The luxury market in Asia
We cannot think about luxury in Asia without talking about luxury overall. Luxury has always existed throughout the history of mankind. Ever since the first person put a bone in their nose, piercing was perhaps a sign of luxury and wealth.
Until the 1960s and 1970s, luxury was exclusively reserved to a very wealthy part of the world’s population. In terms of product, luxury items used to be produced by a family business that specialised in one industry with an exclusive quality of know-how and very few points of sales (e.g. Louis Vuitton, Gucci). This has changed a great deal since the end of the 1980s and has accelerated with the fast development of technology as the world became one single global market.
The love for luxury is not something new in Asia. Contrary to the Judeo-Christian culture, wealth and success is popular in Asia—everybody likes it and wants to reach the same goal. In Asia you are what you wear!
I arrived in Asia in 1981 to take care of Cartier at a time when there were a few strong markets, such as Hong Kong, Singapore, Taiwan and Japan. China was not yet on the business map!
Then suddenly, around 2002, the Chinese market was ready to wake up and open its doors to foreign luxury brands. Cartier and Louis Vuitton were among the first to enter, followed by watch brands, and then fashion and accessories names. This movement was supported by a strong peak in 2008 as the flow of money coming from China accelerated.
It certainly was a rush!
The Chinese market, which had been closed for so many years, now had a large part of its population who were eager to embrace the world, including its luxury brands. The era of bling bling was starting. At the same time, there was much conjuncture .
Opening of China
The exceptional growth of real estate in China brought with it massive construction of shopping malls and an associated flow of corruption. Money was suddenly available to buy everything.
Hong Kong was the first market to benefit from mainland Chinese visitors. A price difference existed because of un-uniform taxes between China and rest of the world. The different levels of tax sometimes made the prices in China 30% to 45% higher than those in Hong Kong or Europe.
Hong Kong was the first shop window in Asia. Consequently, its economy was concentrated on major real estate groups who controlled shopping malls to serve this new clientele. At this time, Hong Kong started offering mega-flagship store space to luxury brands. At that time, if you had a small shop, you were a small brand. However, this would soon change.
In those days, in some districts, you could see queues of mainland Chinese in front of luxury shops. The motto was “queue up and shut up”. Many of us present in the early years of the booming Asian luxury market remember those images vividly. It was the era of golden profits for these brands, who started boasting about double digit growth every year. For the landlords, these times meant large increases of rent. Major luxury brands at this time were managed by financial people, although at times these luxury companies beefed up their headquarters with some fairly weak people—each department hired consultants and training companies to justify their existence.
For hard products such as watches and jewellery, the strategy was exclusively based on price—it is luxury because it is expensive! In recent years, Swiss watch export statistics have shown that there has been an increase in value and a decrease in quantities. Despite this, brands continued to produce and focus on very expensive models. At the same time, following the fashion trends, watch brands launched new models during the watch fairs, just feeding the retailers’ stocks and ignoring the reality of the market. For the fashion brands, everyone was producing everything, as long as it had a logo on it. It was impossible to see a difference between the few brands.
Although the Asian market started slowing down at the end of 2014, the brands still “danced on a volcano”, refusing to understand the changes. The first change or swing was the strong anti-corruption campaign in China, affecting probably around 30% to 35% of luxury business. This was the end of easy “corruption” money. There is a long tradition of gifting in China—you buy something expensive either to request a favour or to thank someone.
Second, we had a very strong level of consumer maturity to deal with. Then along came the political issue in Hong Kong. In 2014, the young generation in Hong Kong demonstrated and occupied the Central District for a few months in order to protest against China not respecting its political engagement for the future of Hong Kong.
Chinese people were now also travelling worldwide and not only within Asia. For example, 5 million travellers were on the go in 2014, compared to 110 million in 2015 . Recent surveys show that the buying trip is no longer the first priority—the Chinese want to discover the world.
China is becoming a “normal” market
Although it is becoming a normal market, the Chinese still privilege the price point. For example, the Chinese rushed to Japan when the rate of exchange was favourable.
Where are we now:
The Chinese market is a very large potential market with not only the biggest population of ultra-rich business people but a very large growing middle class with buying power. In China and in Asia, there is still a target of very rich consumers but these markets are more and more mature. The fantastic development of the Internet and social media has completely changed the landscape and brands must now be careful because they can no longer catch clients with a flashy bling bling strategy.
Brands must treat their customers well and give service, information and quality. They must go back to their DNA, promote their true value and know-how, adapt the public price of their new products to the real world, and keep some extravaganza for the ultra-rich only. There is also a real opportunity for “artisan” small brands that are specialised in one product with a high degree of know-how.
Asia is definitely a strong market for luxury products. Brands must understand their Asian consumers, and mainly the Chinese who are moving very fast. They must hire the right people who can understand and feel these changes. I am still convinced that operational people are the real engine of brands.
© Ferli Achirull, estherpoon/123RF