Hermès, Louis Vuitton tap in to China

14 October 2010

BEIJING: Luxury brands including Hermès, Louis Vuitton and Lamborghini are all seeking to take advantage of the rising demand for premium goods observable in China.

It is estimated that 250m Chinese consumers are now sufficiently well-off to make purchases from this category, with total sales hitting $9.4bn (€6.7bn; £5.9bn) in 2009.

Bruno Lannes, a partner at consultancy Bain & Co, argued the post-1980s generation is a fertile audience for manufacturers, having seen their income levels increase by 34% during the last three years.

Such an improvement means high-end lines reach a mass market, rather than solely being enjoyed by a select group, especially as gift-giving on an individual and corporate basis is considered so important in China.

"You don't need to wait until 40-or-50-years old to discover luxury brands. There's no reason for that," Lannes told CNTV.

"You can do that at 25, even with your first salary. Why not? That gives you the taste of what it is, and what you can hope for in the future."

However, few indigenous firms have successfully made progress in the sector thus far, and Lannes predicted it will be some time before this situation changes.

"It would take 200 years," he stated. "Half joke."

Yang Lan, a TV personality and entrepreneur, recently founded Lan Jewellery, leveraging China's unique history and traditions, but at prices ranging from hundreds to millions of dollars.

"I am proud of our world class quality and design," she said.

The Hurun Report, which tracks the behaviour and preferences of affluent consumers in the country, has found that visible prestige is a vital part of Chinese habits.

"Chinese people's purchase of luxury products is status-driven," Rupert Hoogewerf, publisher of the Hurun Report, said.

"China's rapidly emerging middle class is developing a voracious appetite for luxury. With a spare few thousand yuan, Chinese shoppers can now get a piece of the luxury dream."

"Thanks to clever marketing and growing prosperity, luxury is more attainable now than ever."

Patrick Thomas, ceo of Hermès, believes functional concerns are essentially secondary among buyers.

"The Chinese love to be moved by beauty, by feelings, by things like that. It's not 100% about product specification, rationality. It's also a very emotional world," he said.

"So a brand is a world, a brand is a sort a little universe in which people … relate to the object."

Louis Vuitton operates 35 stores across 26 cities in China, and is witnessing a similar desire among shoppers.

"We have a lot of special order pieces. Customers come in and ask us to make a one-off piece for them," said Christopher Zanardi-Landi, president of Louis Vuitton China.

"It take normally between six months and one year to create, depending on how complicated it is. But the customer is able to completely personalise whatever piece they like."

The auto industry has been a primary beneficiary of surging wealth in China, and Eginardo Bertoli, Lamborghini's country manager, revealed the sales process is often surprisingly simple.

"They come in, they walk in the showroom. They discuss for a short while. They pay [for] the car, and they drive out. Done, in minutes," said Bertoli.

A central issue facing China's luxury aspirants is a noticeable price differential, with a Coach handbag costing 5,000 yuan on the company's Chinese website commanding just 2,700 yuan on its US equivalent.

Data sourced from CCTV; additional content by Warc staff