If you own a luxury brand and you want to try your luck in China, be prepared to aim a little lower – affordable luxury is set to work better in 2014. Reconsider expensive retail locations in Shanghai or other large cities and go for the millions of eager middle class Chinese in second and third tier cities, says Ben Hui, Managing Director of Language Brand Communication, an agency in Manchester (UK). High profile luxury brands like Giorgio Armani, Dolce & Gabbana and Patek Philippe have closed their flagship stores in The Bund in Shanghai.
Brands like Louis Vuitton, Chanel and Cartier feel the pain of the rise in cost of retail space, and of new government regulations that aim to prevent official expenses being used for the purchase of luxury items. Furthermore, many Chinese know how to purchase their luxury handbags outside China; many pay personal shoppers (known as ‘daigou’) online to get their goods for them from Europe.
Cross the border
But that does not mean that the party is over for luxury brands in China, especially if you own a small affordable luxury brand, says Ben Hui. His marketing agency – Language Brand Communication – helps brands cross the border from Europe to China and vice versa. His consultants – most of them native Chinese speakers – know how to develop a tailored brand strategy and proposition for international brands in China, how to develop the right market entry and how to attract Chinese consumers.
The marketing agency is currently setting up an office in Hong Kong. Hui: “There is strong wish among UK and European brands to explore opportunities in China, but we also see more and more Chinese brands looking for a market entry in Europe. Most of the time they are well-funded and prepared to buy local companies as a foothold in Europe.”
“In China, there is growth potential for affordable luxury brands. There are some great examples. The American brand Coach reported 40% growth in China in 2013. Coach is products are usually 40-60% cheaper than many European brands and it seeks its expansion mainly in second and third tier cities”, says Ben.
Does Chinese social media work for brands in China? “China is actually not so different from Europe. In China, social media are even more a crucial tool for customer relationship management, to win fans for a brand, to maintain its popularity and to convert online popularity of the brand into online sales.”
Size can be a trap
Hui points out that the size of China can prove to be a trap. “The country’s enormous size makes it impossible to cover all parts. You need to focus on a city or region that is small enough to handle. The larger the region, the more resources you need have in terms of distribution and promotion. Furthermore, if you are trying to market a fashion brand in China, you will need to consider climate differences. It can be winter in the north and spring in the south, at the same time. Another important factor for fashion brands is that people in the north of China tend to be much taller than in the south. Having a seasoned retail partner in China can definitely help solve such issues”
Less known inland cities
Large cities like Shanghai have another disadvantage over smaller and less known inland cities. “If you go in as a retailer, the cost can be prohibitive. Some of Shanghai’s retail spaces are more expensive than London! You will have a hard time if you want to put a new, small affordable brand in the market in Shanghai. Try to do business with a multi-brand retailer in bigger cities or take your brand elsewhere, like Chengdu or Chongqing, major cities in the southwest of China that are developing at high pace.”
To Ben Hui, the problems of the big and well-known international luxury superbrands show that smaller, affordable brands have a future. “It doesn’t matter if you are a small-scale high-quality chocolate brand, as long as the Chinese audience can clearly identify the brand as international and ‘different’. This will create a desire for the Chinese to buy, either for themselves, or as a gift for friends, family and colleagues.”