New Luxury Crisis: Chinese Brand Upgrade Threatens Luxury Brands

With the flourishing development of China's luxury market, China's

Consumers are also gradually maturing.

They no longer blindly worship luxury goods Logo. They are no longer easily induced by the luxury idea of global generality, but also have brand awareness.

The luxury brands that have been expanding in China are also aware of this important pformation. They even believe that the change of Chinese tastes may threaten brands.

"As the luxury industry continues to mature, Chinese people are becoming more and more proficient in luxury goods, rather than just focusing on their valuable side," says Flur Roberts, global director of luxury research in London.

According to HSBC review, after the collapse of Lehman Brother Holding Inc in 2008, consumption habits in Europe and the United States changed to low-key and more expensive goods. This phenomenon will weaken the growth of LV and GUCCI. Until recently, they have sold more than half of the luxury brand handbags in the world's second largest economy.

HSBC shows that even if economic growth declines to reduce the demand for luxury goods, luxury brands such as Bottega Veneta and Yves Saint Laurent of Paris spring group, France, still grow 3 times the same store sales in the industry average this year.

"Chinese consumers still have strong spending power, but their consumption patterns have changed," said Uch e Okonkwo, President of Luxe Corp, a luxury consultant firm in Paris.

As Chinese consumers become more and more aware of fashion trends, luxury companies need to spend more energy on selling goods than they did five years ago.

China's gross domestic product in the second quarter increased by 7.6% compared with the previous year, slowing down in the sixth quarter, the smallest growth in three years.

According to the information consulting firm, China spent 92 billion yuan (US $14 billion 600 million) on luxury goods in 2011, becoming the fifth largest luxury market in the world.

LVMH group, Paris spring's GUCCI and Burberry group are responding to the Chinese market, raising prices and introducing more attractive products, such as GUCCI's $4100 boa snake shoulder bag and BURBERRY's 6000 pound (9700 US) alligator hand bag to enhance its brand image.

But in a recent sales report, this strategy is not feasible.

BURBERRY pointed out that its same store sales began to decline from the end of August, while Chinese travel to Europe gradually reduced their spending on their brand windbreaker and other items.

In September 17th, the chief executive of BURBERRY, Angela Ahrendts, concluded with the London Fashion Show at the 2013 spring and summer holiday of the luxury goods manufacturer in Britain. "We are the first to report the drop in sales, but we will not be the last one."

At the September 19th Milan fashion week GUCCI conference, CEO Patrizio Di Marco declined to comment on the company's performance.

The Paris spring group will report third quarter sales in October 25th.

LVMH spokesman will report quarterly sales next month, but he also declined to comment on LVMH's sales.

According to HSBC, Chinese consumers account for at least 1/4 of global luxury goods sales.

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LOGO aesthetic fatigue

According to HSBC,

Compared to PRADA, the bag series preferred to use.

Material, and it uses less logo to differentiate its single product, which benefits PRADA because it provides another option for LV consumers.

PRADA said in the report: "although the market for luxury goods continues to deteriorate, our same store sales have not decreased in the past two months."

HSBC analyst Erwan Rambourg wrote: "because top brands like LV and OMEGA entered the luxury market earlier, they are now beginning to show that they are experiencing brand aesthetic fatigue.

We call this a "preconceived weakness".

Luxury "generalization"

According to statistics, LV has 39 stores in China, 54 in GUCCI, 66 in BURBERRY, 20 in PRADA, and 21 in HERMES.

HERMERS raised its sales target in 2012 last month, because the first half of the year proved that they underestimated the consumption demand in the Asian market.

HERMES chief executive Patrick Thomas warned: "luxury goods are at hand and lead to its" generalization ".

HERMES sales in Asia grew by more than 25% in the first half of the year, while the brand did not predict that sales in China would drop in the second half of the year. Therefore, the brand will plan to protect its brand image by controlling store expansion. In the next five years, HERMES will add 20 more stores in the world.

Luxury brands are more cautious

Some analysts are worried about the situation of the LVMH group.

Eva Quiroga of UBS has lowered the credit rating of LVMH group to medium and cut it down.

And the forecast value of leather products series in the second half of the year.

Quiroga predicts that the largest and most profitable business sales of LVMH group will increase by 5% to 6% at this stage, which will drop by 10% compared with the first half of 2012.

Quiroga added: "in 2012, the total revenue of LVMH will increase by 8.5%, compared with the average sales growth of 9.2% in the European luxury industry."

Quiroga predicts that although the growth of GUCCI sales in Paris spring has continued to slow down, the division of luxury goods in HERMES, the peak group and the Paris spring group is progressing well, with an increase of between 12% and 13%, while PRADA's sales estimate is expected to grow by 15%.

"The beauty of luxury lies in their scarcity, so they are so expensive," says Rahul Sharma, founder and general manager of Neev Capital, an investment consultancy.

You don't want to spend a lot of money on things that are not scarce.

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New consumers are becoming more emotional and more brand conscious.

McKinsey consultants report that China's emerging consumer class is more emotional than previous generations, so the company must pform its marketing strategy to keep pace with the new standard setters in these countries.

These emerging consumers are more laissez faire, more individualistic and brand loyalty.

By 2020, China's mainstream consumer class will reach 400 million people. The average annual personal income will exceed 106 thousand yuan (16 thousand and 800 US dollars), leading to polarization in the Chinese market. They will replace the previous generation of urban affluent people who have relatively moderate purchasing power and still pay attention to purchasing basic necessities of life.

McKinsey report McKinsey believes that the current mass market consumer in China is defined as a consumer group with annual household income of 3.7-10.6 million, which accounts for more than 4/5 of China's total population.

But by 2010, they accounted for only 36% of China's total population.

The more affluent consumer class is more emotional and brand conscious than the current mass consumer.

It is predicted that by 2020, these population will account for 51% of the urban population, far exceeding 6% in 2010.

The McKinsey report also points out that marketers must act quickly to cater for them with straightforward brand names of consumers' emotional appeals.

The report surveyed 10 thousand people in 44 cities.

This means that in the past 15 to 20 years, speed, scale and simplicity are the key to the success of consumer goods sales, but in the future, it will be replaced by marketing strategies based on emotion, business opportunities and various brand combinations.

The McKinsey survey shows that more than 50% of China's emerging consumers are more likely to consider the emotional value attached to goods than the current mass market.

These consumers are also more likely to choose a fixed brand, younger than most people and live in the first tier cities along the eastern coast of China.

The report says that young consumers in China are more competitive than consumers in developed countries.

Young consumers who account for 41% of China's new mainstream consumer class are more likely to say that they often spend more money on the best products, while older consumers only take 31% of this view.

Chinese consumers, who are known for their savings and unwilling to use credit card consumption, are beginning to pay more attention to foreign luxury brands.

According to McKinsey report, by 2020, the proportion of Chinese urban population that can afford private cars and a few luxuries will expand six times, accounting for about 57% of the total population.

At the same time, a large number of high-income consumers prefer foreign brands of food, beverages and personal care products.

The report shows that consumers are more likely to prefer foreign brands if they are younger and richer, which is good news for global enterprises.