the United States and Europe to gain access to the latest fashion items.
Educate consumers about the brand
Besides educating consumers about products and fashion, luxury retailers need to educate consumers about what their brands represent. Versace communicated its high-culture, high-fashion image well in its first fashion show in China, held in November 2008. Versace chose Beijing’s new Legation Quarter--a new “lifestyle development project” near Tiananmen Square and the Forbidden City--for the show’s location. Local elites and celebrities such as Jet Li attended the event, which included a dinner and auction to raise money for victims of the May 2008 Sichuan earthquake.
Though Versace’s fashion show communicated its brand image to those in China’s super-elite ranks well, next year Versace and companies like it should also communicate to those who aspire to join those ranks. For example, when Salvatore Ferragamo Italia SpA chose Shanghai as the venue for its eightieth anniversary celebration, in addition to hosting fashion shows and parties for the city’s elite, it erected a giant replica of its famous rainbow-cork-wedge sandal outside its Shanghai location to be viewed by the masses. Given that the number of millionaires in China in 2007 rose about 20 percent over 2006, according to a Merrill Lynch and Capgemini estimate, companies must target China’s aspiring middle class today to reach next year’s millionaires.
Cautious Optimism
Because China is an integrated part of the world economy, growth in Chinese demand for certain luxury products and brands may slow as a result of the current downturn. But considering strong numbers from key players thus far, government initiatives, and existing trends in the Chinese economy, such as record-high growth in retail sales, CMR remains cautiously optimistic that China will remain a strong growth source for luxury brands. Luxury brands should continue to prioritize China as a key driver of global growth in the coming months.
