Luxury Brand: "Slowdown" In China Faces The Challenge Of "Sinking"

The increase in overseas purchases has made some people more worried: Luxury industry The Chinese market, which has the strongest growth, is facing challenges. The weakness of the euro has not depressed everyone. Luxury loving Chinese tourists can buy the same luxury goods with less RMB.

"Yes, the sales of some luxury brands are indeed slowing down, and more is the reduction of growth, accompanied by the devaluation of the euro currency, and the increase of overseas purchases." Francis Gouten, former CEO of Richemont Group in Asia Pacific region and founder of Guten Consulting Company, clearly stated in an interview.

In the first half of 2012, the sales of all business categories under the luxury giant Louis Vuitton (LVMH) Group showed a steady growth, but the sales performance in the Chinese market showed a slight decline.

"From Asia to Europe, the company's performance has changed," Jean Jacques Guiony, chief financial officer of LVMH, said in a conference call. "The growth in mainland China has slowed down."

Luxury brands such as Prada and Burberry are also experiencing the same changes. In the view of Michel Gutsats, MBA and EMBA director of Marseille Business School, although the slowdown of luxury goods in China is only temporary, many brands are also continuing to explore second and third tier cities in order to obtain more consumers, in this process, luxury brands face huge problems.

"Slow down" in China

"The sales growth rate of the company in China has dropped by 5%~10% in the last one or two months," the Chinese operation director of a luxury goods company focusing on jewelry products told our reporter.

not a few Luxury brand The same fact is disclosed in our financial report. Swatch Group's report for the first half of 2012 showed that the sales of watches and jewelry increased by 14.8% year on year, but the report specifically pointed out that the sales of high-end watches in the Chinese market were weak.

In the first quarter of this year, the sales growth rate of the old British luxury brand Burberry in the Asia Pacific region fell to 16% from 67% in the same period last year; At the same time, Prada's growth rate in China has also declined; Hendry Holding Co., Ltd., China's largest watch retailer, said that the demand growth of high-end watches has slowed to single digits.

Why has the growth of luxury sales slowed down in the Chinese market, which was once the savior of luxury brands in the crisis? Michel analysis: "The slowing Chinese economy will have a certain impact on luxury consumption in this market. Entrepreneurs and executives have stopped buying luxury goods for gifts, because companies can no longer support them to spend lavishly."

Luxury reports from many institutions show that luxury consumption for gift giving has become an important part of China's luxury consumption. Bain's Research on China's Luxury Market in 2011 pointed out that the proportion has reached about 25%.

At the same time, Michel saw that 2012 was a very special year - recently, the Regulations on Administration of Agency Affairs explicitly prohibited civil servants from using public funds to purchase luxury goods. Prior to that, there were also policies to reduce the cost of official meals, public car purchases, and expensive wine purchases.

However, this slowdown, industry insiders believe that luxury consumption of jewelry category will be the most affected. "The main reason is that the bubbles accumulated in jewelry products a period of time ago were too much, and the prices were inflated." The source analyzed the reporter.

　　 The challenge of "sinking"

Based on the above reasons, Michel believes that the slowdown in the growth of luxury brands in China is only temporary, and many brands respond by continuing to carry out more in-depth market expansion in China: open more stores in second and third tier cities in order to obtain more consumers.

Bernard Fornas, global president and CEO of Cartier, once told our reporter that the company's strategic focus in China in the next stage is to open new stores in the second and third tier cities with relatively high potential. The same is true of many other brands.

{page_break}

But Michel pointed out that this process will face huge problems. First, for luxury goods In terms of brand, it is very important to find a good location for new stores in the second and third tier cities. Because all luxury brands want a high-end surrounding environment, they do not want to be too close to the mass market, so this high-end environment needs high-end malls, similar luxury brands, etc.

Bernard also admitted that the biggest challenge in the process of sinking is to find enough specificity, but it is generally difficult to find a high-end place to open new stores. If there is no place with high quality to open a new store, Bernard will not open it or wait until all conditions are met.

At the same time, it is more difficult to find sales talents in second and third tier cities.

"In China, especially outside the first tier cities, there are very few well-trained salesmen and store managers who meet the standards of luxury brands. Many luxury brands think they can send their employees in the first tier cities to the second and third tier cities, but these employees refused," Michel sighed, "This will produce a series of effects. Finally, luxury stores in second and third tier cities have poor service and sales skills."

In the process of sinking, many luxury brands have opened too many stores because of their strong sales targets. Bernard Arnault, chairman and CEO of LVMH Group, said in a recent interview in Shanghai: "Some of our peers have decided to go further in the Chinese market. Basically, we only go deep into provincial capitals. We don't intend to go further. We have no ability to be everywhere in China."

"They (LVMH) only have 40 stores in China, while some brands aim to open more than 100 stores in China. Luxury brands should remember: your status and image need some exclusivity." Michel stressed.