#1?

Imagine you are a manager of a European or North American company. What associations would the word “China” evoke in you? Many managers would say that they see China as a threat. And for many industries, Chinese competition truly poses a serious problem. On the other hand, there are many industries that perceive China more as an opportunity than a threat. Especially producers of luxury goods seem to be almost crazy about getting into the country or about expanding there. Brands like Luis Vuitton or Tiffany&Co are opening new stores all over the country. New 2200 sqft Tiffany store has been opened just recently in Chengdu, one of the fast growing centers in the country.

So why is it that so many luxury retailers are trying to get there? One could argue that all this is happening thanks to the fast economic growth of the country, better standards of living and generally improving economic conditions. This is, without doubt, true. Chinese economy has been growing at a rapid pace of 10% for the last couple of years and conditions have improved. But is GDP growth really such an important indicator for a luxury retailer? I would say yes, but growth alone is not enough. There are certainly other aspects that have to be taken into consideration.

First of all, China has 1.3 billion inhabitants. Even a very small percentage of population represents immense market possibilities. In Chinese case that means more than 300,000 millionaires and annual spending on luxury goods of US$6 billion. Ok, now we know that there are many prospective customers. What might be even more interesting is to take a closer look at these customers, their behaviour and lifestyle.

One of the important things in Chinese society is status. People do not hesitate to wear luxurious clothes, watches or jewellery, quite the opposite. It is very important for them to look good in public. Besides, rich people (not only in China) usually care more about their status and appearance than other people. As a result, they tend to buy top high-end products. Another cultural aspect that is attractive for luxury brands is gift giving. Gift giving is very common among business partners. Needles to say, these gifts very often fall into a category of luxury goods.

Worth mentioning is also the fact that western luxury brands are widely recognized in China. These brands are established in the market and have been building their image for decades. Even if there was a Chinese competitor, he wouldn`t have many chances. Western brands already have a good selection and services and it is probably impossible to compete on price in the luxury segment.

So does that mean that all luxury brands should expand into China? Of course not. There are many potential dangers. China is still very far from matured markets like Japan, US or Europe. The truth is that not every company is making big money in China. However, according to some studies, China will become the second largest luxury market in the world by 2015. It is not so difficult to guess which country will be number one by 2030.

Links:

http://www.chinaretailnews.com/2008/03/17/1082-louis-vuitton-will-open-new-shop-in-suzhou/

http://www.insideretailing.com.au/articles-page.aspx?articleType=ArticleView&articleId=2487

http://www.hkicpa.org.hk/APLUS/0710/p24_29.pdf

http://www.atimes.com/atimes/Asian_Economy/EC15Dk01.html