With rows of luxury brands, a stroll through the streets of metropolitan China is akin to walking through Rodeo Drive in Beverly Hills, New York's Fifth Avenue and Champs-Élysées in Paris.
A closer look, however, will reveal that international labels such as Chanel, Hermes, Prada, Givenchy, Versace, Audi, BMW, Lexus and Mercedes-Benz outnumber China’s homegrown brands.
In pointing out this trend, The Economist quoted Bruno Lannes of consultancy firm Bain & Co. as saying that the "Chinese have become, and will remain for a long time, the most important luxury consumers." In the same article, Bain estimated a 6 to 8 percent increase this year in luxury sales in the Greater China region. Value will exceed $35 billion, making Greater China, including Taiwan, Hong Kong and Macau, "a luxury market second only to America."
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As explained by Stark Design owner and creative director Daniel Stark to Global Sources, designer labels have attracted all kinds of fans and customers, from celebrities to fashionistas and other brands that aim to emulate them." In China, the same rules apply but are amplified because of the rising middle class and their disposable income, and individual Chinese consumers’ desire to join world trends and customs."
Dorian Ho, CEO and creative director of Dorian International Ltd added his observation that Chinese consumers, coming from a developing country, still look up to the outside world most of the time. "Being able to wear international luxury brands reflects one's status, success and wealth."
Or as Maosuit.com founder Timothy Coghlan put it, foreign labels are experts at branding and creating aspirational marketing and lifestyle dreams that the Chinese would prefer to buy into.
Their relative newness and the "fake China" stigma are working against domestic prestige brands as well.
Most international labels, characterized by their iconic logos, colors and patterns, have nurtured their products’ high level of quality, finesse and craftsmanship over a long and extensive history.
In contrast, China luxury brands are relatively young, having emerged just a few years ago, and have yet to map out mid- and long-term plans.
China companies have to “invest a lot of capital, patience and confidence, which could take decades, in building up their brands,” said Ho of Dorian International.
As for being called the land of fakes, China is working its way out of this particular epithet.
Fashionbi business development manager Ambika Zutshi spoke of authorities breaking up suppliers that peddle counterfeits of many designer brands, including Coach, Chanel, Moncler and Louis Vuitton. “News of such, once it goes international, is sure to affect the local fashion circuit,” Zutshi said. “People, however, have also started to look at the quality products coming from China as Shanghai Tang, Vivienne Tam and other budding brands gain a good reputation abroad.”
Even within China, industry observers have noted a growing disdain for fake products. This is particularly true among middle-class consumers who, having realized that quality and craftsmanship trump appearance, are becoming more sophisticated with their choices.
The next step would then be to “shift the taste of domestic consumers from a western-biased aesthetic to one that is decidedly sophisticated and Chinese,” said Daniel Kong, fashion writer of The Black Renaissance.
For Zutshi, this movement is already underway. Luxury no longer means flamboyant logos, but something more sober, subtle and elegant. Young Chinese have an entirely new way of defining their status, opting for products that are more traditional and, therefore, unique. “They prefer Shang Xia over Hermes, realizing the potential of their own creative, and are ready to invest in local products.”
About 90 percent of Shang Xia’s products are China-made. These include a $5,300 porcelain tea set with handwoven bamboo thread and cashmere felt coat worth about $6,400.
Hermes' "created in China" luxury brand, Shang Xia is proof that consumers’ pride in their country’s own design capabilities will carry the label’s success internationally. Last September 2013, it opened a 750sqft store in Paris, the first outside of China.
Shang Xia is just one example of what the industry has termed hybrids.
Aware of mainland China’s still lucrative market for prestige labels, many Western companies have launched entirely new brands that combine the foreign “parent’s” established quality and reputation with a distinct Chinese appeal.
Estée Lauder’s Osiao, which debuted in Lane Crawford stores in Hong Kong in October 2012, uses specialized formulas that contain Chinese plants such as ginseng.
Germany’s BMW collaborated with local carmaker Brilliance to create the Zhinuo, or Zinoro as the brand is called in English. The electric car is set to go on display at the Guangzhou Auto Show this November and will be available only within the mainland.
Based on the Mercedes-Benz B-Class, the Denza will also make its first appearance at the Guangzhou car show and will go on sale in the mainland in first-half 2014. The Denza is from the Daimler-BYD joint venture.
Hybrids may be the go-to business model but the fact that they are part-Western puts their authenticity to question.
Bundshop cofounder and marketing director Stephany Zoo wrote about this in detail in Jing Daily. In the article, Zoo asked whether these hybrids can “really be considered ‘Chinese heritage brands’ in the same way Chanel is considered intrinsically French or Gucci quintessentially Italian,” with several industry influencers giving their opinions.
This dilemma therefore underscores the need for China to make its own original products, innovating sans a western precedent. Doing so will foster China pride and encourage consumers to support homegrown talent, consequently lowering demand for foreign brands. Such a move will cut down on counterfeiting as well.
Regardless of whether they partner with a Western company or take the heritage route, suppliers need to leverage the novel concept that is China luxury brands.
The Black Renaissance’s Kong said companies need to take advantage of this curiosity to showcase their work.
Once the novelty wears off and as Chinese consumers become even more seasoned and sophisticated, however, “China prestige labels will need to compete on an even playing field with their western counterparts,” Kong added. “They will need savvy business and managerial skills to match up against foreign brands that already have both the financial clout and deep-seated experience in the luxury industry.”
All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.