Last year’s Armani runway show in Beijing. (Women’s Wear Daily)

Providing further evidence that some companies have not been hit by China’s luxury slowdown as hard as others,  Armani just reported 39 percent profit gains in the country, giving a boost to its overall 20 percent profit growth. Faring better than some labels in China as retail growth declines, the company will be one to watch to see if its China strategies can keep it in good shape for 2013.

The year 2012 was one of expansion for the company in China, with a plan focusing on second, third, and fourth-tier inland cities, the debut of its e-commerce platform, and rising demand for affordable luxury. This strategy has paid off, as lower-tier cities are expected to see faster growth than those in the first tier and e-commerce takes off at lightning speed. The company plans to open 80 to 100 stores in mainland China within the next three years, and is expanding locations for its watch and jewelry diffusion line Emporio Armani as affordable luxury demand rises.

Giorgio Armani recognized the rise of “stealth wealth” in China early, telling Women’s Wear Daily last year that his China growth was due to “the idea of a non-ostentatious elegance that speaks in a direct and clear way to the sensibility of the Chinese public.”

The label is also focused on procuring associations with Chinese celebrities. Last May, it celebrated a decade in the country with a star-studded Beijing runway show attended by film stars Fan Bingbing and Michelle Yeoh that was heavily promoted with a social media campaign.

The company’s China growth rate, while highly successful compared with many other companies in the region, was not immune to the slowdown, as its growth slowed from last year’s impressive 45 percent.

As declining growth becomes more prevalent in 2013, the real question will be how companies which have henceforth kept high growth numbers fare in the coming months. Armani did not publish specific numbers for its first-quarter earnings, but rather referred to the growth numbers as “positive.”

Transparent and colored polycarbonate Louis Ghost chairs from the Kartell Ghost Collection by Phillippe Starck.

This year marks the 50-year anniversary since Italian furniture giant and arbiter of chic Kartell began manufacturing home furnishings. Known for its ultra contemporary plastic chairs, the Milan-based company is investing in a brand new five-year China plan that involved an overhaul of existing partnerships with seven mainland resellers, scrapping all but one location in Beijing’s hip Sanlitun district. The 400-square meter store will serve as the flagship and re-opens on May 30 after an official Kartell-branded facelift. The changes are not just cosmetic; to show its commitment, Kartell plans to open 50 flagships in five years with the help of its joint venture partner Gold Bond Enterprises Ltd., the veteran Chinese firm responsible for bringing MaxMara to the mainland. By summer of 2013 there will be three more openings in Shanghai at APM Mall and Kerry Centre and in Chengdu at IFC Mall.

Kartell CEO Claudio Luti is optimistic regarding the company’s redoubled China efforts. Despite more than 2,500 retailers throughout the world including 120 single brand stores, Luti believes the China market is integral to regional success. Jing Daily caught up with Luti at the Crosby Street Hotel in New York, where he is staying for the International Contemporary Furniture Fair before a two-week whirlwind China tour for the flagship opening, showroom scouting, university speaking engagements, and meetings in Beijing, Shanghai, Chengdu, and Hong Kong.

How will your China strategy differ from before?

Previously, retailers would approach me about opening individual stores but they lacked professionalism. The first store opened in 2005. It was spot business, working with people we didn’t know. It’s important to work together and be more involved. We have to arrive in China with our experience and vision. China is so important strategically and for the long-term.

Kartell Bookworm, flexible bookshelf.

How does Kartell’s China strategy compare with its global strategy?

Our partner Linda Lin [head of Gold Bond Enterprises, Ltd.] convinced me that for China, it’s important to have a space in the best mall, next to the fashion brands, and not on the street like in Europe. Wealthy Chinese like to shop in malls, and this is something that is quite different. But we apply the same image, quality, and service. I feel the brand must remain the same globally.

What is the Chinese market for Kartell?

The Chinese are becoming increasingly enthusiastic about new furniture like Kartell. I met many Chinese during Salone del Mobile who were impressed to see the Kartell museum in Milan, industrial quality of the materials, and work from the best designers in the world. They are very open, and it’s not just the young people. We encourage everyone to mix old with new, and incorporate life experiences. Linda’s house, for example, features Kartell and traditional Chinese furniture.

Chinese should be free to purchase quality goods. With the stores, people will be able to see and be moved by just one piece they can take home easily. Also, it’s not just for rich people. In the future, it can be for the middle class, like in Europe.

Kartell counterfeits are quite popular. Has the company taken measures to tackle this?

Yes, as president of Salone de Mobile, I’ve formed an alliance with [likeminded organizations] and approached the Chinese ambassador to Italy for help. The Chinese who want to purchase real items will be able to at our stores. I’m sure that in the future, the Chinese will also become more creative.

Many large companies are establishing research and development labs in China these days. Does Kartell have similar plans?

Our creativity comes from around the world and in the future, we will use the creativity of the Chinese. But the DNA must remain in Milan because innovation and risk are easier to make around me. I don’t think it’s possible to take risks far from my head office. I’m waiting to see work from industrial designers, not just designers like artists. I need someone thinking in an industrial way, but with emotion.

Kartell CEO Claudio Luti.

Who are your main competitors?                              

I don’t have competitors in my mind. We have a very strong offering in our catalog. Just one piece can change the view of any space, commercial or private, indoor or outdoor. It’s not like we have a competitor for the sofa or the chair. Everyone is a competitor. We are not just furniture, we are still life.

A Louis Vuitton shop in Hong Kong. (Stephen Thompson)

Do I contradict myself? Very well, then I contradict myself, I am large, I contain multitudes.

— Walt Whitman, Leaves of Grass

One need only do a Google news search on “China luxury” to gain an appreciation for Whitman’s most famous line and how it applies to China. On a single page of results you will likely find stories about luxury sales in China reaching new heights, dire stories about the coming collapse of the China luxury market, luxury companies growing 30 percent in China and yet others shrinking by 25 percent. This is typical of the information gap corporations face when planning or re-setting their China strategies.

As with many subjects regarding China, from business to culture to politics to consumers, the news feeds often highlight two types of commentary. First, you have the “kowtow crowd” – the pundits and analysts who see the rest of the world bowing down to, and being steamrolled by, the mighty China juggernaut in business, politics and culture.  Then you have the “Changites,” named for political analyst Gordon Chang, who has been predicting (and, one suspects, gleefully hoping for) China’s imminent collapse for more than 15 years.

The reality of China is always more complicated and usually lies between these extremes. Some companies are doing well, others are faltering, some categories are growing as others are contracting, but it is a mistake to view “China” as a monolithic whole on the cusp of world domination or imminent collapse.

So what does all this have to do with the price of Prada in Pudong?

Y2K is a crisis without precedent in human history.  

— Byte magazine editor Edmund DeJesus, 1998

Luxury companies should not and cannot allow themselves to see a crisis where it does not exist.

There are real and imagined developments in the China luxury market, and some invisible factors that only a few see, which distort the view of the luxury business in China. The following are some key issues that I think need some clarification.

Austerity and Government Action. One of the big stories in the China luxury market today is how the government, as part of its crackdown on corruption, graft, and self-enriching officials, is discouraging open displays of wealth and putting a damper on the important “gift giving” culture in China, which is important to luxury companies.

Luxury watches have been hit particularly hard by anti-extravagance measures.

While it is true that this is happening in certain pockets of the luxury market, this is a temporary situation that will recede into memory in the near future. The bigger question is whether China can continue moving its people up the economic ladder from poverty to working class, middle class, to wealthy, and whether it will continue to shift a higher percentage of GDP to consumption and services.

To make decisions that could affect your brand’s China business for the next decade or more based on what the Chinese government is saying and doing right now, without interpreting what these decrees really mean, is shortsighted and will be a losing play in the long run. Many astute observers see this, as I do, as a short-term issue.

There are many examples of heavy breathing by the Chinese government that ends up fading into the background. For instance, some years ago the government banned direct selling and MLM (multi-level marketing) on the mainland. Amway and others might have simply packed up and gone home, as their business model was essentially outlawed. Instead they took a long-term view, worked with the government, adjusted their short-term play, and strategized for the day when the ban would be lifted. Today China is Amway’s #1 global market.

Demographics is Destiny. In the long run, China’s sheer size—in economy, population, and as a percentage of global consumer spending—will continue to grow. Even a small portion of China’s overall market is bigger than many markets’ total size.  Even if—and it is a big if—the majority of Chinese do not continue moving up the economic ladder, the sheer number of those who have and will continue to do so make China an important market for luxury goods.  The balance of consumer spending power is tilting, and will continue to tilt, towards Asia. And China is the fulcrum of the region.

The Global China Consumer. This may be the most distorting factor among the lot. Chinese consumers now account for about 27 percent of all global luxury purchases—but almost 60 percent of those purchases are made outside the mainland. This includes Hong Kong, Taiwan, North America, and Europe. Even where some luxury companies see their same-store sales experiencing dips on the mainland, they are more than making up for it in their stores elsewhere.

Smart companies are now differentiating between the “China Market” and the “China Demographic.” The China luxury demographic is mobile (and will reach 100 million outbound travelers by 2020, making it #1 in the world), free-spending (with per capita per trip already at $7,500), and focus their travel spending on shopping—as opposed to Westerners who spend on food, accommodation, and “experiences.”

A recent report in Jing Daily from Sage Brennan of China Luxury Advisors emphasizes the point:

Brands should take advantage of Chinese consumers’ newfound obsession with travel to communicate and showcase their brand heritage and culture in ways that are not possible in China, with its glitzy-glass-and-marble retail environments and ubiquitous luxury fashion shows. Chinese consumers are hungry to learn and experience history and heritage and understand luxury brand quality and workmanship. Utilize these assets to give your customers a truly unique experience that they cannot get in China. They will love your brand all the more for it, and reward you with higher spending across the globe.

In other words, “Ms. Wang” may buy one LV bag per year in Shanghai but three in Hong Kong, four in New York, and six in Paris.

Current luxury sales numbers out of China do not reflect this trend, but smart luxury companies have engaged this reality and taken action to integrate their approach to Chinese consumers on a global level. The Chinese have money, they want to spend it, and they want to spend it on your products, but not always on the mainland.

Online. Another related factor that is not currently reflected in Chinese mainland luxury reporting or sales figures is the exponential increase in online luxury spending. China has the largest number of e-consumers in the world and the largest number of luxury buyers, and those two facts are now converging. Some luxury companies have embraced the “online + global China consumer” strategy for growth and are succeeding. Again, much of this is not reflected in mainland sales numbers or mainstream reporting.

“Companies like Coach, Zegna, Michael Kors, and others are increasing sales and profitability by selling affordable luxury.”

Affordable Luxury. One of the most important trends in China today is the rise of the “affordable” or “accessible” luxury market. As China’s traditional, well-heeled luxury consumers become more experienced, sophisticated, and independent, and as middle class consumers increase their aspirational spends, companies like Coach, Zegna, Michael Kors, and others are increasing sales and profitability by selling affordable luxury. Smart luxury companies must recognize that there is a market for ultra-luxury as well as affordable luxury and address both consumer needs. You can increase prices and offer even more exclusive products while also selling affordable luxury – without losing brand integrity.

There are many other trends feeding the long-term growth of luxury that need deep exploration and understanding that we have not covered here, such as “exclusive experience” global travel spends, increasing desire for American luxury brands, luxury brands re-setting their China strategies (with real results and numbers still one to three years off), and shifts to luxury buying for the home.

In summary, China is a big, complicated market with continental-size diversity. Any attempt to simplify it as an unstoppable force or a luxury market about to collapse is bad strategy. To be sure, there are challenges and obstacles to its continued meteoric rise, but it is equally true that long-term prospects for China as a luxury consumer culture are positive. Luxury companies need to close the information gap, take a middle-ground approach to news and trends, and work on a global China strategy that includes data and trends that lie below the surface.

You don’t want to be the company that shut down operations because the media told you the clocks would stop working and planes would fall out of the sky at 11:59 p.m. on December 31, 1999.

Luxury companies need to read between the lines on news out of China. They need to take a long view of the China global consumer demographic – to think globally and act locally, and to ultimately integrate their China Market and China Demographic strategies into a single overarching plan. That approach will build brand loyalty and increases sales not only in China but in Hong Kong, New York, and Paris.

Michael Zakkour is a principal at the global consulting firm Tompkins International, where he heads the China retail, luxury, and fashion practice. He has more than fifteen years’ experience in international market strategy and implementation, primarily in China and Asia. He has assisted more than 250 multinational and SME companies in their assessment of opportunities in China and their resultant entry and growth strategies and implementation. Email: mzakkour@tompkinsinc.com; Twitter: @michaelzakkour

(Opinions expressed by columnists do not necessarily reflect the views of the Jing Daily editorial team.)

Fan Bingbing wears a Louis Vuitton gown to the Opening Ceremony of the Cannes Film Festival.

Fan Bingbing has been turning heads all week at Cannes Film Festival as she shows off her style to a global audience while simultaneously officially promoting L’Oreal and Chopard. In addition, the designers she’s been wearing, including Elie Saab, Louis Vuitton, and Valentino, have automatically gained publicity amongst both her Chinese fan base and international event watchers.

The Iron Man 3 star increasingly stands out as an international figure with each subsequent annual visit to the festival. Attending a L’Oreal cocktail party, she appeared with several of the beauty company’s other celebrity brand representatives, including Julianne Moore, Freida Pinto, and Sonam Kapoor. On Saturday night, The Hollywood Reporter awarded her with the title of International Artist of the Year, further emphasizing her global allure.

In previous years, the actress has been known for wearing traditional Chinese designs on her show-stopping gowns, but so far this year has chosen to wear dresses from European design houses. For the official Cannes Opening Ceremony, she wore a gown by Louis Vuitton, for whom she serves as a domestic brand ambassador in China.

The actress and the designers she selected have been receiving extensive coverage on both English- and Chinese-language fashion sites, making her fame a doubly appealing asset for major fashion labels. “Every time Fan Bingbing appears on the Cannes red carpet, she always gives a stunning pose, whether or not she’s wearing Chinese traditional style,” said popular Chinese fashion site Rayli.com in one of its many pieces covering her appearances.

Look below for photos of the actress on the red carpet throughout the events of the festival so far.

The actress wears an Elie Saab gown on the red Carpet at the 2013 Cannes Film Festival.

Fan Bingbing appears as the official face of Chopard at Cannes Film Festival 2013.

Fan Bingbing accepts her “International Artist of the Year” award wearing Valentino.

The application process for Chinese students applying to U.S. private schools is becoming more rigorous in its verification practices. (New York Times)

In response to a recent article in The New York Times on the growing trend of Chinese applicants to private U.S. high schools that more than hints at students buying their way in and contributes to the existing perception of high rates of application fraud, Jing Daily interviewed Chris Boehner, an insider in the Chinese outbound education industry with a unique perspective. Boehner is executive director and co-founder of Vericant, established in 2010 and offering one main service: locally conducted video interviews of Chinese applicants that help verify the authenticity of their application. Vericant’s clients are U.S. schools confronted with a growing number of Chinese applicants but unequipped with the local knowledge and resources to take the interview process a step further with a face-to-face meeting. Vericant was the first company of its kind when it was founded and now conducts thousands of video interviews a year, for $380 each, with a client roster dominated by boarding schools.

How did you come up with the idea of starting Vericant?

Several years ago I tried to be an education consultant helping students apply to schools in the U.S. However, the expectations of families did not align with my values. They expected falsified transcripts, teacher recommendations, and personal statements. At the time, I didn’t understand how they could ask for such a thing, now I do. The problem is many of these materials do not exist in China, which is why so many families expect education consultants to create them.

I met with a number of boarding schools to learn more about the problem and after hearing their thoughts, I put together a very talented founding team in Beijing. We originally wanted to verify transcripts and teacher recs hence our name Vericant, a combination of Verify and Applicant, but since they were mostly falsified, we didn’t think that would add any real value to the admissions process. Our breakthrough moment was, “let’s add verified data, rather than verify data.” We tested a slew of ideas, gathered feedback from a few schools in the U.S. and finally determined video interviews and proctored writing samples would be most helpful to admission officers.

There seems to be an entire industry that revolves around outbound education in China, including scores of “consultancies” that guarantee clients admission to a high school or college abroad. Who are the other players involved?

The main players are agencies and consultancies. Consultancies charge only the family while an agency charges both the school and family. China has predominately agencies.

Have you witnessed an increasing number of Chinese applicants to high school as opposed to waiting until college, as described in the New York Times article?

Sure, the trend has moved from PhDs to Graduate School to Undergrad and now K-12.

We work primarily with boarding schools because they have hit their saturation point with Chinese students on campus, but the applications continue to increase. We don’t only provide verification, but our online platform helps small admission offices manage a large number of Chinese applicants.

The article seems to imply that many of the Chinese students bought their way in. Do you feel this is an accurate reflection of the current state of things? What is your reaction to the article as someone who has firsthand experience interviewing applicants to U.S. private schools?

I wouldn’t say they bought their way in. They could afford the tuition and met the school’s admission requirements. The type of student admitted at any school in the U.S. depends on the institution and their mission. If the applicant is mission-appropriate, they will be admitted.

What’s next? Can we expect more international high school students from China, more private schools catering to them, and perhaps better business for companies like Vericant?

Based on the data I’ve seen, the trend will continue for the foreseeable future. Private schools will cater to those looking for a quality education, just as they always have. The rise of China comes at a perfect time for many schools (higher education included). As the last of the Millennials, the children of baby boomers, age pass school, there will be a significant drop in American school-aged children.

As schools hit their saturation point and see increasing applications, Vericant makes a lot of sense. It’s saving their staff the drudgery of early morning and late night Skype calls and they can be more confident about accepting the best applicants from their applicant pool.

As the article points out, many Chinese students gain admission despite seemingly insufficient English language skills. Do you foresee a backlash when the same students are applying to college?

We’re talking admissions here, not graduation. By graduation, the student should be granted a diploma only if they meet the requirements set by the school. There is no problem with schools accepting students with low levels of English provided the school has programming to support it and it doesn’t distract others in the classroom.

There will be a backlash for schools if they don’t deliver on the education they promised to students and families.

The Hermes store in Beijing. (Tomohiro Ohsumi/Bloomberg)

There’s no denying that China’s luxury market as a whole is in slowdown mode. During the Chinese new year holiday period from January 20 to February 20 of this year, luxury spending on the mainland dropped to $830 million, a decrease of 53 percent from the previous year. China’s total luxury growth rate has declined from 30 percent last year to the single digit of 7 percent this year, and even some retailers in Europe are saying that they are seeing fewer Chinese tourists coming through their doors. These figures have led to a great deal of speculation regarding what exactly is hampering growth—namely, whether or not the root of luxury companies’ China problems is truly Xi Jinping’s anti-corruption campaign.

For most commentators, the crackdown is the only cause worth mentioning. A South China Morning Post article recently asserted that many luxury brands have “blamed their woes squarely on Chinese government policy, specifically its crackdown on ostentation and luxury gift-giving as part of its anti-corruption campaign.” In contrast, a Business of Fashion column recently argued that the anti-corruption campaign is “masking the real causes of the luxury slowdown,” which are actually “broad changes in Chinese consumer behaviour and sentiment.” 

Accurate numbers are hard to come by when it comes to total effects on purchases made for bribery purposes, because these gifts are inherently clouded in secrecy. From contextual evidence, however, we can point to a variety of several causes, some of which may be interconnected, that are all likely doing their part to contribute to the slowdown. These include not only the anti-extravagance campaign and changing consumer taste, but also China’s overall slowing economic growth.

The Chinese government is working hard to convince the public that it will no longer tolerate taxpayer money going to lavish banquets. (Global Post)

There is no doubt that the anti-corruption campaigns are in fact taking their toll. Some industries notorious for thriving off official “gifting” practices, such as luxury watches and Chinese spirits, have been much harder hit than others on a timeline that coincides very closely with the corruption crackdown. Industries associated with official banquet culture are also suffering, including high-end restaurants, five-star Beijing hotels, suppliers of expensive food delicacies,  high-end catering, and even the flower industries associated with providing banquet centerpieces. “No industry that has relied on official spending is safe it seems,” says Abe Sauer at BrandChannel.

Some companies are even willing to admit publicly that they’ve been hurt by the crackdown. For example, Pernod Ricard blamed the campaign on its drop in whisky sales, and when Burberry’s numbers were not looking so good, the company’s chief financial officer Stacey Cartwright publicly admitted that gift-giving culture had been an important source of revenue for the company.

However, looking at the fact that not all individual companies are doing terribly makes the picture much more complicated. Despite the fact that the crackdown hasn’t ended, Burberry, for example, has since bounced back. Meanwhile, some comparatively low-key fashion companies are doing quite well, while haute couture lines are still working on expanding their presence in the country. This points to the argument that changing consumer habits which lean toward less ostentatious, logo-heavy styles may be driving this trend. ”The truth is, the luxury market in China was in decline well before the anti-corruption campaign was introduced,” states Business of Fashion, which argues, “While many consumers still purchase luxury goods with blatant logos stamped across them as loud displays of status and wealth … new consumption patterns can be seen, especially amongst young people.”

Further complicating the issue is the fact that it is difficult to tell how much of this decline in an obsession with “bling” is influenced by the crackdown itself. Watches once again provide the most obvious example of officials taking pains to avoid conspicuous displays of wealth. According to Euromonitor International, “This time last year, there were more Chinese government officials and company executives sporting Cartier or Rolex timepieces than you could shake a stick at. Today, many of those same luxury timepieces are locked up in drawers at home or are on sale at second-hand stores such as Brand Off in Shanghai. Most government officials wouldn’t be seen dead wearing one.” Even officials’ wives haven’t been exempt from being called out on Weibo for the logos on their handbags, showing that not all stealth wealth may be simply a matter of voluntary change of taste.  Although Chinese consumers’ tastes have been getting more sophisticated on their own, it’s hard to tell how much this trend is being helped along by government diatribes against ostentation.

Also not to be discounted are China’s slowing economic growth and the amount of government funding going to public works. China is still heavily invested in driving economic growth through the funding of infrastructure projects, but as economic recovery has progressed since the 2008 crisis, the government has been less extravagant with its public financing of these projects. Although not connected to the anti-extravagance campaign, less public money for major projects leads to far less opportunity for bribery, which in turn may be indirectly contributing to the slowdown. In addition, China’s lower-than-predicted GDP growth numbers and the economic uncertainty accompanying the leadership transition may have had their impacts on retail.

The bottom line is that even amidst all this short-term uncertainty, luxury companies still see China as an investment for the long run. Although they may be adjusting their expansion strategies for now, they still see the world’s largest luxury market as first and foremost a growth opportunity.

Dior Homme’s recent Beijing runway show. Dior hopes to bank on Chinese consumers’ evolving demands. (Women’s Wear Daily)

Amid the ongoing discussion on China’s luxury slowdown, many fashion brands are understandably concerned about what this means for their current and long-term potential in China.

The immediate effect of the slowdown has been to make the market more competitive and create winners and losers. To emerge as winners in this rapidly changing environment, it’s important for brands to understand the underlying trends that are shaping the market and redefining the traditional formula for success.

Evolving Consumers = Evolving Levers for Competition

The leading factor in this shifting landscape is that Chinese consumers are becoming more sophisticated. While this is generally good news for premium and luxury brands, it’s resulting in an increasingly complex and competitive market with some key characteristics.

Consumers are upgrading their tastes and requirements. China’s increasingly experienced consumers want to be more low-key in their spending and to differentiate themselves from their peers. This is creating opportunities for brands poised to capture this more sophisticated consumer, and challenges for those left behind as tastes change. At the same time, this trend is creating a growing divide between the demands of experienced and inexperienced consumers, a situation that brands need to skillfully navigate to fully capture their China opportunities.

The omni-channel consumer is on the rise. E-commerce and social media play heavily into the decision-making process of today’s more sophisticated consumers. In recent focus groups of offline and online luxury consumers conducted by my firm, both groups followed essentially the same process of “Social media to e-commerce via mobile, to e-commerce via PC, to store visit” before coming to a purchasing decision. This was true regardless of which sales channel they ultimately used, creating a multitude of contact points that didn’t exist a few years ago—contact points that brands must be smart about managing.

There’s less willingness to pay the “China Price.” Sophisticated, highly connected consumers are more aware of their options and more capable of accessing them. For example, internal benchmarking we have done at SmithStreet shows that women’s apparel prices average about 70 percent higher in China than in the United States, across brands and product categories. Consumers are acutely aware of this price difference and are ready to use a multitude of channels to bypass it, most importantly travel and overseas shopping agents. Chinese shoppers going abroad are welcomed by brand managers in Europe and the United States, but recapturing this lost revenue is one of the greatest challenges facing brands’ China organizations.

Structural Challenges

China’s crackdown on extravagance and rising operating costs have been well documented and there is no need to detail them here. Less talked about, however, is the paradox posed by the evolution of the e-commerce channel.

While growing to  $190 billion in 2012, for the most part, Chinese e-commerce remains the domain of discount-focused consumers and retailers competing primarily on price. The resulting price pressure has been felt most acutely by traditional mass-market retailers, many of whom are beginning to view e-commerce as a key source of competition.

Luxury e-commerce sites such as The Outnet have been proliferating in China.

Despite this focus on price, consumers are willing to spend more on individual items as they gain experience (and trust) in the online channel: the common perception of an ‘expensive’ online item has doubled from $80 in 2010 to around $160 today. With e-commerce becoming more premium, luxury brands and retailers are entering the space in increasing numbers. As they do so, they are encountering a similar challenge to that faced by their offline stores: how to cater to their loyal, omni-channel customer while at the same time attracting the rising spending power of price-focused, heavy e-commerce users. Only by addressing both groups can brands unlock the full potential of the e-commerce channel.

Winners and Losers

How brands are doing in the market today is largely a reflection of how well they have been able to deal with these consumer and structural trends. Hermès, for example, is posting strong growth from sophisticated consumers while Louis Vuitton is weighed down by its prominent logo, from both a consumer and a policy perspective. Hong Kong fashion conglomerate I.T is well poised to capture the rising aspirant consumer looking for the latest new trends, while mainland casualwear retailer Meters/bonwe struggles with declining consumer relevance, online competition, high inventories, and rising costs.

At every point on the price spectrum, the days of “if we build it, they will come” are over: for the majority of brands, having as many locations as possible and entering a new city as soon as the real estate is available are no longer viable strategies. The formula for retail success in China is changing from a distribution-centric to a consumer-centric model, in which those brands that deeply understand their current and future customers are most likely to emerge as winners in this dynamic market.

In upcoming columns, we will take a closer look at some of these consumer trends and what brands need to do to create effective consumer-centric strategies for growth, starting with consumers’ growing unwillingness to pay the China Price.

James Button is a Senior Manager at SmithStreetSolutions, a growth consultancy based in Shanghai, where he works with a number of premium and luxury brands on their China entry, growth, and e-commerce strategies. Follow James and SmithStreetSolutions on Twitter.

(Opinions expressed by columnists do not necessarily reflect the views of the Jing Daily editorial team.)

What Do Changes In China’s Digital Landscape Mean For Luxury Brands?

Incoming Alibaba CEO Jonathan Lu, who will be replacing Jack Ma.

With two of the largest online platforms in China announcing a $586 million deal last week, luxury brand professionals are left wondering what impact this new juggernaut might have on their efforts to acquire customers among China’s 560 million Internet users.

Last week, Alibaba.com Limited, the Internet giant that operates Taobao.com and Tmall.com, two of China’s largest e-commerce Web sites, announced that it had agreed to acquire an 18 percent stake in Sina Corp.’s Weibo.com, one of China’s leading microblog platforms, for $586 million in stock. Alibaba has the option to raise its stake to 30 percent.

Tom Ford, Ego, And DNA: A Conversation With Two Of China’s Best Luxury Strategists

Speakers Lisa Chang (L) and Regina Lam (R) at the Bespoke Summit on May 16, 2013 at the Sydney Opera House. (Bespoke)

China was a headlining topic at the Bespoke Luxury Summit, held recently at the Sydney Opera House. Regina Lam, luxury brand strategist and founder of Couronne Management in Hong Kong; and Lisa Chang, creative director and founder of Angle Communications in Shanghai, were both flown in especially for the event. They sat down with our reporter Shuk-Wah Chungto discuss Tom Ford, egos, and getting your brand DNA right.

If you ask Regina Lam what her first impressions of China were, she’ll give you a dead straight answer: primitive.

“I first went to China in 1992 with the Hong Kong Trade Development Council. The first city I went to was Wuhan. You can imagine how primitive it was!” Lam laughs.

U.S. West Coast And Hawaii Aim To Boost Chinese Tourist Influx

Hawaii recently created a new Chinese-language travel website.

As a wide spectrum of international tourism-associated businesses including hotels and retail shops adjust their services to cater to Chinese travelers, U.S. tourism boards are getting in on the action. Major Chinese tourist destinations including Los Angeles, Seattle, and Hawaii have all implemented new strategies to further encourage a substantial influx of high-spending Chinese visitors.

The city of Los Angeles, for example, recently opened its second tourism office in China after seeing a rapidly growing number of Chinese visitors. The office, located in Shanghai, hopes to encourage this trend.

Jing Daily Interview: Fan Bingbing’s Stylist Christopher Bu

Pieces from Christopher Bu’s collection. (Christopher Bu)

Days before leading Chinese actress and fashion icon Fan Bingbing attends the 2013 Cannes Film Festival, where she will be honored by The Hollywood Reporter as International Artist of the Year, Jing Daily has a chat with Christopher Bu, Fan’s former stylist cum fashion designer responsible for some of her most attention-grabbing red carpet ensembles.

Prior to launching his eponymous label in 2011, Bu had already carved out a name for himself as a stylist to the stars, most notably Fan. Shortly after, Bu experienced a Jason Wu moment when Fan wore one of his couture creations, a dramatic red gown embroidered with white cranes, to the Opening Ceremony of the 2011 Cannes Film Festival.

Ralph Lauren Gives Shanghai Clients VIP Treatment

Chinese clients are treated to a private fashion show at Ralph Lauren Shanghai. (Affinity China)

In an April promotional event at Ralph Lauren’s Shanghai flagship store, Chinese guests were treated to wine, hors d’oeuvres, and an up-close fashion show as part of an increasingly common strategy among luxury brands to provide VIP experiences for their China clients.

According to the website of luxury experience company Affinity China, which planned the event, the store closed up shop in order to host 30 guests who were given a look at 13 new designs shown off by models, and the party concluded with a Ralph Lauren gift bag for each guest.

Speakers Lisa Chang (L) and Regina Lam (R) at the Bespoke Summit on May 16, 2013 at the Sydney Opera House. (Bespoke)

China was a headlining topic at the Bespoke Luxury Summit, held recently at the Sydney Opera House. Regina Lam, luxury brand strategist and founder of Couronne Management in Hong Kong; and Lisa Chang, creative director and founder of Angle Communications in Shanghai, were both flown in especially for the event. They sat down with our reporter Shuk-Wah Chung to discuss Tom Ford, egos, and getting your brand DNA right.

If you ask Regina Lam what her first impressions of China were, she’ll give you a dead straight answer: primitive.

“I first went to China in 1992 with the Hong Kong Trade Development Council. The first city I went to was Wuhan. You can imagine how primitive it was!” Lam laughs.

Lisa Chang feels the same way.

“Shanghai, 1996 was my first experience. There weren’t many cars—it was all bicycles and people spitting at you!” says Chang.

Though they are both ethnically Chinese, they spent their formative years overseas—Lam grew up in the UK and Toronto and Chang grew up in New York. But these days, China is their bread and butter, with Chang based in Shanghai and Lam based in Hong Kong.

They’ve worked with some of the biggest names in the industry and have developed successful campaigns that resonate with Chinese consumers. Lam is a highly sought after luxury brand strategist who has held senior roles at brands including Tom Ford, Emilio Pucci, Jean Paul Gaultier, Givenchy, and Kenzo; and Chang helped launch H&M and Porsche into China.

For both, building a career in and around China was almost by accident, with Chang confessing she “refused to move to China until they had proper toilets.”

However, putting up with China’s harsh and “primitive” beginnings has paid off and they’ve literally seen the country move from “communism to consumerism.” For Lam, her realization of China’s increasing interest in luxury goods came in 1995 whilst she was helping bring Versace into Shanghai.

“Suddenly you’d just notice all these malls,” remembers Lam. “They were quite modern, with a Hong Kong landmark style. And I thought, ‘Wow, China’s picking up’. It was really fast in Shanghai at that time, and then I realized that brands like Vuitton and Gucci were really pouring in.”

There’s no doubt that businesses are rushing to cash in on China’s growing wealth and demand for high-quality goods. It’s currently the world’s largest consumer of luxury goods, according to a 2012 report by the World Luxury Association, and Chinese consumers are a core market for the industry, making up about 25% of the global luxury expenditure, according to Bain & Company, the leading advisor to the global luxury goods industry.

Whilst this may all sound quite alluring to any business wishing to chase the “China dream,” many businesses have failed, a reality Chang and Lam attribute to lack of brand self-awareness and DNA.

Attendees at the Bespoke Summit held on May 16, 2013 at the Sydney Opera House. (Bespoke)

Chang analyses the history, heritage, product lines, and target audience for each new client. She asks clients to describe their brand in five words, about their competitors, and core products. Yet, it is often these basic questions businesses struggle with most.

“Every brand owner should have the basic foundation of their DNA and what they think they want to be,” says Chang. ” We can’t answer that question. We can only enhance that or change your strategies accordingly to the market. We cannot take the seed that belongs to you and grow a tree. Without your seed we cannot grow with you.”

Many businesses wish to break and expand into China after experiencing success in their own country. However, Lam stresses that what works back home, won’t necessarily work in China.

“To survive and grow in China you have to lower your ego,” says Lam, adding that eventually you have to “bow down” to the Chinese consumer.

She cites Tom Ford’s foray into China as an example. Whilst working with his management, she recalls that they felt it unnecessary to explain Ford and his brand, assuming the Chinese would already know. However, her research showed that people only realized who the designer was when they mentioned his work with Gucci.

“I love Tom Ford!” says Lam, pointing out that she’s wearing head to toe Tom Ford. “But he’s known as a person, not as a brand. You have to make [the Chinese] know you more—that was the challenge I was having with the brand.”

Lowering your ego also means designing products you may not necessarily like, with Chang saying brands need to have an “entrance product.” Whilst most consumers won’t be able to purchase a $10,000 handbag, a $2000 lipstick case, keychain, or cell phone cover is attainable.

“It’s so that they can feel like, ‘wow I can own a piece of that lifestyle,’” says Chang.

Even Ford concedes to this strategy. When asked what sacrifices he’ll have to make in order to become the world’s leading luxury brand in an interview with Vogue in April 2013, he said:

“…you have to start to make a ton of stuff you don’t like, and you sort of have to be making ugly $300 (£196), bags that are selling in China. The top three companies, let’s say, in terms of volume —they are. You’d be really surprised at some of the frightening products that you have to generate if you want to go to that scale.”

With the generous support of Silas Chou, the CFDA/Vogue Fashion Fund launched a program in 2012 to help foster the exchange of emerging design talent between the United States and China. The Council of Fashion Designers of America (CFDA) and Vogue are pleased to announce the expanded “Americans in China” initiative, to take effect in June 2013.

Proenza Schouler, Rag & Bone, and Marchesa, three former CFDA/Vogue Fashion Fund finalists, will travel to Beijing, where they will present their fall-winter 2013 collections on June 21, 2013, to a select group of media and VIP guests as part of the ongoing effort to introduce American design talent to the rapidly expanding luxury market in China. The three collection presentations will take place at the Ming Dynasty City Wall Relics Park, at the Great Wall of China.

“These are exciting times in China. There is great opportunity for American designers,” said CFDA president Diane von Furstenberg.

On June 20, the designers will be honored at a cocktail reception hosted by Gary Locke, U.S. Ambassador to China, and his wife. Following the reception, Vogue China’s editor in chief, Angelica Cheung, will host a dinner to welcome the designers to the city.

About the CFDA/Vogue fashion fund:

The CFDA/Vogue Fashion Fund was established to help emerging American design talent find continued success in the business of fashion. With growing industry support, in 2010 the prize was raised to $300,000 for the winner and $100,000 to the two runners-up. It is expected that the awards will be used to further develop each designer’s business in such areas as marketing, public relations, production, and sales. In addition to the cash prizes, awards also include mentorship from an esteemed group of industry professionals whose expertise is tailored to the designers’ needs and future goals. Past mentors include Howard Socol, Rose Marie Bravo, Millard “Mickey” Drexler, Mark Lee, Maureen Chiquet, and Domenico de Sole.

Since its inception in 2003, the program has granted $3.3 million to 24 design companies, including winners Greg Chait, Joseph Altuzarra, Billy Reid, Alexander Wang, Doo.Ri, Proenza Schouler, Rogan, Sophie Theallet, Trovata, and runners-up Jennifer Meyer, Tabitha Simmons, Pamela Love, Creatures of the Wind, Eddie Borgo, Prabal Gurung, 3.1 Phillip Lim, Albertus Swanepoel, Derek Lam, Monique Péan, Patrik Ervell, Philip Crangi, Rodarte, Thakoon, Thom Browne, and Vena Cava.

In 2007, the CFDA/Vogue Fashion Fund created a separate Business Advisory Committee to review the applications of the ten CVFF Finalists (independently of the Selection Committee) with the intent of providing a more focused business perspective and targeted feedback on the designers’ potential in the business. The Business Advisory Committee will also be available to the seven finalists (who are not chosen as a winner/runner-up) as an ongoing resource for mentoring, questions and answers, and guidance.