Tuesday, August 30, 2011

Luxury Brand: Europe vs China. Is there even a competition?

I'm no fortune teller but I have a feeling that a shift and change is afoot in the geographic home to luxury goods. Currently, that home is Europe and has been for quite some time [http://www.eurocham.com.hk/about-eubip/88-chinas-investment-in-european-luxury-buyer-beware.html]. The biggest group of buyers (in dollars/yen/pounds/euro) is currently the Chinese.

I read a recent interview in the Financial Times with Diego Della Valle, the head of Tod's (Milan). [http://www.ft.com/cms/s/84721c1c-c33f-11e0-9109-00144feabdc0.html] I found two points most interesting: FIrst, his belief that a luxury brand will have to maintain, what he called "the dream touch." A balance between a brand's products being exclusive and yet popular. Second, his belief that for the foreseeable future the Chinese will want "Made in Italy" and shun "Made in China".

Here's the excerpt:
With all this talk of Asian resurgence, does he consider that the “Made in Italy” label will retain its lustre? “Yes,” he replies unhesitatingly. “Because it is still the maximum guarantee of high quality for products such as ours. Like the French for perfume, the Swiss for watches. The Chinese do not want to buy ‘Made in China’.” But the Chinese will surely learn, if they haven’t already, how to make things equally well? “But we have the hundreds, the thousands, of family firms, micro-enterprises, almost a Renaissance model, that guarantee that quality. That’s not easy to copy.”

At first I was blown away at how naive this statement is, especially given some of the other things he said that were rather insightful. The undying belief and pride that luxury-good brands from high-end, family-owned Italian businesses could not be replaced by an emerging Chinese luxury-brand of equally high-end materials, style and exclusivity. That, perhaps, the Chinese are not capable of such competition. That Italians have a solid and experienced network of suppliers, designers, and craftsmen/women to design, produce, market and sell (with that balance of exclusivity and popularity in hand) -- that this is not easy to copy. Perhaps not easy, but it can be copied. If nothing else, the Chinese factories that produce US and European technology and apparel goods have proved they're darn good at copying.

The luxury market, however, is not the place to sell copies. Although Canal Street vendors in New York City have fairly good imitations on the black/intellectual-property-infringed market. The real buyers in any luxury market, a copy will just not do. So what's to stop a Chinese luxury-goods company from doing the same? Establishing a high-end model? Is it the lack of intellectual property statutes in China or the fact that European brands just have more cache?

(Truthfully, I know very little about the fashion industry. In fact, as a regular reader of the Financial Times it may be my only exposure to high-end brand names and products at all. I'm definitely not the typical FT reader and do not own any luxury brand goods. Though, of course, I aspire to as someone in the middle class is supposed to.)

The only high-end Chinese brand I know of is "Shanghai Tang". So, I went looking for an article about them and their head of company's view [http://www.cnn.com/2010/BUSINESS/03/30/china.fashion.luxury/index.html ]. What I found was what I expected to find, a similar set of statements that basically promote the pride that Chinese have in their own Chinese brands and that luxury goods can be produced, designed and bought with cache with "Made in China" on the label. 

However, I found the interview devoid of any substantial statements about strategy or brand values. Although this was a CNN interview not meant to be in-depth about any point, unlike the Financial Times interview which is "Lunch With the FT" column and is meant to be a meaningful conversation with substance. So it is a bit unfair to compare. The CNN inteview with the Shanghai Tang CEO had weak sound bites meant to promote that Shanghai Tang has Chinese pride and the future is all about China: "But today everybody produce in China. Simply because you can get quality in China the same way you can get quality in the Western World."

 Will a Chinese label be able to establish and maintain that "dream touch"? 

Both interviews referenced the Japanese market of 20 years ago as being the predecessor of the Chinese market today. Delle Valle (CEO Tod's) mentioned that unlike the US and Japanese slow embrace of luxury goods over years that started with the wealthy and then the middle class, that the Chinese market is more of an explosion of both the wealthy and middle class at once. The development of embracing and buying luxury goods is different.

From what little I know about China today, I think everything is different about this "explosion" of wealth. I think the Europeans are going to need to stick even more strongly to their brand vision and values and maintain brand across everything they do, while simultaneously looking over their shoulders for a stream of Chinese luxury brands who will be able to really compete with them.

Like with any brand that is selling something, the appeal to one's emotions is often paramount. Just look at luxury hotel chain: http://www.nytimes.com/2011/08/29/business/media/ads-for-luxury-collection-hotels-appeal-to-emotion-advertising.html?_r=1&smid=tw-nytimestravel&seid=auto Promoting the "personal touches", the little details, that separate a hotel from a room with a bed to an experience. The luxury market, no matter where and no matter for what, the quality and differentiation is crucial.

Tod's understands that and we'll see how well Shanghai Tang (or any other yet-to-come high-end Chinese brand) understands that, too.