What Gucci’s New Tiered Model Could Mean For China’s Luxury Market

Gucci’s Shanghai flagship boutique

Nora Chen of Jing Daily investigates Gucci’s recently publicised tier strategy, and the implications for other luxury brands expanding in China

Industry experts have long known that the Chinese market is far from homogeneous. With a tiered socioeconomic landscape, an aspiring middle class, and varying levels of taste, sophistication, and connoisseurship, hitting the Chinese target is not always point-blank.

Arming themselves for the fast-changing landscape in China, many brands with a relatively long presence in mainland China — such as Gucci — are adopting new models for retail and merchandising, referred to this week by WWD as an “à la carte” approach.

Recovering from a slowdown in early 2012, Gucci’s parent company PPR is now rebounding in sales of luxury goods in China and projects to continue this upward climb throughout 2013. Francois-Henri Pinault, chairman and chief executive officer of PPR, explains

“ Gucci is having to contend with a growing gap between consumer spending in major urban centres like Shanghai & Beijing ”

“Gucci is having to contend in China with a growing gap between consumer spending in major urban centres like Shanghai and Beijing, and in secondary cities where luxury brands are still a novelty.” In essence, Pinault is describing the challenge of catering to a dynamic market of ranging demographics that all brands in China are facing.

As such, rather than maintaining a rapid expansion effort, Gucci’s new tiered approach “offers entry-level leather goods and accessories [in its new locations] before gradually introducing ready-to-wear and other accessories as consumer tastes mature.” This way, Chinese consumers at different stages of luxury spending are able to acquire well-suited products from the same brand. Mr Pinault continues,

“Logos are part of the brand’s universe. The key is being able to vary our product offering in line with your customers’ aspirations with exceptional products that are very personal, very sophisticated, and are perceived in a much more hedonistic way.

“Having those two models in the same country allows us to be very reactive, and that is the reason we continued to grow at a relatively healthy pace in 2012, despite the economic slowdown in China.”

“ Gucci will hold off on store openings in new cities & focus attention on renovating & expanding existing boutiques ”

In addition, Gucci has decided to hold off on store openings in new cities and instead is turning its attention to renovating and expanding existing ones to keep up with the country’s rapid geographical evolution. (A strategy we saw in recent years by the likes of Louis Vuitton and Hermès.)

Jean-Francois Palus, group managing director of PPR explained, “We will be staying in the same cities, but we are moving a lot of stores. There are times when a neighborhood is really hot and there is a lot of footfall, and three or four years later the footfall has moved to another spot.”

What is interesting about Gucci’s new tiered, à la carte approach is the potential for the model to become the next trending strategy for early adopters. Time and time again we’ve witnessed brands growing too ubiquitous too quickly, spreading themselves thin with new and increasingly lavish flagships, assuming that the Chinese market of 2013 is the same as it was in 2010.

“ Time and time again we’ve witnessed brands growing too ubiquitous too quickly ”

Rather than simply intensifying brick-and-mortar expansion, fleshing out existing stores with products tailored for each geographic market and demographic (including the rising male category), raising customer service standards, beefing up VIP perks, and creating worthy promotions are key to taking advantage of the changing market.

However, this means that brands will have to begin rethinking their image as they introduce a scale of class-appropriate products, meaning the Gucci name, for example, may mean different things to different shoppers.

The challenge, then, for brands that jump on this model will be striking a balance between maintaining brand integrity while remaining sensitive to the varying degrees of buying power throughout China.

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

- How Well Do We Really Know the Chinese Luxury Consumer?
- Western Luxury Brands Celebrate Chinese New Year, Year of the Snake
- Why Men Are So Important to China’s Luxury Market