05 Jan 2015

Why Does Asia Consume, But Not Produce Luxury Brands?

Of the world’s 22 most profitable luxury brands, 20 come from Europe.

Yet Europe is no longer the world’s biggest consumer of the luxury labels it produces. Nor is America, which is responsible for the other two. Asia, the Middle East and Russia now represent huge markets for these brands. It’s thought over half the world’s spend on luxury brands now comes from China. Those parts of the world that most enthusiastically consume these luxuries haven’t yet emerged as significant producers of them.

Why is this, and is this situation likely to change?

Whilst it’s easy to name some luxury brands (such as Canali, Valentino, and Ralph Lauren) it’s less easy to define exactly at which point a high-quality, desirable good turns into a luxury brand.

Luxury brands tend to have a set of characteristics in common. They are often highly associated with their core products – Louis Vuitton with luggage, for example, or Rolex with timepieces.

In general they offer products that are among the most expensive versions available. The quality and durability of those products is so high that they tend not to be disposed of after long use or a defect developing – rather they are repaired. In many cases, a luxury item will increase rather than decrease in value over time.

Luxury goods also exhibit qualities of rarity; they are not always available at every time and in every place and only a limited number may be produced. The brand control is so absolute that the brand is never seen in a tawdry light or badly presented. All these characteristics contribute to their desirability and help to explain why the status of a luxury brand is so hard to achieve.

Whilst many brands are associated with high-quality goods, few make it into this exclusive club. One final essential characteristic of a true luxury brand is that it is international; known and feted as a luxury brand in every market.

Many brands manage to achieve the characteristics of a luxury brand in one or a limited number of markets without ever becoming recognised internationally, meaning they never quite achieve the status of a true luxury brand.

Examples include Pabst Blue Ribbon beer, which is marketed as luxury drink in Asia but seen as an ordinary everyday beer in its US home market; or Clarks shoes, considered so desirable in Jamaica that fake versions are produced, but seen as a decent but unremarkable high street brand back home in the UK.

Certain localities have been particularly successful at producing luxury brands. In the eyes of consumers, European brands benefit from an historic association with some of the qualities essential to luxury brands, such as precision and craftsmanship. Specific countries such as France tend to benefit from a long association with top end fashion and elegance. This reputation tends to benefit other brands of the same nationality via a ‘halo effect’.

The success of luxury brands such as Rolex in Switzerland, Chanel in France, Prada in Italy, etc. imply to consumers that other luxury brands based in the same geography will be able to draw on the same talent pool in order build their businesses and therefore should deliver products of comparable quality.  The same goes for Siemens and Germany’s reputation for engineering excellence or Sony and Japan’s reputation for innovation in consumer electronics.

One Asian brand that has achieved the status of international luxury brand is Shanghai Tang. Established in Hong Kong in the mid-nineties, the brand initially did far better in the West than in markets closer to home. In recent years it has enjoyed more success at home and the majority of its custom now comes from China.

Part of the brand’s success has been to reach back to the glamorous past, drawing inspiration from the Shanghai of the 1930’s. Perhaps this implies that even a successful native luxury brand needs to find authenticity outside the current market and manufacturing conditions in order to be perceived as premium by consumers. Asian consumers’ own skepticism about the quality of native brands would seem to be the biggest barrier to the region producing its own luxury brands.

Some commentators claim a lack of innovation is the reason China has so far failed to produce a luxury brand of its own. The time it takes a new luxury product to reach the market from concept stage is usually around two years and involves significant rounds of design and testing. Some observe that China’s manufacturers tend to copy products that have already proven successful, rather than go through the long-winded research and development process to create new ones.

This argument, however, is getting rather old, and doesn’t explain the full truth. Luxury brands have become established in Europe partly because of the long and sustained existence of a wealthy middle or merchant class that has demanded them.

The establishment of new luxury brands also necessitates a few other factors, none of which are outside the capabilities of markets such as China or Russia. These market factors essential to the establishment of luxury brands include sophisticated, cutting-edge craftsmanship, the emergence of a brand with values that the market strongly identifies with, the nurturing of top design talent and world-class operational and management skills.

If these environmental factors are established in any market it’s likely that native luxury brands will eventually emerge. It will be interesting to see how these brands position themselves to compete with their more established western competitors.



 
 

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