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Store chains spot a niche in luxury market
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Shanghai office worker Crystal Xu purchased three Prada leather handbags during a recent holiday in Italy, but now she’s having second thoughts about the luxury brands that have been the hallmarks of frippery in the past.
“Seeing other people carrying the same brand bag as I do makes me stop and think,” she said. “Now I think I would prefer to buy more personalized niche brands, and it’s fun to search them out.”
Department stores have sniffed out this trend shift away from the herd mentality of “logo mania” to smaller, more boutique offerings in fashion and accessories. The trend is perhaps fed by China’s ongoing crackdown on ostentatious spending, especially by public officials.
In recent months, at least two department store chains that have returned to the Chinese mainland market after years of absence both cited what they see as a pick-up in demand for more niche brands.
At the end of September, France’s Galeries Lafayette opened a store in downtown Beijing. The department store, a 40 million euro (US$54 million) joint venture with Hong Kong-based fashion retailer I.T Group, comes 15 years after the French retailer closed its outlet in China’s capital.
Laurent Chemla, chief executive of Galeries Lafayette China, said the store’s current stock goes beyond the usual high-end brands. He said he sees a large middle class that is seeking new trends, emerging designers and a unique shopping experience.
Hong Kong retailer Lane Crawford also opened an outlet in Shanghai in October after an eight-year absence. Its range of merchandise offers more exclusive items from ascending stars in the design world.
“Chinese consumers are now purchasing luxury beyond badge value, while quality and unique designs are playing a more critical role in buying decisions,” said Rupam Borthakur, managing director of consumer and market research firm Millward Brown for Hong Kong and Taiwan.
He said there has been a correction in luxury growth, partly triggered by the nation’s anti-corruption crackdown on gifts especially in watches, gold and jewelry.
The business model of both Lane Crawford and Galeries Lafayette differs from most Chinese department stores that lease the bulk of their space to high-end brand retailers. Each of the retailers has its own purchasing power when it comes to determining what will be stocked in its stores.
About 40 percent of the shopping space in the new Galeries Lafayette store in Beijing is leased out to other brands, while the remaining stock reflect the choices of its fashion scouting teams.
In Shanghai, Lane Crawford is hosting about 500 brands, and over half of them will be exclusive to Lane Crawford and entering the mainland for the first time.
For years, Chinese consumers have gone on shopping sprees abroad for luxury fashion items, which are often cheaper in Paris, Rome and London than at home.
Then, too, the active trade in counterfeit brands in China has helped diminish the cachet of many top fashion names. Who really feels chic sporting a Burberry handbag when the neighbor’s dog is wearing a canine coat in a fake replica of the trademark pattern?
Luxury sales growth in the Chinese mainland this year will plunge to 2.5 percent from 20 percent last year, with sales of about 15.3 billion euros, consultancy Bain & Co said in a report last month. The US is expected to overtake China and become the fastest growth market for luxury goods.
Global luxury sales are estimated to edge up just 2 percent growth on sales of 217 billion euros this year, down from double-digit growth in the previous three years.
Chinese people make up 29 percent of worldwide luxury consumers, still the single largest group of luxury-goods buyers in terms of nationality.
Bain’s report confirmed that many consumers are starting to turn their backs on the tried-and-true luxury brands in favor of new names with creative, more personalized designs.
Andrew Keith, president of Lane Crawford, told Shanghai Daily in an earlier interview that his store hasn’t seen any effect from the central government’s clampdown on conspicuous consumption, where gifts and lavish banquets have been used to buy favors or flout wealth.
Most of the goods sold in the store, he said, are for personal use.
By purchasing all merchandise through its 85-member buying team, Lane Crawford said it hopes to create a distinctive difference from other department stores that mostly carry all the same stock. “It’s a new model and one that is worth a look by domestic department stores,” said Ding Liguo, a veteran retail industry observer.
Galeries Lafayette is aiming to open 16 outlets in China in the next five years, Thierry Vannier, director of the chain’s international department, was quoted as saying in a recent interview. Lane Crawford is eyeing an opening in Chengdu, capital of the southwestern province of Sichuan, in the first half of next year.
It remains a challenge for retailers to capture trends and satisfy consumer tastes across such a large and diversified country, said Hong Tao, a professor at Beijing Technology and Business University.
But their strong merchandise management systems and experience in acquiring retail and design talent could stand them in good stead and provide a valuable lesson for local retailers.
It’s hard not to admire Galeries Lafayette and Lane Crawford for their innovative approach to retailing and for their ability to capture new trends. Their previous attempts to crack the mainland market failed because the brands they tried to bring were premature for local consumers.
Whether they will succeed with their new approach remains to be seen.
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