Is There More Risk in China For Brands Than Before?

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Women’s Wear Daily recently reported that 70 percent of Chinese feel apparel from international brands is more fashionable than Chinese labels and that 62 percent feel outside brands have a better overall reputation than those from China, according to data from the Chinese Consumer Survey.  While U.S. brands are anxious to capitalize on their popularity, analysts warn that factors like economic slowdown and a potential housing bubble in China should curb these brands’ enthusiasm.

“There’s more risk in China than there had been,” said Howard, chairman of Manhattan’s retail consulting and banking firm Davidowitz & Associates, Inc. “Now if you’re a rational person, you have to see there’s more risk. If your business is not there already, you should be researching it before jumping in. It’s time to slow down a little. Open just a couple of stores at a time.”

Three American companies that have had their share of mistakes, Davidowitz said, are Walmart, Carrefour and Tesco: “The top three retailers in the world saw same store sales growth decline 27 percent on average in 2012. And they’ve all reduced their expansion plans.”

Some  American clothing brands, however, see strong consumer demand and are growing. Gap, for instance, has become enormously popular among Chinese shoppers. The brand just opened six stores in the country, and hopes to 45 Gap and Gap Outlet stores there by the end of the fiscal year. J. Crew is also finding new popularity in China thanks to its arrangement with the popular Lane Crawford department stores.

And what do the experts think? “It’s a mixed bag with some doing well and others going down — although the luxury sector is clearly doing better than others,” Davidowitz said. “Still, some — like Tiffany and Burberry— are down. But I believe China is in a steady recovery and I continue to believe in it. The brands will continue to believe in it. But they’ll all be more cautious, as well.”

Chinese Consumer Survey reports that 28 percent of women, 30 percent of consumers age 20-to-29, and 30 percent of Tier 1 shoppers are more likely than their counterparts to plan on purchasing more clothes in the coming year. Experts worry that if more Chinese take on home mortgages, they will have less disposable income for retail shopping.

Despite market uncertainties, the morale of the masses remains strong. The Cotton Council International and Cotton Incorporated Chinese Consumer Survey revealed that 87 percent of Chinese consumers are “very or somewhat optimistic” about economic conditions in their household over the next year.” The Chinese GDP is expected to grow 7.5 percent this year. At the same time, the U.S. GDP is supposed to fall from 2.2 percent in 2012 to 1.6 percent in 2013, according to the Bureau of Economic Analysis.

Source: RL

Do small brands have a chance to establish themselves in China?

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The luxury brands such as Gucci, Chanel or Louis Vuitton have easily entered the Chinese market. This is not the case of small brands which have seen their Chinese dream stopped dead. We will see why thanks to the Italian manufacturer of jewelry, Damiani.

Case of the Italian brand Damiani

Damiani has tried to fit into the Chinese market in a decade. Unable to find a partner because of its small size, the brand had to wait a few years to try his luck, the time to be “strong enough and brave enough to do it,” said Guido Grassi Damiani, CEO of the group.

The Damiani brand is known for having made the wedding rings of Brad Pitt and Jennifer Aniston. Just like this sad story, the height of the brand seems to be exceeded. The brand sales fell 9% since December. She recorded a net loss of $ 6.1 million.

The brand health of Damiani is a reflection of many others. The current economic environment affects everyone in Europe. The combination of fashion in Italy says that global fashion sales fell 8% last year, and sales of domestic brands fell by about 20%. The crisis is thus global.

China, the promised land of profit

Faced with such poor results, China seems to be the Eldorado profit. According to the consulting firm Bain & Company survey, luxury sales in China rose 19% last year, and have tripled since 2007. Chinese also boost sales abroad. During their many excursions, foreign customers represent half of luxury buyers in Italy and France. Most are Asian. The problem for small brands such as Damiani is that foreigners buy brands they know. This is good news for the big luxury houses such as Gucci and LVMH but not for small and independent retailers.

Damiani therefore change strategy. The brand will inject nearly 5 million euros in China thanks to the closure of unprofitable stores in Europe. This year, the actress Sophia Loren will be the star of their marketing campaign. However, the investments required to have a location in a big city like Shanghai quickly reach 40 million dollars. These kinds of stores are shops reference because they insist on design. It seems very hard for small isolated brands to have a spot. Can Damiani compete with luxury brands and exist in China with a budget eight times lower?

Small brands: new symbol of scarcity and exclusivity?

The solution for Damiani would be to bounce on the against-success of some luxury brands which became too accessible. Their small size could be a mean of promoting the rarity and exclusivity that some luxury brands no longer guarantee. To get results, the Damiani brand will have to be patient. Gianluca Brozetti, the CEO of Roberto Cavalli, said that “the expansion in China is an investment for the medium to long term.” Having opened their first store in China in 2009, it will take 5 years to see real results. This is especially true for smaller brands reputation, such as Damiani.

Source: MC

Luxury in China Loses Lustre as Wealthy Flee

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Dior store in Beijing | Source: Shutterstock

HONG KONG, China — Wealthy Chinese are likely to buy fewer luxury goods again this year after the steepest cut-back on spending in at least five years, changing the game for high-end retailers like Louis Vuitton which have staked their growth on China.

Overall spending by wealthy Chinese fell by 15 percent in 2013, the third consecutive year of decline, according to a survey by the Hurun Report. Spending on gifts in particular also declined by a quarter.

The drop coincides with a government crackdown on corruption and gifting, as well as an a growing penchant for travelling and shopping overseas to circumvent Chinese consumption taxes on luxury goods as high as 40 percent.

One in three so-called high net worth individuals have already left, or are planning to leave, China, the report showed, a factor that has also reduced luxury spending.

Most of these rich have emigrated, or considering it, to seek better opportunities for their children’s education, a 2011 Hurun survey showed.

“In terms of traditional luxury – leathers, accessories, watches – this year is going to be flat if not a little bit down,” Hurun Report founder and chief researcher Rupert Hoogewerf told Reuters.

“For luxuries like tea, healthcare, even education, we are still looking at a booming market.”

The crackdown on conspicuous spending, which began in 2012, is part of a vow made by Chinese President Xi Jinping to be tougher on graft. He has focused in particular on gifts made to government officials often in exchange for preferential treatment or contracts.

As a result, many wealthy Chinese now buy luxury goods for themselves, rather than as gifts, Hoogewerf said.

Products by Hermès, Chanel, LVMH’s Louis Vuitton brand, Apple Inc and Gucci remained among the most sought-after brands for gifting, the survey showed.

Less popular were Bulgari – another LVMH brand – Salvatore Ferragamo, Tiffany and Co and the fiery baijiu liquor made by Chinese firm Kweichow Moutai Co Ltd, once the top tipple of Communist Party officials.

SAVVIER CONSUMERS

Luxury firms are already grappling with a slowing economy in China and a more sophisticated clientele that shops online for the best price globally and eschews in-your-face logos.

Affluent Chinese have also become more confident about mixing high-street clothing and accessories with branded goods for an individual look.

“There is a much savvier consumer out there,” Hoogewerf said. “There will be more purchasing done overseas than in China. For a brand that’s global it’s fine.”

Over two-thirds of luxury spending by mainland Chinese was overseas in 2013, a factor that contributed to the United States overtaking China as the world’s fastest growing luxury market, according to a study by consultancy firm Bain & Company released in December.

China’s super-rich are also avid collectors – 70 percent of wealthy Chinese rank collecting as a hobby – but what they are coveting is changing.

Ancient calligraphy last year surpassed luxury watches as the most-collected, knocking watches out of the No. 1 spot for the first time in five years, the Hurun report showed, which could mean revenue losses for top watch makers but a boon for auctioneers.

Patek Philippe remained the most popular watch brand for collectors for the seventh year running while Christie’s was the top ranked foreign auction house, the report showed.

Besides spending less at home, more rich Chinese are leaving the country. The number of wealthy Chinese who have emigrated or are planning to do so rose to 64 percent from 60 percent in the previous year, the survey said.

Most of those leaving, or planning to, are looking for permanent residency overseas – the United States, Europe and Canada are top picks. Very few want to give up their nationality, perhaps because their outlook for China is improving.

The report showed millionaires’ confidence in China’s economy rose for the first time in five years but those who felt “extremely confident” still accounted for only 31 percent of those surveyed.

The survey’s results are based on responses from 393 Chinese millionaires, or those with personal wealth of at least 10 million yuan ($1.65 million). The Hurun Research Institute has conducted the survey for the past 10 years.

Source: BOF