|An Internet search for luxury goods will lead to stories about designers educating the Chinese public about the history of fashion to make them better consumers, an important task since China is the fastest growing luxury market in the world. Other stories focus on the perils of democratization of luxury as the industry tries to make more money by making their products accessible to more people, thus diluting the original aim of exclusivity (and potentially quality as well). Meanwhile, other articles focus on marketing to luxury clients, for example how to gain their loyalty and patronage.
As countries around the world are starting to recover from the global financial crisis, the luxury industry is recovering as well. The fastest growing luxury goods are electronic pieces, such luxury mobile phones, and the weakest is travel goods.1 Within the US though, consumer of luxury goods are starting to become more price-conscious and are buying one-of-kind items (clothing/accessories/etc) that hold special emotional ties, rather than expensive, mass-produced luxury goods.2
Despite the comeback, the luxury industry still faces the same challenges as other industries, including high commodity prices (cotton, leather, silk and cashmere) linked to natural and man-made disasters (floods in Pakistan and China, flood in Australia, loss of silk trees from the urbanization of Shanghai, a harsh winter in Mongolia) impacting the supply chain, as well as high transportation costs due to the rising fuel costs.3
The story and impact of luxury is the story of globalization. This analysis will examine the history of the luxury industry, the rise of China, and the industry’s impact on global culture.
History of Luxury Industry
Luxury goods have been around for centuries as the ruling classes around the world have used their wealth to buy expensive, hand-made clothing and accessories. The luxury brands famous today are about 100 -200 years old (or more recent). The industrialization of luxury though has only taken place in past couple of decades.
Most clothing, jewellery, and accessory brands, such as Hermes, Louis Vuitton, Chanel, Dior, Armani, Cartier, Versace, etc started out as small French or Italian family businesses, centered around a creative designer. In the 1970’s, many of the French firms, suffered from a variety of management and ownership problems. These firms lacked capital and were not yet mass-marketing their wares.4
The 1980’s saw a revitalization of luxury firms. One reason was the use of celebrities to promote brand awareness, such as using the Academy Awards to showcase designer clothing.5 Another reason was the influx of capital to these firms. Leading this trend was real estate manager Bernard Arnault, who took control of Agache-Williot-Boussac-Saint-Frères and only kept the kept its affiliate Christian Dior. Arnault soon thereafter took control of Louis Vuitton and Moët-Hennessy, and united them under LVMH. From 1985 to 2006, he took over 64 brands.6
In the 1990s, the luxury firms started employing new strategies either diversifying their products toward mass consumption and/or focusing on select high-quality goods. Hermes and Vuitton followed the latter by increasing the quality of their product and by increasing the number and skills of its craftsmen.7
LVMH also epitomized the strategy of diversification, segmentation, and differentiation, as it sought to balance the market share and individuality of its various brands.8 Differentiation was achieved through mass production and luxury production, ensuring that the luxury products had enough distinction to justify their price. Diversification was achieved through enlargement of the scope of products offered, such as cosmetics and other accessories.9 In search of increasing profit (and perhaps relevance), the luxury industry had become democratized.
The Rise of China
The first wave of consumption of branded luxury goods began in Europe 100-200 years ago, followed by the second wave in the U.S., starting 50 years ago after World War II, followed by the third wave in China, starting about 30 years ago.10 China is expected to become the biggest luxury goods market ($27 billion) worldwide within the next four years and will consume 44 percent of the luxury market by 2020.11 There are now about 960,000 millionaires in China12 and a growing middle class that has discretionary income, both of which are ready to spend money on luxury items.
The demographics of Chinese luxury consumers differs from their US and European counterparts, in age and sex: the average luxury goods consumer in China is male and in the 30’s-40’s. Chinese consumers equate luxury with success and purchase luxury items to give the appearance of success.13 These consumers are web-savy and prefer to buy online, but are still influenced by visits to luxury stores. So luxury producers are reaching out to them via Chinese blogs and social networking sites, while still building a physical presence in the country.14
The spread of the luxury goods stores is not just in the big cities, but throughout lesser known provincial cities as well.15 European fashion brands are courting and educating the public through multi-million-dollar fashion events, such as a Prada restaging of its Spring/Summer 2011 men’s and women’s line (the first time ever done outside of Italy) and museums exhibitions such as Chanel retrospective at the Museum of Contemporary Art in Shanghai.16
The luxury industry is starting to cater more to the Chinese market as well. Cosmetics giant Estee Lauder signed their first Asian model, Liu Wen, and is opening a research and development center in Shangghai on Asian skincare.17
While the Chinese market is a boon for European and American luxury brands, soon the Chinese will be focusing on developing their own brands. About half-dozen Chinese yacht builders are already competing in the country’s nascent yacht market.18 There is a rising crop of young Chinese fashion designers, trained in Paris and Milan, which are now opening their own boutiques in Beijing and Shanghai.19 Some Chinese view the influx of European brands as a cultural invasion. NE-TIGER’s (one of the China’s fastest-growing fashion houses) Zhang Zhifeng comments
The rise of China in the luxury market is not just impacting China, but other countries as well. The recent growth in the European luxury market is in part due to spending by Chinese tourist on luxury goods. The impact of Chinese tourists on luxury goods sales is greater in Europe than in the U.S. because the Chinese do not need visas to visit Europe. On the luxury real estate front, Chinese are buying up properties around the world, as there are high real estate prices and a potential housing bubble on mainland China.21
The Culture of Luxury
In Russia, there is a “psychological habit” of consumption as the new rich shows off their wealth. Affluent Russians are known to spend 13 percent of household budgets on clothes and shoes, double the percent of well-off Japanese and Brits. Businessmen are the main consumers. They grew up in an era of lack of luxury and are making up for it.24
The why’s behind the popularity of luxury items are often studied by marketers whose underlying goal is to further increase consumption. The customer‘s luxury value perception are tied to financial, functional, social and individual utilities of the brand. Financial dimension address direct monetary aspects, such as price and investment. Functional dimensions address aspects such as quality, uniqueness, and usability of the product. Social dimensions address how the product will be perceived by peers in the social group. The individual dimension includes personal orientation to luxury, hedonistic and self-identity value.25
These drivers are the same worldwide, the difference between cultures is the weight placed on the different dimensions. Some marketers note that consumers’ preferences, tastes, and attitudes have become homogenized due to convergence of income, technology and media through multinational marketing campaigns.26 “Today’s luxury marketplace is mostly about hype and marketing” is the conclusion drawn by Dana Thomas, author of Deluxe: How Luxury Lost Its Luster.27
1 “Luxury Industry Review.” Euromonitor. January 13, 2011.
The Globalization of Luxury
The Globalization of Luxury