With its brand new millionaires and a booming middle class, China is a dream come true for major luxury brands. But it is fraught with pitfalls – and, from design to marketing, these command a revamping of many practices. In the line of fire comes a fundamental question: is the Chinese market going to overhaul our Western conception of luxury?
At the turn of the 2000 decade, Giorgio Armani, seeking to expand his network in China, decided to open a boutique in Beijing. As a custom-tailored gateway to his store, he commissioned a huge lacquered red wooden door for the entrance. But then an unexpected complication arose: the Chinese hated it. A week later, the huge door was removed. “They wanted Giorgio Armani from Milan and none other. I will not repeat the same mistake.” This anecdote was told by Armani himself in late 2003. Even though the story is already a bit dated, beyond it lies a lesson: the designer witnessed how difficult it is for luxury brands to subtly penetrate a key market.
Almost 10 years later, at a time when emerging countries are taking an ever-wider part in the sales distribution of luxury brands, what is at stake in China remains pivotal. Better said: it is a pivotal conundrum. What do the Chinese really want? Which Chinese, as a matter of fact? Is China even a coherent land for sales, actually? How can brands create specifically for Chinese customers without disavowing themselves? On the other hand, can they impose their identity codes without any pedagogical effort?
Let us start with some figures. In June 2012, the press massively echoed a study by the Boston Consulting Group, whose findings were impressive: by 2020, an estimated 330 Chinese cities will have a purchasing power equivalent to Shanghai’s in 2010, or generate the same income. Another hint, as unobtrusive as it is eloquent: the Colbert Committee, which brings together 75 French luxury companies, has three press officers - one French, based in Paris, the second, Japanese, based in Tokyo and, and the third, Chinese, based in Beijing. Then again, one should note that year after year, brands like Louis Vuitton enjoy growth rates of 50% in China.
Today, totaling nearly 12% of the worldwide turnover for the sector, China is the third largest market, behind the United States and Japan. According to Goldman Sachs, in 2015 it will represent 30% of worldwide sales. While these extravagant figures are explained by the emergence of a huge middle class, there is also an explosion of the super-rich. According to Merrill Lynch, 320 000 Chinese are millionaires, in dollars, and according to Forbes, 41 of these are billionaires. Could China become the Mecca of luxury brands?
However, there are other figures that counter the idea that breaking into the Chinese market is easy as pie. Quite simply, China is a heterogeneous land, if only from a geographical standpoint, notes Jonathan Siboni, a member of the LVMH chair from ESSEC Business School, director & co-founder of DEAL (Developing Euro-Asian Links): “With an area two and a half times bigger than the 27 European countries combined, China includes people living in conditions as diverse as Sweden’s or Morocco’s”. Christopher Zanardi-Landi, director of Louis Vuitton in China, has made the same observation regarding diversity: “Wherever you go, every city is changing at a different pace, with its own characteristics, and we must look at each city individually to understand any of them.” Therefore there is no such thing as the Chinese market. On the other hand, the array of Chinese markets does indeed exist – and these very diverse markets are quite complex. Behind these, say, quantitative aspects, field reality seems a tad more difficult than what the image of a financial windfall suggests.
Added to this is the fact that luxury is a business like no other. In their book Luxe Oblige, Vincent Bastien and Jean-Noel Kapferer, professors from the Department of Marketing of HEC Paris Business School, remind us that the sector is characterized by often paradoxical management rules, and that to succeed one must forego classic marketing. China, in its own way, is taking this to the logical extreme, by forcing European firms not only to adapt, but to reinvent themselves.
Varying with epochs, societies and geographies, luxury is nearly absolutely relative. Yet in 2003, sociologists Gilles Lipovetsky and Elyette Roux outlined a history of luxury by emphasizing a common anthropological structure: at all times and everywhere, luxury encloses three dimensions – a connection with the sacred, the connection we experience with time, and the connection we experience with ourselves. When the book was published, Gilles Lipovetsky fleshed it out: “In the consumption of a luxury item, ritualization is also part of the pleasure: what we are buying and enjoying is duration, memory, and eternity. In the framework of a Kleenex society, luxury brings a timeless counterweight that wards off death – by restoring depth in our temporality. Quite paradoxically, there is a metaphysical dimension at the core of the most materialistic passions.”
Such a constant in luxury – this warding off of the passing of time – is sometimes to be found in the DNA of a luxury brand. Among the countless definitions we found, we will retain Siboni’s: “A luxury brand rests on two pillars: a consistency with its DNA, and a certain connection with time.” Moreover, the exact same stretched temporality is to be found, according to sociologist Monique Jeudy-Ballini, in the very process of making leather goods: “The key issue in the act of producing such an item is in fact the achievement of reproducing the article that precedes it. A luxury brand is seeking to accurately imitate itself across generations, patterns and material conditions...” To summarize: like a Russian doll, luxury, luxury brands, and the manufacture of luxury goods are therefore underpinned by an ideology based on self-imitation and self-loyalty.
Yet China is shaking the very foundations of this Western definition of luxury. Indeed, there are no luxury brands created 150 years ago to be found in the country, nor does it give any significance to the inscribableness of houses in a perpetual duration (“Louis Vuitton since 1854”, “Hermes since 1837”). While in the West a major brand can launch a one million euro communication campaign for the sole purpose of perpetuating its image, a Chinese brand will follow a short-term logic, preferring to open a store, with the promise of an almost immediate impact.
Besides, beyond being inscribed in a relatively ancient past, the story of a brand is more than anything a way to highlight its legitimacy. While the legitimacy of a brand may be grounds for its identity in the West, in China, that legitimacy must be explained and introduced with excessive care. Laurence Lim Dally, director of Cherry Blossom Market Research, a Hong Kong research institute specialized in counseling luxury brands in China, is categorical: “To convey the story of a brand in China, references that are too remote or may be misunderstood should be avoided. However, major monographic exhibitions are good at carrying out this didactic function. That was the case for Cartier, several years ago, Bulgari recently, and soon, Van Cleef. Finally, another very effective way to revive the story of a brand is to remind people of the celebrities historically associated with it, provided they are famous enough in China!”
Moreover, while Europeans maintain an acute awareness of their timeless heritage, the Chinese have a quite different angle on luxury, starting with their approach of the concept of ostentation – or showing off. As Elyette Roux recalled, in Europe, the ostentatious luxury of classical centuries – a distinctive display of power – gave way over time to a desire for distinction and, in the twentieth century, to a more hedonistic version. In emerging economies, new business elites want to express their newfound power and for them, luxury brands are the perfect tool. This specificity is true of emerging markets and even more so in China. Traditionally, Chinese society has always been very hierarchical, but recent history has resulted in a loss of cultural reference points. Inevitably, says Jonathan Siboni, “money has become a reliable parameter to be socially situated.” Therefore, luxury is less a private pleasure than it is a power indicator.
And that is not its sole social function: Marguerite Lelièvre, department Head at the agency Mazarine, in charge of Cartier International’s communication, elaborates on this: “In China, people do not buy luxuries to stand out as is the case in Europe, but to show that, more than others, they have contributed to the prosperity of the community.” Thus, the moment a Western luxury brand arrives in China, it is no longer directed at an individualistic culture, but at an interpersonal culture. There is a shift from the Western differentiation spirit to the demonstration of some sort of kinship. In the analysis of Eric Fouquier, a sociologist of luxury, the “hypermodern luxury” of Asian regions is at the core of the social apparatus. “In Asia, consuming luxury goods is somehow related with sacrifice: it is not so much about producing your more as escaping your less. The luxury product’s value is rooted in the fear of being demoted; it hedges the individual against social risk. It is a tax that allows not to fail at life.”
The latter aspect puts into perspective the “investment” approach of Chinese luxury consumers described by Marguerite Lelièvre: “The Chinese buy a watch the way they would buy gold bullions. What they are looking for is a noticeable and transmissible value. All in all, their search for ostentatious luxury and heritage characterizes a fairly conservative clientele.” This is corroborated by a 2005 study (in French), where we learn that in China, the wealthy and educated elite does not naturally associate the concept of luxury to the values of “youth” and “modernity”.
Another difference in the perception of luxury between Westerners and the Chinese: the notion of know-how. Laurence Lim Dally notes yet another specificity: “The Chinese are more fascinated by design than by manufacturing. However skilled the anonymous craftsman, however precious and rare the materials used, in the end all this weights less than a charismatic fashion designer.”
Besides hustling a few of luxury’s great fundamentals, China is home to a clientele whose sociology is a bit confusing. Segmentation is established among cities in the first place. Open to the world, familiar with travels, also more educated, Shanghai exudes a certain stylistic precocity. Beijing, the political capital, is home to a more conservative clientele in terms of luxury consumption. In Guangzhou, where luxury is a latecomer, demand is clearly oriented towards ostentation. If we add Hong Kong and Taiwan on one side, and on the other side the hundred cities of over one million people, there is little doubt that coping with the differences from one city to another is already a veritable challenge. Moreover, transversely, experts dissect the Chinese clientele in various categories (in French). Putting aside the obvious group of wealthy entrepreneurs, here are six specific types.
Deeply rooted in the Chinese tradition of “gift” is the habit of offering luxury products to do business, among clients of the party and of the “guanxi” network. This explains a massively male clientele on the one hand, and consequently, the success of suit brands such as Hugo Boss, Ferragamo or Valentino. The “second wives”, mistresses spoiled by rich businessmen, numerous in southern China, constitute the second largest group of luxury customers. More generally, and owing to their growing financial independence, women are emerging as a new category – one that happens to be heavily driven by personalization. Chinese tourists, ever more numerous and very fond of “shopping sprees” in Hong Kong, are known to display a distinctive behavior: most often, they save on certain items of expenditure (accommodation, food) to better catch up on their luxury purchases. Another 100% Chinese category is known as the “little emperors”, that is to say, the generation of single children who have never known anything but Deng Xiaoping’s transformed China. Contrary to the tradition of interdependence described above, those consumers buy goods for their own sake and possess a good knowledge of the sector. Finally, there are the white-collars, less affluent but more numerous, and who constitute the last, immense category of Chinese luxury consumers. Quoted by Siboni, the editor of Vogue China described them as people “who are willing to save three months' salary to buy a Louis Vuitton bag.”
In addition to understanding the sociological segmentation of Chinese customers, the challenge at stake is also about understanding whatever desires are involved here. For one thing is certain: one does not buy a luxury item to meet a need. Clearly, it is to meet a desire. And yet, desire is directly beholden to a given culture – and in the case of China, a very powerful one indeed. This thorny endeavor was mentioned in 2007 by Christian Blankaert, CEO of Hermès International, during a conference in Paris: “One of the major concerns of Hermès is to learn how to win the hearts and minds of the Chinese (...) A priori, the emblematic figure of the horse appears to be a good link between Hermès and the Chinese, who are fond of gambling and racing. The horse would therefore constitute our best ambassador, along with silk thread (that from of his famous squares from Brazil and China) to create a “house where the heart is” and not one where money is.”
Finally, besides its own few stores, in 2010 Hermes launched Shang Xia, a new brand created from scratch. In Mandarin, Shang Xia means “upside down” or “Heaven and Earth”, and offers prêt-à-porter, furniture and tableware designed according to Chinese cultural codes. The choice of providing a dedicated and independent offer is the opposite of Louis Vuitton’s strategy, whose array of products is so wide it is supposed be able to meet the specific needs of each country. Between these two strategies, there seems to be as many methods of adaptation to the “Chinese heart” as there are brands. Given the magnitude of the market, one could imagine that the teams, from creation to communication, are massively betting on Chinese recruits... but in fact, the example of the press officer of Colbert Committee in Beijing is still an exception.
Meanwhile, to avoid having to adapt their production at the source, the creative departments are devising alternatives, notably through special collections. In the jewelery sector, one can cite the example of the Swiss watchmaker Piaget, who in 2012 is celebrating the year of Dragon alongside the Chinese. At a prestigious gala in Beijing, the brand launched a watch collection called “Dragon and Phoenix”. Another more discreet strategy consists in showcasing whatever elements of oriental or Asian inspiration already present in the brand. One good example is to be found in Bulgari’s Serpenti collection. Of the two strategies, the second is undoubtedly the most subtle according to Laurence Lim Dally: “In terms of product design, it appears that to preserve a brand’s coherence and identity, it is essential for it to draw upon its own Asian or Chinese echoes. Conversely, developing a more or less credible story for the Chinese market seems to be a short-term strategy in my opinion. Yet this is what Karl Lagerfeld is doing, when he highlights the fascination of Coco Chanel for chinoiseries, given that she never went to China”.
Let us note that at the other end of the spectrum, communication agencies are customizing, adapting, and reshaping campaigns. Marguerite Lelièvre recalls Cartier’s Print campaign for the Christmas season 2011, which featured a panther standing in the snow alongside a pretty white gift pack: “With white being the color for funerals in China, the client asked us if it was possible to put some red snow instead! In the end, we substituted the white snow with a simple red background. In China, that color symbolizes happiness and success, it is also the color of flag... and before anything, it is Cartier’s very own color anyways.”
In a word, luxury brands overall are still following a top down logic, creating products according to themselves and not according to the market. Yet, clearly, this rule has been toned down by the reality of business.
Of course, the exponential demand from China requires that a group like Louis Vuitton should “no longer consider productivity as a dirty word.” However the fact remains. China is a risky market: speculative and forward-looking, the country is to be approached more in terms of an opportunity than as an Eldorado. Let us not forget: this land of economic opportunity and the land where counterfeiting is in full swing are the very same place. More importantly, China is home to competitors whose power rests on an unrivaled distribution network. To give an example, the jeweler Chow Tai Fook boasts 1500 sales outlets in over 320 cities, when a firm like Tiffany totals 230 stores worldwide.
Let us acknowledge the heterogeneity of the land, the strength of a millennium-old culture, the weight of a society that is creating its own reference points, a consumption oriented towards social distinction, customer diversity, the competitive power of local stakeholders, counterfeiting... Beyond the promise of extravagant business figures, the Chinese Eldorado is always downplayed by specialists in international luxury. In order not to trample on their own fundamentals (long-term rather than short-term, history rather than prospect, quality rather than quantity, creativity rather than conformism), luxury brands are “playing it by ear” in China. To engage the country, major European brands should probably revive the definition of luxury suggested by Jonathan Siboni: “And what if luxury, often taken as a symbol of excess, was quite the contrary: a question of balance?”