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August 30, 2009

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Wealthy Chinese a luxury goods lure

THE Belgian entrepreneur Jan Borgonjon knows a thing or two about the dramatic changes in China's consumer patterns in the home decoration sector as a result of his furniture distribution business.
"Ten years ago, Chinese consumers would spend a fortune on bad furniture. Now they know much more about what is available internationally °?- there are magazines and more people go abroad. It's completely changed,?he believes.
This more enlightened and perhaps sophisticated trend, and a lot of market research, is driving the impetus for the German home wares firm Miele to set up its dedicated stores in Shanghai and Beijing to directly sell its high-end fridges, dishwashers, wine storage, and cooking units.
In what is seen as a milestone for the company by fourth generation co-founder and Managing Director Dr Markus Miele, the Nanjing Road City Plaza store opened last week offering appliances for fabric care, refrigeration and wine storage, dishwashers and floor care.
"China's economy has already shown strong signs of recovery and this gives us further confidence in our China market development plan,?Miele said.
The company has had a representative office in China for four years and has particularly monitored the growth in the luxury home market and high-end hotels. It has also kept an eye on returnees to China that have used Miele products in overseas postings.
But the company is keeping a teutonically conservative outlook on its expansion prospects, indicated Vienna-born Martin Melzer, 43, Miele's chief marketing officer in Shanghai last week for the store opening.
"Miele needs lots of time for the Chinese market to understand it because it is not like a designer handbag or fancy super brand car that customers easily recognize as a symbol of success,?he said.
"However, there are more and more sophisticated potential customers, especially those who own a luxury or designer house. They have the purchasing power and want to pursue a luxury refined lifestyle.?
Borgonjon concurs and as he told authors Laurie Underwood and Juan Antonio Fernandez in "China Entrepreneur,?their recent book: "Of course, Chinese consumers have become more sophisticated. It's day (versus) night compared to 10 years ago.?
Indicative of Miele's reading of the market ?and precisely why it favors its prospects in China ?is its targeting of the small but supremely wealthy mainland customers who luxury consumer goods sectors around the world seem to be zeroing on in these recessionary times.
"Miele never wants to sell to normal people. Its pricing is normally four or five times more than Japanese brands and three or four times other European brands,?Melzer said.
In the worldwide appliance market, he said, Miele never gets even a 1 percent share. And it's not chasing market share in China, only the wealthy sophisticated spenders.
"If we take the example of the high-end home appliances market in China, Miele China has not set a target for itself in terms of sales, but in terms of brand,?he said.
"Market share is never our goal ?luxury brand image, best product design and technology and premium customer service are what we are focusing on at the moment,?he said.
He said China's booming economy, especially growth in the luxury residence and hotel market, has convinced Miele that China is the place for the future.
And glitzy, glamorous Shanghai apparently has what the company needs to launch in China with a bang and establish its retail operation foothold.
"Shanghai is China's economic powerhouse and people here are exposed to all luxury and high-quality products,?Melzer said. "It is a trend-setting city in China and when Shanghai takes the lead, other cities follow.?
And that seems to be right on the money as British-born Shanghai businessman Mark Pummell told Underwood and Fernandez for their book.
"There are people with a lot of money here. They buy Ferraris and other beautiful things,?he said. "If you were to ask me the difference between promotion parties thrown in Shanghai and those thrown in New York and London, I'm not sure there is a difference.?
Miele is also importing its products rather than going in the direction of manufacturing in China, a strategy which forgoes the opportunity of accessing lower local costs at the expense of maintaining quality control at the home base.
Melzer said the company's insistence on German design and production was the right business strategy as a luxury brand. "We know Chinese customers respect 'Made in Germany??he said.
Which makes sense if the mainland's well-heeled are your market and probably don't even flinch at the price.
("China Entrepreneur,"published by John Wiley and Sons)


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