The Beginning of Homemade Luxury in China?

“A-Maze-ing Laughter” by popular Chinese contemporary artist Yue Minjun

James Lawson, director of Ledbury Research, explores the early effects of domestic luxury brands launching in emerging markets.

Last year’s High Net Worth (May 2011) indicated the importance of country of origin to high-end consumers around the world, with the West maintaining dominance due to its long heritage of luxury. While emerging markets may still have associations with low cost production internationally, luxury consumers attitudes are changing, not least with emerging market consumers themselves.

As the sector’s most exciting population, many wonder if or when they will lose their appetite for Western brands in favour of domestic prestige brands. Using China as an example, three trends highlight this shift:

The first is a return to their cultural heritage. Last year, art sales in China reached $60.8bn, making it the largest art market globally with 30% market share (European Fine Art Foundation). Accounting for its impressive growth over the past few years is burgeoning demand for Chinese art, for which Chinese collectors are paying over and above estimates to repatriate and reclaim a piece of their country’s history, mimicking experience in other countries, such as Russia five years ago.

“ While emerging markets may still have associations with low cost production internationally, luxury consumers attitudes are changing ”

The second trend observed is increasing connoisseurship in the ‘new’ wealthy. Whilst logos are typically the primary criteria when making luxury purchases, Chinese consumers are increasingly favouring discretion over brand name in search of quality and exclusivity. Ledbury Research found that the market share of the largest global luxury brands shrunk from 37% to 35% in Asia in the last six months, as competition from smaller, niche brands heats up (Ledbury’s Luxury Market Insight report).

Finally, there has been an emergence of confidence in Chinese craftsmanship. Foreign brands have acknowledged this: both Coach and Burberry produce in China unashamedly, with the latter stating, “We use Chinese production because it’s fantastic quality, and what the customer would expect from us”. Beyond fashion, Rothschild has begun production of the first Lafite Asian Winery in China, while LVMH has followed suit and invested in a vineyard to produce red wine there too.

“ Though the direction of these evolving trends is clear, emerging market brands themselves still have a long way to go with maintaining consistency and quality ”

As these trends develop, the natural progression is for China to eventually build its own luxury brands. The alcohol market is an early example: Maotai, China’s top liquor brand, retails its best-selling baijiu for over RMB 2,000 ($300) and last year a bottle of its vintage baijiu with an initial bidding price of RMB 2.6m sold for RMB
8.9m ($1.4m) in Guiyang city (Bloomberg).

The willingness of the Chinese to pay prices at this level for Maotai has earned it luxury status, with one ranking placing it amongst the top 10 most valuable luxury brands in the world (Hurun).

Though the direction of these evolving trends is clear, the emerging market brands themselves still have a long way to go, not least with maintaining consistency and quality. The latter is not helped by, for example, the prevalence of fakes: reports suggest 200,000 tons of Maotai was consumed in 2010, yet the company only produced 20,000 tons (China Daily).

To further investigate China on Luxury Society, we invite your to explore the related materials as follows:

- The Growing Complexity of The Chinese Shopper
- The Top 50 Most-Searched for Luxury Brands in China
- Attracting and Serving China’s Global Luxury Consumer