Luxury Brands Gain Momentum in China Despite the Global Slowdown

Aug. 05, 2009 11:09 AM ETTIF, LVMHF, FXI2 Comments

This article first appeared in Knowledge Wharton China

Even as luxury goods consumption has fallen worldwide, China’s appetite for high-end retail has shown a strong momentum. Italian men’s brand Ermenegildo Zegna continues to see a strong flow of new customers through the doors of its 60 retail outlets in China. “More than I expected,” says Ken Kress, head of Zegna’s China operations. “The bottom line is that the overall economy and diversification of wealth have continued to grow.”

Zegna isn’t alone. Even while Wall Street was still reeling last November, LVMH (OTCPK:LVMHF) (the French luxury group with products ranging from accessories to spirits) reported double-digit sales growth during the third quarter of last year, according to LVMH’s 2008 Annual Report. The company has seen “dynamic” growth in China, led by high-end leather goods brand Louis Vuitton (LV). And, while wine and spirit connoisseurs around the world are showing restraint in purchasing pricey bottles, in China LVMH has reported “exceptional” sales of Hennessey cognac, and the country was the largest market for luxury spirits in 2008.

LV also made news this past July when it dropped product prices between 2% and 7% at all 29 of its China locations, saying it was not offering a discount or special promotion, but rather was reacting to changing rates of currency exchange between the reniminbi and the euro. On July 17th the company opened its fourth flagship store in Shenzhen and has announced plans to open stores in Inner Mongolia, in the north of the country, later this year.

In general, offering discounts on luxury products is a bad strategy, says John Zhang, a Wharton School marketing professor. “[It] can affect customer confidence in the integrity of the brand's pricing, and devalue the brand.” Customers who want to treat themselves with an expensive luxury bag aren’t likely to be looking for

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