China’s Own Luxury Brands Can’t Keep Up With Foreign Competition

Meanwhile, Chinese luxury brands have had slow going at home. The HNW on the mainland have more respect for old European brands, for their traditions and quality, and have not been enamored of companies at home. According to David Friedman, president of WealthX. “The Chinese luxury palate and appetite is on an evolutionary growth spectrum. They are learning about luxury, and so their tastes are evolving based on education around brands and quality,” he said.

 “If you put two diamonds, [for example,] in front of the Asian buyer that are the exact same clarity, size, and color, but one is three times as much and [carries the] Harry Winston brand, they will buy that one [despite the price difference],” Friedman said.

That said, Chinese luxury consumers are “increasing their confidence in what they like, versus being told what to like by a luxury brand,” said Friedman. “The window of opportunity for luxury brands now is to take advantage of this educational cycle for the luxury buyer based on their brand equity. I’ve heard some jewelry and fashion executives say that the Chinese luxury buyer is where the Russian [luxury] buyer was 10-15 years ago. So [eventually] it will be more about what they like, and quality vs. brand, but right now it’s heavily weighted on the brand to tell them what luxury is.”

The expansion of luxury European firms into China has resulted in some interesting outcomes. Hermès, for example, engaged a Chinese creative director some three years ago and developed an independent luxury company, Shang Xia, in Shanghai. Estée Lauder launched a skin care line, Osiao, made with Chinese ingredients such as ginseng. And Chinese luxury jeweler Qeelin was bought by Kering, formerly PPR, at the end of last year. More such collaborations are likely, particularly since an acquired Chinese company will have insights into the Chinese luxury consumer’s behavior that cannot be matched by Western firms.

And the reverse has even happened, with Chinese companies going abroad to open manufacturing facilities in the countries where craftsmanship is respected—such as Italy, which has seen inroads made into its own fashion industry (see Squeezing Italy). Thousands of Chinese-run companies have set up shop in Tuscany’s Prato, where they use Chinese-manufactured textiles to make clothing that they then export to those looking for Italian-made garments at a bargain price.

All may not be lost, however, for mainland Chinese luxury brands. China’s First Lady Peng Liyuan, who was the country’s most famous singer before ascending to her present position, caused a stir in April when she accompanied her husband, President Xi Jinping, on his first official trip to Russia. The reason? Liyuan wore elegant clothing designed, not by a French or Italian fashion house, but by mainland China designers. The handbag she carried was not Prada or Louis Vuitton, but Guangzhou-based brand Exception de Mixmind. The handbag sold out, and the coat, another creation from the same designer, experienced a bump in popularity.

 “The luxury buyer sees something made in China [but isn’t buying it, in favor of something] made in Italy, in Europe. It doesn’t mean there aren’t luxury products in China, but they don’t have the brand legacy,” Friedman said. “[European] luxury providers have decades and decades of experience and family members [in the business] going back [generations]. Paris, Italy … it’s challenging to match that mystique. But there are brands popping up in China that are creating their own heritage.”