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Economics & Finance

China and luxury: A rekindled romance

Aileen Huang |

Luxury is all about dreams. It represents the best. So says Marketing Professor Li Fei of Tsinghua University, China, in a recent interview for the Chinese media. He shares his thoughts with INSEAD Knowledge on the recent boom in this lucrative sector and in a country which shunned luxury and ostentation for almost all of the last century.

The Chinese attach great status to luxury and although accessibility is a new phenomenon, the taste for it harks back to ancient times when the country was ruled by the imperial family. “They led the most extravagant life,” says Li Fei, a marketing professor at Tsinghua University, “therefore it is safe to say that China has the culture of luxury.” This culture was interrupted, however, at the time of the “May Fourth Movement” (1919) and the Great Proletarian Cultural Revolution of 1966-76.

So is China witnessing a luxury renaissance? Li believes so. “Since 1979 when China started to apply the Reform and Open-up Policy, people’s annual income has increased rapidly. China has since become the world’s fastest growth economy.” With this growth comes greater accessibility to fine goods and, as such, China is “the core market for luxury goods,” according to the professor.

What's in a name?

In the mid nineties, China saw a gradual influx of luxury brands, with Louis Vuitton, Chanel and Gucci among others opening stores in Beijing and Shanghai. More followed suit and according to Li, the opening up of China to the rest of the world meant that “the long-suppressed purchasing desire has since erupted.” A new class of people has emerged – a class anxious to display their wealth and status, and what better way than to exhibit luxury labels in the boardroom or over dinner? Moreover, why not impress your friends by hopping over to the fashion capitals of the world for the latest offerings of high-end designers? He calls this “conspicuous consumption” or “flaunting”. In the West, thanks to a relatively stable income, the motivation has shifted from “conspicuous consumption” to “self-rewarding consumption.”

Can we expect to see a similar trend in China? Thanks to its discernable logo, the number one ‘must have’ luxury brand there is Louis Vuitton. The name is everything it seems. “However, over time,” considers Professor Li, “people will learn to appreciate luxury goods and to purchase [them] for their culture and value as well as and for “self-indulgence.”

The professor believes that the surge in the luxury market in China will continue for at least the next 10 to 20 years. He also thinks that the country’s one-child policy fuels the industry as there is only one child to pass down to. “As a result, the younger generation has more financial resources to access luxury goods,” he says. In contrast, growth has matured in developed countries. Li thinks that even if there is growth in these markets, it would be “very slow”. “I found there is not much difference in Paris between 20 years ago and now.” he says. “The only difference is that they are now using the euro rather than the franc.”

Accessibility vs. Exclusivity

 

But does greater accessibility threaten the exclusivity which defines luxury? “Although luxury brands have entered the smaller cities, this did not reduce the price,” says Li. “The difference is that the number of consumers becomes much bigger.” Those who really wish to stand out from the crowd will now have to choose even more classic and expensive lines. As far as marketing goes, these brands need to find a mid-way point between retaining their high-end image and expanding their clientele.

The question now is whether the awakening of an ancient appreciation for the finer things in life combined with a new-found wealth will result in a home-grown Chinese luxury brand. Professor Li is not so sure. He understands what it takes to build a brand: the finest, scarcest raw materials; exquisite workmanship; the shopping experience; distribution channels and finally marketing. “It cannot be accomplished overnight,” he says. It takes time to build a prestigious, luxury brand, so it seems likely that well-heeled Chinese shoppers will be queuing up for their Louis Vuitton “Speedy” bag both in Beijing and on that most famous of Parisian avenues, the Champs Elysées, for some time yet.

Note: The Beijing Administration for Industry and Commerce has notified advertisers in Beijing on 15 March to clean up their public displays that contain words or statements such as "royal," "supreme," and "irreplacable" that advocate lifestyles of “hedonism”, “emperors and the nobility.” The statement was widely interpreted by Western media as forbidding the use of the world “luxury;” however in response to queries, the Beijing Administration said it seeks to create a "fair and harmonious" environment, the Beijing administration said on its website.

Li Fei is a professor of marketing in the School of Economics and Management at Tsinghua University.

The article was translated from Chinese by Aileen Huang and written for INSEAD Knowledge by Lindsay Anne Brown.  

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