Economic downturn has luxury vendors look East

Luxury goods vendors are flocking to China to escape the economic recession battering the United States and Europe.

"The economic downturn in North America and Europe hurts sales of luxury goods," said Ouyang Kun from the World Luxury Association. "More international luxury brands are shifting their emphasis to the Chinese market," he said.

Pressure is mounting for luxury goods vendors to find a niche and establish credibility in the country's increasingly crowded luxury market, said management consultant firm KPMG China in its 2008 Chinese luxury market report.

"The challenges facing new entrants to China’s luxury market are intensifying. The market has become more crowded, as evidenced by the rising number of luxury brands," said Nick Debnam, partner in charge of consumer markets, KPMG China.

A report from Data Driven Marketing Asia, an international market research and consulting company, said that with many Chinese consumers facing an economic slowdown for the first time, spending patterns in China are beginning to shift. The report said that 60 percent of consumers polled indicated that they either already have, or were planning to, curtail their personal spending in 2009 and 48 percent of the respondents said they would skimp on luxury items and branded apparel.

"As Chinese consumers become more sophisticated, luxury companies also need to look beyond conventional advertising to build brand awareness," said Debnam. "Alternative marketing strategies, including exhibitions, events and sponsorship can be more effective in educating the market and reinforcing certain values, such as status, heritage and exclusivity."

"The financial crisis means we will put more emphasis on the wedding market as opposed to high-end luxury market. I have confidence in the Chinese market," said Shen Dongjun, CEO of TESIRO, a brand from diamond processing company Eurostar Diamond Traders NV.

Swiss watchmaker Tissot also said it has high hope for the Chinese market. "The high-end luxury goods market is more affected by the economic slowdown than the lower-end segment because cost has become an increasingly important factor in the minds of many consumers," said Yao Zhongwei, vice-president of Tissot China.

But Lutz Bethge, CEO of Montblanc, disagreed. "I believed that it will be wrong to change our strategy from high-end products to the middle-low ones (like some brands), cause our strategy is to provide high quality for our customers," he said. "This is what they are looking for when they come to Montblanc," he added.

The Merrill Lynch, World Wealth Report 2008 said that the number of millionaires in emerging markets, including China, has increased at a much faster rate than in developed economies. "China is particularly interesting as it has a huge population and an increasingly affluent middle-class, providing businesses with one of the most important growth opportunities over the next two decades," the report said.