In China’s Luxury Market, “There Is Still Plenty Of Potential”

 Still-booming growth in China’s [URL=http://www.fashionluxurygoods.us/]fashion luxury goods[/URL] market, which has it on track to surpass Japan as the world’s top spender on high-end goods by 2015, has seen major brands continue to invest in nationwide expansion, but issues such as a shortage of suitable retail space have made some question whether the market is seeing early signs of saturation. Despite these concerns, on-the-ground statistics indicate that, while the market is evolving and the consumer is becoming gradually more sophisticated, demand remains high. According to CNN, LVMH’s first-quarter sales jumped 25 percent this year, “thanks to China,” adding, “While Chinese buyers are Louis Vuitton’s biggest customers already, the market is far from saturated.” As Wendy Trevisani, a portfolio manager at Thornburg Investment Management, put it, “China’s consumer is still in its infancy,” and consumer spending is growing “pretty much without hesitation.”

This week, IW Magazine speaks to Swiss watch veteran Marc Bernhardt, who now works for the Chinese luxury group VASTO, who, like Trevisani, feels that the vastness of China’s interior — and the potential of consumers in third- and fourth-tier cities far from Beijing or Shanghai — means the market remains one of the most enticing in the world. VASTO, which currently operates around 300 points of sale throughout China, as well as shops in Switzerland and the Middle East and plans to expand to France and the US, positions itself as the “Brooks Brothers of China,” sells apparel, Swiss-made watches, French-made pens and Italian leather goods. From Bernhardt’s interview:

IW: Tell us about the Chinese luxury market.
Marc Bernhardt (MB): China is a huge country with a population of 1.4 billion, but is made up of made very different markets of which differences may be as large as exist between Scandinavia and Italy. However, the “standardization” as evidenced by similar looking malls with uniform global brand marketing campaigns is leveling the playing fields. Based on the development and penetration (of international) brands, the market is largely divided into first, second, third and even fourth tier areas. First tier markets include Shanghai, Beijing and Guangzhou, which have modern infrastructure and a Westernized consumer. Other tier cities will include cities with a population of around 1 million each. Western brands usually enter China through tier one and two and then work their way down.
It is amazing to already see particularly the presence of some of the Swatch brands (Tissot, Rado, Longines) in fourth tier areas. So the notion that there is still virgin territory with ignorant consumers can slowly be dismissed.