Erwan Rambourg, author of The Bling Dynasty and authority on all things luxury, on the future of all things extravagant in China
Erwan Rambourg is a managing director at HSBC in Hong Kong and the co-head of global consumer and retail equity research. His background in the world of luxury marketing for the likes of Richemont and LVMH have made him the go-to analyst for investors looking to navigate the notoriously complex Chinese market. Rambourg talked to LOFT about his newly published book The Bling Dynasty and why he thinks the reign of Chinese luxury shoppers has only just begun.
Are Chinese luxury consumers different to consumers in other parts of the world?
There is no single luxury consumer profile and there are many different definitions of what luxury is. What is interesting about the domination of luxury brands by Chinese consumers is that it has been traditionally male and driven by watch companies like Omega. The market is starting to move more to young female consumers while the rest of the world is becoming more male-driven. Chinese luxury consumers are also significantly younger than their peers from other nations.
Asian countries like Japan are reducing luxury consumption, so why shouldn’t we assume China would follow a similar pattern?
Chinese consumers today drive 35% of global sales of luxury products. The projection is that this will double but the reason consumers buy luxury is not down to financial means alone. If that were the case you would have Indians, Nigerians and Indonesians moving the needle way beyond the Chinese. It is a willingness to fit in and stand out at the same time that is different; it seems contradictory but Chinese consumers of luxury are telling people around them that they are worthy of doing business with. Indians look at things very differently and focus more on the intrinsic value of the raw material rather than on the design, the logo or packaging. The big difference between the Japanese and Chinese is that the latter are still very keen on brands.
Can a luxury brand ever be too successful?
The Chinese market is leading the curve where the popularity of a product creates an impression of commonality. I have called this the French Paradox – a thesis warning about the risks of trying to sell more of what should be exclusive. Applied to handbags, mass production means brands are no longer perceived as a true luxury. It’s very difficult to change that perception.
What have been successful examples of ways to address the issue of ubiquity?
The best way to develop an illusion of scarcity is by segmenting the retail experience. Hong Kong offers an interesting example with a market comprising of wealthy tourists, mass tourists, local middle class and wealthy tai tais. They don’t all want to have the same in-store experience so you develop big stores withVIP salons along with tills that are all about volume, and find ways of answering everyone’s needs without alienating anyone. LouisVuitton recently had an ultra private pop-up invitation-only apartment for their ultraVIPs.These initiatives are difficult and costly to implement but highly effective because they are about making people rediscover their brand and recreate a buzz. Another way is to keep your existing consumer but try to recruit a younger consumer, too. One example of this brand ‘dual identity’ is Gucci’s recent advert showing Charlotte Casiraghi, the granddaughter of Grace Kelly. Here you have a combination of a theoretically unknown beautiful young model and the reality of the Gucci jet set with the motto ‘Forever Now’ – legacy consumers will buy Gucci because they have known it forever, others because they will think it is their generation’s brand.
Are cities like Hong Kong, Paris and Milan likely to remain key shopping destinations?
Only about a quarter of luxury sales take place in China so when investors call me to ask what is going on in China I move the conversation to what is going with the Chinese. Travel is becoming an obsession but destinations like Western Europe and Hong Kong are under pressure because they have already become commoditised.Think about why the Chinese are buying abroad. First, you need time to shop and shopping abroad helps with that validation. Posting a picture of yourself with a Gucci bag with the Duomo [a famous cathedral in Milan] in the background works.There is also the impression that employees in stores abroad will be more knowledgeable and better at storytelling.The danger is that China may become a showroom – you discover the product at home but then go online or travel to buy. Luxury brands like Miu Miu target the Chinese consumer by building flagships in China.While their products may not sell very well there, the wealthy travelling abroad connect to the brand and feel it is legitimate because they saw it in Shanghai or Hong Kong first.
Are local Chinese or other brands likely to become a real threat to western luxury brands?
I think it will take quite a while mainly because if you are looking for storytelling it’s easier if your brand has been around for 150 years. There really is a hurdle to convince the Chinese that local brands offer quality. Korea is a strong competitor and brands are getting smarter about embedding products in popular television shows. The key differentiation between luxury brands of the future will be around non-material elements such as service and how to project a different image.
Is the Chinese demand for luxury products likely to continue to grow?
Yes I think it will, especially if you look at middle class expansion and travel trends. Today only 4% of the Chinese population hold passports. If that goes to 8% those complaining about queues at shops in Paris had better learn to get used to it.
What about the impact of the Chinese government’s austerity measures?
Some sub-sectors have been hit by anti-corruption measures but I take the view that it’s healthy because the growth rates you see now are a reflection of true personal consumption and gifting and not artificially boosted by corporate gifting.
What about the impact of e-commerce on luxe buying?
E-commerce is very effective for certain categories but for big ticket items storytelling remains key. There is nothing to replace someone who will welcome you in a store, give you Champagne and tell you about the brand face to face.