Small Luxury Market Breakthrough In China

For small luxury goods, the Chinese market is a cake that is tempting but hard to chew.

One footnote is that Tommy Hilfiger, the popular luxury brand, that is, positioning luxury goods and fast food products, announced at the end of March that it would recover the retail and distribution rights in mainland China from the founder of disson.

"Since 1997, we have been acting as agents in Southeast Asia and China. But at the moment, we hope to accelerate our development in China, and this idea will benefit from our direct investment."

Tommy Hilfiger Group Europe communications director Abdel El Hamri said.

However, for small luxury goods, the Chinese market is a tempting but hard nut to crack.

"In any case, it is very difficult for a niche luxury brand to enter the Chinese market alone," said Lu Miao, founder and chief executive of Collective Luxury. "This is related to the high cost of registration and complex procedures."

She did not even talk about the high cost of competing directly in high-end department stores with large luxury brand rivals.

Jacques Penhirin, a luxury research expert at OC&C, a big European consultancy, said that the superposition of various reasons led small luxury brands to face a harsh living environment in China, such as Japan and other neighboring markets. "Unlike brands such as LV, these brands need to answer many questions if they can survive in China."

High speed growth VS cost

"You really should go to see the new store opened by LV today in Shanghai. The scene is too grand."

In April 28th, Jacques Penhirin, who was in Shanghai, said so.

On the same day, celebrities including Gong Li, Shen Xue, Zhao Hongbo and Momoka Ezu came out to celebrate the opening of LV's seventh flagship store in mainland China.

Large luxury brands are stepping into the Chinese market.

According to some data released previously, Ermenegildo Zegna plans to open more monomer stores in Beijing and Shanghai, and Burberry plans to open 4-6 new stores in China every year. LV plans to open two new stores in China every year. Prada plans to set up 15 stores in China this year, and Gucci hopes to open 3-5 new stores in China every year.

However, this rapid development is at the expense of the decline in return on capital.

According to OC&C's report, sales volume per square meter has declined, though sales of luxury brands have increased. Meanwhile, sales costs, labor costs, rents and advertising costs are on the rise.

According to the official data of Shanghai, the premium retail rents rose by 5% in the first quarter of this year compared with the end of 2009, while the annual growth rate of 15 seconds ads in the Shen Jiang service guide was 15.2% and 7.6% respectively.

"These factors have eroded profit margins, resulting in a decline in sales returns, and increased capital utilization at the same time, eventually leading to a decline in the rate of return on capital utilization."

Lu Miao said that most of China's multi brand channel shops are not high-end.

"Luxury brand stores are usually occupied by big brands in the store store mode, but this mode is too expensive for small luxury brands," Jacques Penhirin said. Another disadvantage is that China lacks the low-priced shops near the luxury department stores. "There are often cheap rental shops in the Japanese Dior and Gucci stores, which can be converted to low-cost designer studios, which provides a living space for small luxury brands.

And in China, can you find such a place next to Plaza 66, Hang Lung Plaza, Shanghai?

Channel breakthrough

Under such a premise, these small luxury brands are more interested in observing the strategy of multi brand channel enterprises like I.T. and lac Crawford to enter niche market.

Lane Crawford, I.T. and Joyc are considered by Jacques Penhirin to be the three largest channels for small luxury goods industry in the Greater China region. "But because of limited choices, it is not easy for small brands to enter these three channels."

However, other people in the industry say that among them, apart from the clearer idea of link, and the top luxury line, I.T. and Joyce have been adjusting, so that partners will have to bear the cost of chaos in the channel itself.

"I.T. and Joyce have a long history in this industry, but since entering the mainland, they have been constantly changing their brand names and designers. There are also some mistakes in site selection. For example, I think the location of Shanghai Xintiandi in a certain channel is not appropriate. Xintiandi is not the right designer area," the source said. "This brings a lot of operational challenges."

For example, at the end of 2009, there was news of Joyce ending the two small luxury brands of Pleats Please and Jil Sander. Although Joyce did not officially acknowledge it, only in its mid 2009 report, it concluded that some of the poor shops had ended.

"I think these channels in Shanghai are challenging," the source said. "Compared to Beijing, Shanghai has little room for small or niche luxury brands because local consumers only recognize big brands like LV and CD."

The big luxury brand has recently begun to enter the network channel, compared to the small luxury brands or the same problem.

"Many niche fashion brands use Internet channels when they enter China, but for other categories of products, it is very difficult to follow the same path, because a brand must consider the network step only after establishing a certain degree of brand awareness and offline sales network."

LV Miao said.