Q&A: Is the Asian Luxury explosion on the rocks?

Monocle_spottheshopper

This month’s Monocle magazine plays "Spot the Shopper" at one of China’s cavernous new luxury malls. Have a look — there’s barely a shopper in sight. We’ve been hearing similar reports about luxury malls and stores in Russia, and the (admittedly anecdotal) fashion grapevine says that luxury stores in India are struggling as well. Add this to the economic uncertainty sweeping through the global economy and it’s enough to step back  and wonder: is this whole Asian luxury explosion overstated?

Not according to Radha Chadha, a leading expert on Asia’s luxury boom and co-author of the book The Cult of the Luxury Brand: Inside Asia’s Love Affair With Luxury. Turns out that some companies and luxury projects are just not well conceived to begin with, and these ones are likely to fail. However, other players are scoring major successes in Asia, especially those that have been present in the region for some time.

We reached Radha Chadha in her Hong Kong offices to better understand the impact of the global economic downturn on the luxury boom in China and India and to get Radha’s views on which brands are best positioned to dominate the market there.

BoF: With all the talk of recessions and the debate over economic decoupling, how do you think this will impact the so-called luxury explosion in Asia?

Radha_chadha RC: The equation is simple: if the economies of Asia grow, the luxury market in Asia will grow too. I am not an economist, but from what I can see on the ground, things seem rosy for the luxury market here, at least for now. 

Even with the USA going into recession, people expect China and India to continue growing… perhaps at lower rates, but growing significantly all the same.

BoF: In your research on luxury in Asia, what surprised you the most and why?

RC: Surprised me? Ordinary people spending extraordinary sums of money on luxury brands.  But they seemed to be getting their money’s worth in terms of social kudos and enhanced self esteem.

BoF: Which luxury brand do you have the highest hopes for over the next 10 years, in terms of growth, profitability and brand awareness in Asia?

Cult_of_the_luxury_explosion_2RC: Hard to say, 10 years is a long time in the fast paced Asian markets.  Any brand with a kick-ass Asia strategy (and execution to match) could do wonders in that time period. Going by the current situation, I’d pick Louis Vuitton (it has formidable brand building capabilities) and Coach (based on what it accomplished in Japan). 

A category I’d watch is Spirits & Wine…some of those brands are making a concerted effort to "go luxury".

BoF: What advice would you offer to brands looking to break into the Asian market but which do not have local contacts and experience to do so? Where is the first place they should turn?

RC: Chadha Strategy Consulting, of course! But seriously, my advice would be to spend time understanding the local consumer and the local market…these are complex, fast-evolving markets, and there are so many misconceptions about Asia.

China shopping mall photo courtesy of Monocle magazine.

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11 comments

  1. I don’t want to give the impression I have nothing better to do than read fashion blogs and leave comments, (more free time than usual, what can I say) but I think it bears pointing out that Ms Chadha has a vested interest in stoking excitement about the luxury business in Asia and therefore may not be able to comment with the best authority on its condition. To me, the ‘spot the shopper’ photo at the beginning of this post says more than all the words. We’ll know for sure when the numbers come in and until then it’s speculation. Of course, regardless of what happens this quarter and in the next few years, Asia will continue to be a big growth area, the only question being how big.

    Anjo from Stanford, CA, United States
  2. Unless my eyes deceive me, that looks like a rendering rather than an actual photo of a mall… We need to explore the challenges of building flagship stores, upscale malls and distribution channels for luxury in Asia when consumers have different consumption patterns for luxury brands amongst their peers. One reason why some malls may be empty across Asia is that the infrastructure is being built in anticipation of a wall of money to be thrown by an ever-increasing proportion of consumers wanting to experience luxury. Meanwhile, the customers they seek are more interested in badge status than the experience per se – this might explain the high levels of counterfeit brands that exist. Also, many of the more affluent consumers are spending their money on trips overseas – there is more cache in a luxury brand purchased in Paris than in Shanghai – (and prices are often cheaper abroad). That will change in time. But Asia is still the place to be. LVMH reported 30% of its business came from Asia in 2006 (including Japan) and Asia is the fastest growing region. So while there may be legitimate concerns, getting your flagship stores in the local market is still vital. First mover advantage in setting up the distribution will pay in the long run. Otherwise, the points are well made.

  3. I would have to agree with “Anjo’s” comment. Ms Chaudra’s personal vested interest in leading us to believe the state of sales of luxury good in asia are rock solid is glaringly obvious. I think the key sentence in this interview is when Ms. Chadra makes the shaky claim (that’s really just a luxury good advertisement) that the benefits of the ‘Social kudos and enhanced self-esteem?’ are characteristics that validate that normal, hardworking people give away huge chunks of their income in exchange for two very unquantifiable and, for that matter, very unproven, characteristics. In my opinion, shouldn’t spending an extraordinary price on a good really be reflected in the quality of the good itself and its superior design, appearance, and function. Should not we be measuring worth of a good, and therefore its price, through measuring infinitely more quantifiable things than self-esteem and social kudos? While these side benefits would be nice I’d like to meet the person who truly recovered from depression and low self-esteem from a Prada bag. I am as subject to participating in retail therapy as the next but, as a designer, I would hope the price of my goods reflected their own positive characteristics and did not rely on unquantifiable claims such as curing mental and social ailments, much less have a consultant use that excuse soley to promote my brand. Yikes!

  4. @ Rkibbe: “Should not we be measuring worth of a good, and therefore its price, through measuring infinitely more quantifiable things than self-esteem and social kudos?” Asian societies work differently when it comes to image and status. They don’t particularly care how good the quality of a product is. The question for them is: does the product make them look good and is it expensive? In their minds, expensive=good. I’m obviously generalizing, but being raised in an asian family, I can give some insights on the matter. Image is everything. From the way you behave in public, to your appearances, your education background or entrepreneurial savoir faire, asians love to show off. You can live in a ratty apartment but if you have a nice car, a nice watch, or the proverbial designer handbag, nobody will think twice as to where your money comes from or how you live. If you read Ms. Chadha’s book, you’ll get a glimpse of the asian mentality which is pretty spot on. Luxury brands have to use different tactics to tackle the asian market. The asian market will undoubtedly grow over time. No matter how poor, people find a way of buying a piece of the luxury dream. My relatives in Vietnam say that beauty products from Estee Lauder are priced the same as here (in Canada). Thus, a $20 face cream is worth 1/5 of a yearly Vietnamese salary. Mentalities differ but the numbers don’t lie.

  5. The tragic quote in this Q&A is “Ordinary people spending extraordinary sums of money on luxury brands. But they seemed to be getting their money’s worth in terms of social kudos and enhanced self esteem.” Implicit to this comment is that these people are spending money that they don’t have, most likely on western brands, in westernized temples of consumption. What cost will this have on Asian societies? Why are brands/Asian governments so intent on repeating western mistakes? One look at America, where we have a negative savings rate and a questionable (at best) dominant value system, should serve as a powerful deterrent to walking down the path of hyper-consumption. (In fairness, a new wave of enlightened US regulators, entrepreneurs and big brands are beginning to change the status quo over here for the better). I’m not an expert on Asian culture, by any means, but from a distance it seems Asian value systems might be more receptive to an interdependent free market system tempered by respect for the individual and the environment. Am I wrong on this count? For starters, brands and new “luxury mall” developers could be going out of their way to infuse the Asian retail experience with features that respect and reinforce indigenous cultures and a sense of real community. Anything less seems short-sighted and even irresponsible, in my opinion.

  6. I really don’t understand the concept of a luxury mall. The boutique or mixed mall concept of engaging consumers at differing price points and levels of quality creates more choices for consumers and stimulates consumerism (since everyone is bound to find something fashionable within their range of affordability). I think the luxury mall or luxury megastore concept is akin to McDonald’s selling caviar. The golden arches are not suitable venues for caviar and escargot…the same applies to luxury malls and luxury megastores. When you are going to buy something seemingly or purportedly exclusive and of rare quality, you want an exclusive, rare shopping experience…you do’nt want to roam a maze like cattle.

    Carmel Dolcine from Sherman, TX, United States
  7. Oliver: I don’t claim to be an expert on the socioeconomics of Asia or anything, but as a Chinese living in Hong Kong and from what I can see on the surface, I don’t think that Asia is repeating the US’s mistakes. Because while Americans spend money they do not have by borrowing money, the Chinese spend money they do not have by scrimping on food/living. We’re a culture of saving money and the custom of borrowing money is just not that big in Asia. As Chadha writes in her books about Shanghainese people (and I believe that this is not exclusive to the Shanghainese): They would rather dress well than eat well. As for the empty mall picture, I was in Shanghai a few years ago and was in a similar luxury mall. No one was there. But one of the reasons was because it was really new. I heard it is much more popular nowadays. Perhaps it is the same case for this mall?

    Barneys Girl from Causeway Bay, Hong Kong (general), Hong Kong
  8. @BoF readers: For those of you who are shocked by Ms.Chadha’s statements about “social kudos and self-esteem” as a perceived value for Asian consumers, this article from the IHT explains it in a bit more detail, which our interview with Ms.Chadha didn’t have due to the brevity of her responses: IHT: In China today, you are what you wear: http://www.iht.com/articles/2007/02/22/news/rchina.php Without getting into the debate as to why people by luxury goods (and whether it is or is not good for their health — financial, emotional, and otherwise — I don’t think it is controversial to assert that some consumers do buy luxury goods to feel better about themselves. Over time, however, Chadha argues that consumers come to expect more, and their standards for quality, design and exclusivity increase — that is when Luxury Brands will have to step up their game in Asia as consumers start to want more than just logo products. Our sources suggest that this is already happening to some degree.

  9. Does it matter if nobody is there as long as sales figures are good? That luxury mall outside Moscow is deserted too but the few customers who do wander in spend $500,000 a time. Surely that’s better than the theme park atmosphere of Louis Vuitton’s Champs Elysees store where doormen count visitors in and out? And luxury goods existed in Asia and other “emerging markets” before America even came into being – the maharajahs, tsars and emperors enjoyed unbridled opulence – so perhaps we’re copying them? Apart from the not eating part!

    Caricouture from Dublin, County Dublin, Ireland
  10. The picture of a deserted mall in china is also is also a similar sitution in india.the whole retail boom phenomenon is all cock and bull story.we have truck loads of malls opening here in india with ridiculous rentals and absolutely no buyers.its a clever propoganda done by the mall promoters to keep feeding in the press about the so called retail boom,where the truth is a lot of luxruy stores are actually closing down,maybe not the international brands but they are also not selling at all.

    jattinn kochhar from New Delhi, Delhi, India
  11. Much after the posting but I was in Shanghai last week and remembered the image of the empty mall…. My photos of Plaza 66 on Saturday afternoon are as devoid of shoppers as those you showed. If people are spending in these malls it’s a tiny number of very very large purchases or they’re doing it over the internet or by phone….In contrast Taikang Lu, an area of hip younger independant stores, cocktail and coffee lounges, and such was jammed with obvious luxury consumers and they were spending. With travel so accessible to this consumer maybe the mega luxury mall as entertainment and branding device needs to be rethought. If one can buy a luxury bag anywhere the sale will be made based on convenience (at home over the internet) or experience (much more exciting to buy the bag in Paris or Dubai than a generic luxury mall) or price (anywhere but the mall….). The market for luxury goods in Asia is definitely growing but maybe the exisiting model of luxury retail environment needs rethinking.