Challenges and Opportunities of China Luxury Market

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• Challenges and Opportunities of China Luxury
  Market
• Giovanni Di Salvo

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Challenges 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.

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Challenges 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.

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Challenges 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

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Challenges 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

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Challenges 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

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Challenges 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

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Challenges 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

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Challenges 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

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Major Challenges
Challenges and Opportunities of China Luxury
Market
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Major Challenges continued
Challenges and Opportunities of China Luxury
Market
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Challenges 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

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Challenges and Opportunities of China Luxury
Market

• Thank you!