All 2008 and the first quarter of 2009 the talk of the town –and definitely not without reason- is the economic crisis hitting the globe; but interestingly, despite of the bearish, unpredictable markets and the infamous credit crunch, the “Houses of Luxury” such as the Louis Vuitton Mot Hennessy Group (LVMH) and Richemont (companies behind Brands such as Louis Vuitton, Fendi, Kenzo for the former, and Cartier Van Cleef & Arpels and Panerai for the later, as table 1 shows) are still reporting increases in their global sales.
Let’s face it, even in hard times everywhere in the world people seem to have a craze for luxury and luxury brands. From the very rich to the lower middle class, people want to have the “IT” bag, the killer designer shoes, the latest US$500 jeans or the top of mind brand of watch.
LUXURY BRAND’S BIG OPPORTUNITY: ASIA
While it is true that the “Luxury Houses” have seen their business slow down in the “old” and mature markets such as Europe and America, they seem more optimistic about the future. In a recent Wall Street Journal (WSJ) interview with Bernard Arnault, chairman and majority owner of the LVMH group said, “Every time there has been a crisis, we’ve gained market share.” That might be case this time, given the group’s strategy of focusing on emerging markets. For instance, LVMH is seeing an increase in sales in the Asian markets that now represents 45 percent of their fashion and leather goods global sales. As stated by publisher Hurun, in China, there are 850,000 consumers worth more than € 1.1m while and 51,000 people in China that are worth more than € 11m; and as for the rest of Asia, it is reported that one out of four millionaires reside in Asia. In the WSJ interview Arnault expressed his excitement behind the Chinese market, “China is the most interesting place for me right now…There are so many people who are getting to the stage where they want to consume, who want to be part of the club….China is feeling the effects of the crisis, but less than the US. The Chinese tourists are now buying as much as the Japanese tourists, when there where virtually none of them just 10 years ago, I’m not so worried.” According to LVMH 2008 annual report, China became the second largest customer base for the LV Brand. It can be said that Richemont should not be worried either, in the past year, sales in Mainland China increased by 53 percent, while Hong Kong and the rest of Asia increased 23 percent and 25 percent respectively. If the Chinese wealthy really start to travel and spend like the Japanese did in the 1990’s, the potential for growth for the Luxury Brands is immense. JP Morgan estimates that 80 percent of the LV Champs Elysees sales are made to Japanese customers and not so long ago; more than 80 percent of the total LV sales –in and out of Japan- where made to Japanese buyers. Furthermore, according to the book “The cult of the Luxury Brand”, in Japan, 94 percent of women in their 20’s own a LV piece, 92 percent own a Gucci piece and 57 percent a Prada item. Just imagine the potential behind the Chinese market if it follows the Japan luxury craze.
THE ASIAN LUXURY CONSUMER
In no other part of the world the obsession with Luxury Brands is more evident than in Asia, where long queues in a shopping mall might not be related to a free gift or a great food outlet somewhere but to the arrival of the new collection of Louis Vuitton that everyone has-to-have; women stand in line often for hours just to get their hands on a Stephen Sprouse tribute bag. In Japan there is a relatively new phenomenon where teenage girls would do literally anything, including sleeping with working class middle aged men, to get enough money to buy the latest US$3,000 Chanel bag; or working class “office ladies” will save every penny on their salaries to buy their Ferragamo “fix” of the year. While in Europe and America, especially the former, people have been living with money and luxury for a long time –think fortunes passed trough generations-, in Asia the fortunes are relatively new; even the increase and strengthening of the middle class might be considered “new”. For the mature markets with “old” money, there is no need to openly show wealth, it might even be considered offensive or of poor class. In contrast, in Asia, it is a form of differentiation from a specific social class, a way to belong and be accepted, and in some circles the flaunting of wealth might even be necessary and expected given Asia’s highly hierarchical society. Asian consumers’ need for luxury has been widely researched, and according to Martin Roll’s book Asian Brand Strategy, it might be explained with the use of two key concepts:
1. The importance of status and admiration in Asians hierarchy of needs, different from the west self-actualisation, individualistic approach (as shown in figure 1)
2. The concept of “face” or mien tsu where people, in a way, are forced to buy and consume products that are consistent with their perceived social class in order for them not to lose “face” or dignity and pride. Luxury brands are bought to show power, status and to distance other consumers from different social classes.
The luxury consumer in Asia will invest in luxury items that are clearly recognised as such, the tendency will be to spend generously on items that are visible and be thriftier on items that are not. Think about the success of Louis Vuitton’s monogram bags. It is hard to walk anywhere without spotting one on a woman’s shoulder, LV has had such great success with the monogram bags that they have expanded it to just about every item they sell nowadays, from key chains to shoes, wallets and bags. Other Brands have been capitalising on the “logofication” as R. Chadha & P. Husband call it in their book. Chanel has been using their distinctive gold chains and quilted leather widely over their product ranges; and Burberry has been introducing more and more items with their tweet pattern. Within the Asian markets this strategy of having the brand logo clearly shown is key to success. There is no denying that at some point or another everyone has luxury cravings and that even in tough financial times consumers will find a way to satisfy them as long as the luxury brands have the right brand portfolio strategy and right product offerings. There is no slowing down for the Luxury Brand growth in Asia as the region becomes more and more important in the Global economy and the percentage of wealthy consumers increase through the years. We can only wait and see how the emerging markets in Asia –specially China- will develop and flourish. SOURCES: “Asian Brand Strategy, How Asia Builds Strong Brands” by Martin Roll “The Cult of the Luxury Brand. Inside Asia’s Love affair with Luxury” by R. Chadha & Paul Husband “Let them eat cake” by Pamela N. Danziger Wall Street Journal Magazine, Fashion Issue Newsweek WARC news World Advertising Research Centre Richemont annual LVMH annual report