Hold off being bullish on China s luxury market
China's wealthiest consumers shrugged off the global financial malaise faster than their peers in other parts of the world, but high-end Western brands shouldn't see the Chinese market as a free-for-all just yet, say the authors of a new report on luxury brands in China.
Customers shop in the Louis Vuitton flagship store at the at Lippo Plaza in Shanghai.
"People say, 'China, luxury, you've got to be there to make money.' But there's so many companies in China that are in luxury and not making money," said Nick Debnam, a partner in the consumer markets group at accountants KPMG in Hong Kong.
A KPMG survey of wealthy Chinese consumers found three-quarters of respondents said the financial downturn had little impact on them, while almost half said they expect their spending on luxury goods to be unchanged or to go up.
Those findings support a report last month from consultants Bain & Co. that China overtook the U.S. last year to become the world's second-largest luxury goods market behind Japan.
Sales of luxury goods are expected to grow 15% in China in 2010, according to Bain, and a number of high-profile Western brands, from Louis Vuitton to Rolls Royce, see China as an increasingly important source of revenue.
But despite the relative confidence of China's wealthy elites, it's wise not to be "overly bullish" on China's luxury sector, said KPMG's Mr. Debnam.
Hugh Devlin, a luxury branding consultant with international law firm Withers, said that China's luxury market will catch up with the West very fast, but is "still relatively immature." In particular, Western brands that look to China as a dumping ground for last season's products will likely not be successful, he added.
The KPMG survey also found that many of China's high-end consumers are loyal to established brands, which could mean that new brands wishing to crack China's market will have to engage in innovative ways to reach out to consumers, such as using SMS text messages that notify VIP customers of new or limited products.
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