Domestic luxury brand growth signals a focus on quality & acquisition for Asia in 2013
Photo credit - Marketing to China
“Luxury brands of the 21st Century can come out of anywhere... what's important is that a product is made by the best hands using the best materials.” - Uche Okonkwo, executive director of consultancy Luxe Corp
Asia market demand is shifting. Domestic luxury brands are seeing strong growth. Meanwhile, this month LVMH reported "flattish growth from this part of the world" in the last nine to ten months, according to Jean-Jacques Guiony, CFO LVMH. This is significant as the Asian customer accounts for half of the company's sales globally.
Sales in China over the next decade are forecasted to stem from the "merely affluent" customers earning 15,000 to 75,000 Euros, not the "super rich". Product quality will become an important factor in spending decisions, and product origin will matter less. This shift in consumer values enables domestic rivals, who offer lower price points and little difference in quality, to increase their market share and challenge the traditional luxury offering. For example, South Korean leather brand Couronne announced sales of $40 million in 2012, which nears the results of some smaller European luxury brands like Berluti.
However, Asian luxury brands will not out-compete the Europeans anytime soon. Branding expert Yang Xilun told Forbes magazine, "The Chinese perception of luxury is still that high-end brands are from Europe and the U.S. Their entire understanding of luxury is that Europe is its birthplace. All of this takes time to change." The name Couronne itself is derived from the French word for "crown", which was chosen instead a Korean name to draw on the prestige associated with European luxury.
The growing importance of domestic brands in the Asian region has led Kering, Cie. Financiere Richemont SA, and L Capital (a fund backed by LVMH) to make home-grown acquisitions in the market. Asian brands will continue to drive growth for each of these parent company's, even as their European brand offerings begin to plateau with the customer.
According to McKinsey & co, sales of discretionary goods in China will grow at a compound annual rate of 13.4 percent between 2010 and 2020.