Daisy Liu epitomizes China’s obsession with luxury brands: her shoes are Guiseppe Zanotti, her brooch Chanel, a floral Hermes scarf is stylishly knotted over one shoulder. She won’t, however, tote a monogrammed Louis Vuitton handbag ever again.
Wealthy shoppers like Liu are increasingly turning up their noses at labels they believe have been tainted by the common touch, seeking out understated, and exclusive, merchandise from the likes of Chanel or Hermes instead. That is becoming a big challenge for designers hoping to cash in on the world’s fastest growing luxury market.
“I have two Louis Vuitton handbags but I no longer carry them although they are still in fashion,” said Liu, a 31-year-old employee at a multinational cosmetics firm. “I don’t think the brand fits me any more.”
More than a decade of strong economic growth has helped swell the disposable incomes of millions of Chinese, creating legions of men and women with a voracious appetite for status symbols regardless of the cost.
China’s importance for firms such as Louis Vuitton’s parent LVMH and Gucci’s PPR SA is indisputable: last year, as Europe was mired in financial crisis and the US economy faltered, Chinese shoppers spent an estimated US$18 billion on luxury goods, according to consultants Bain & Co.
China is the world’s third biggest market for personal luxury goods, worth at least US$25 billion. In the next three years, it is expected to leapfrog over Japan and the US to take the top spot, with the luxury segment expanding to US$28 billion.
As it grows, the market is also maturing, moving from so-called aspirational luxury, where bling is king, to what experts call absolute luxury: the desire to be seen as both wealthy and discerning.
“In the past, it was just a checklist. If you were one of the top five brands out of some magazine, you found that people in China just checked the checklist and bought according to the list,” said Vincent Liu, partner at Boston Consulting Group. “Going forward, people will be more selective. They know what and where and when to use what brands and products.”
For sophisticated consumers like Liu, that means purchases such as a US$2,000 Chanel mini bag and a Prada clutch. She’s also eyeing a coral lambskin bag from Bottega Veneta, the Italian fashion house renowned for its signature woven leather goods.
“The truly wealthy, the real millionaires, they will not want to buy LV Louis Vuitton or Gucci because they are too commonplace,” said Shaun Rein, managing director, China Market Research Group. “Rich people are getting richer and they want exclusiveness and more self-indulgence.”
China’s luxury market is poised to grow 18 to 20 percent this year, steeply outperforming the single-digit forecasts for Europe, the Americas and Japan, according to Bain, explaining the rapid expansion of larger luxury firms such as LVMH.
For years, LV’s Monogram “Speedy” tote, a dome-shaped classic favored by Audrey Hepburn, was one of the most desirable bags for Chinese women because it was a clear signal of having made it: the handbag costs double the US$400 an average Chinese worker earns a month.
The brand is LVMH’s cash cow and revenues are almost double those of Gucci, widely considered its closest competitor.
But as LVMH grew in China — there are currently about 38 Louis Vuitton stores there, including in remote areas such as the southern Guangxi autonomous region, compared to the 57 or so in Japan — it lost some of its cachet.