Title: Challenges and Opportunities of China Luxury Market
1- Challenges and Opportunities of China Luxury
Market - Giovanni Di Salvo
2Challenges and Opportunities of China Luxury
Market
- Market Size of China Luxury goods
- Country risks
- How did international leading brands approach
China market? - Major challenges and market trends.
3Challenges and Opportunities of China Luxury
Market
- About STRA_BRANDING
- A consulting firm founded in 2005 in Milan by L.
Esposito and JL Ayroles. It opened a Hong Kong
office for Asian markets in 2008. - It provides consulting services to companies
operating in fashion, accessories, food
beverage and design furniture industries. - Problem-solving oriented, it offers tailored
solutions based on a long experience and a
strong know-how in the fashion and luxury
markets. - It provides consulting on brand and company
strategy, sales and marketing, retail and
organization, to Western and Asian companies.
4Challenges and Opportunities of China Luxury
Market
- Market Size of China Luxury goods
- China economy
- The 4th largest in term of nominal GDP
- (US 3.2 trillion), after US, Japan and Germany
- The 2nd largest in term of GDP at PPP
- GDP per capita US 2,300.
- Urbanization rate 41.8 in 2005. Over 700
million people still live in the countryside. - China Luxury goods market around US 3 billion
- Between 2-3 of worldwide sales of luxury goods
- 10-13 million active purchasers of luxury goods
5Challenges and Opportunities of China Luxury
Market
- Country Risks
- Aging population, increasing rural-urban income
gap, and rapid environmental degradation - Growing civil unrest over 87,000 cases in 2005,
mainly due to company privatizations, unpaid
salaries, seizures of land and apartments - Rising inflation 8.7 in Feb 08. Inflation is
especially affecting food and rentals - No rule of law
- Consensus is based on continuous economic growth
and nationalism
6Challenges and Opportunities of China Luxury
Market
- How did international leading brands approach
China market? - In the past
- - JVs, Management Service Contracts, Franchising,
Wholesale -
- First entrants Max Mara, Ferragamo, Zegna, Hugo
Boss, Burberry - From 2004 FICE can get Retail and Import
- Licenses
- Direct Investment or JV
- Franchising agreements with 1 or more operators
- A mix of the two methods
7Challenges and Opportunities of China Luxury
Market
- How did international leading brands approach
China market? - Direct Investment LV, Gucci, Prada, Chanel,
Stefanel, Marni, Chloe, etc. - Benefits
- Total control over brand image and quality
standards - Direct communication with actual and potential
clients - Direct learning of market characteristics,
consumer behavior, different tastes and attitudes - Long term return
- Disadvantages
- Higher Investment and Investment Risk
- Slower development
- Short-Medium term loss
8Challenges and Opportunities of China Luxury
Market
- How did international leading brands approach
China market? - Franchising Max Mara, Polo Ralph Lauren, Brook
Brothers, DKNY, Moschino, Coach, etc. - Benefits
- Lower Investment and Investment Risk
- Faster development
- Leverage on Franchisees market knowledge and
resources - Immediate return
- Disadvantages
- Lower control over brand image and quality
standards - Indirect and weaker feed-backs from final
consumers - Lower returns in the long term
9Challenges and Opportunities of China Luxury
Market
- How did international leading brands approach
China market? - A mix approach
- By territory Ferragamo, Hugo Boss, Valentino,
Cartier - By line Giorgio Armani and Emporio Armani,
Cartier
10Major Challenges
Challenges and Opportunities of China Luxury
Market
11Major Challenges continued
Challenges and Opportunities of China Luxury
Market
12Challenges and Opportunities of China Luxury
Market
- Market Trends
- Louis Vuitton, Gucci and Cartier are among the
most aggressive brands in the market - New brands are entering the markets in the last
few years. Competition is going to increase - Established brands as Max Mara, Zegna, Ferragamo,
Hugo Boss, Dunhill need to re-position themselves - Status and self-reward are still the strongest
motivations of spending - Men spending is still very important, however
Women demand is growing faster - Accessories and shoes (bags, slg, belts, eyewear,
costume jewellery, etc.) sell more compared to
ready-to-wear - Casualware exceeds by far formalware
- Gift buying is still very relevant
13Challenges and Opportunities of China Luxury
Market