Potential and problems for luxury market in China and India

Posted on Tuesday, June 13, 2006 1:48:34 AM by nicollo

by Dominique SchroederSun Jun 11, 1:54 AM ET

New lands to conquer for luxury brands, China and India both represent markets with a strong potential but which will need tailor-made approaches to take account of the different brakes on their development.

China is now the world's third biggest market for luxury goods, the director general of the polling institute IPSOS-France, Stephane Trucchi, reminded an international seminar on the luxury industry organised in Paris. China now accounts for 12 percent of sales, after Japan (41 percent) and the United States (17 percent), the French economic daily Les Echos reported.

In 2010, 250 million Chinese consumers, that is 17 times more than today, will potentially buy luxury goods.
In contrast to the United States and Europe, luxury consumers in China are young, aged 20 to 40 (compared with 40 to 70). And the clientele is becoming increasingly feminine with the growing economic independence of women, accounting for only 25 percent of sales in 2001 but already 45 percent by 2005.

China boasts several advantages: not only are "the rich" more numerous, but they are growing in number in medium-size cities, which themselves are mushrooming with rampant urbanisation. Moreover, the policy of one-child-per-family and the ageing of the population is leaving "a disposable income for consumer goods," Trucchi said. The development of China as a tourist destination, which has been given a boost by Beijing's selection to host the 2008 Olympic Games and the Universal Exhibitioni Shanghai in 2010, is another "lever of growth" on the Chinese market, he said.

But this promising market nevertheless presents serious difficulties which must be taken into account before any luxury good brand attempts to set up shop on Chinese soil. A major drawback is counterfeiting, which is a big risk for luxury brands, the chief executive of Lancel, Marc Lelandais, told the seminar.

Another downside is legislation limiting the activities of foreign investors. Furthermore, the Chinese are traditionally savers and rarely seek credit to buy consumer goods.
To succeed, luxury brands must devise a long-term strategy to guard against the fickleness of Chinese consumers, Trucchi said. They need to set up shop in prestigious places, rely on competent local partners and recruit and train their personnel locally, he said.

Growth figures for India are less impressive, but with an increase in the Gross Domestic Product of 5 percent in the past five years and a purchasing power that doubled between 1999 and 2003, India possesses "real potential," Trucchi believes.

But the distribution of luxury goods remains limited. There are few shopping centres or points of sale for luxury goods outside India's top class hotels, noted Denis Morisset, the executive director of ESSEC, the Paris-based international business school, who deplored the lack of outlets.

Apart from strengthening the visibility of luxury brands, setting up in India would have to take account of national sentiment of belonging to a strong cultural tradition and would need to adapt to this local culture, Trucchi said.

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