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Luxury sales aid world economy (2)

By  Yang Ning and Zhu Jin  (China Daily)

09:29, January 17, 2012

It has taken less than five years for China to grow from a very small market for luxury brands to their most important market. Yuval Atsmon, a partner at McKinsey, who led the research on buyers of high-end brands, believes the reason for China's importance is "clearly due to its already huge size and the massive growth potential, but also due to high profitability levels, often better than other markets".

Allowing for the spending of Chinese shoppers abroad, which some brand managers estimate is similar to their spending in China, Chinese people could soon represent more than 50 percent of the business of outlets selling quality brands. For some that is the case today.

Lutz Bethge, global chief executive officer of Montblanc, said: "Apart from the similarities with other Asian markets, the Chinese mainland has unique characteristics in its faster growth of the wealthy population and its rising middle-class segment which not only represents growing consuming power, but also means a rapidly growing interest in luxury goods."

"What is remarkable in our experience is that the purchasing power from second- and third-tier cities in China has also been growing very fast," he added.

As with their expansion strategy in Japan, luxury brands in China are now under pressure to open more retail outlets in China since it is still far from being a saturated market. For instance, Herms at present has 20 shops in China, fewer than half of the number of shops it has in Japan. Chanel has only eight boutiques in China. There are more than 50 in Japan.

However, Atsmon said: "It is possible that even as Beijing or Shanghai become markets as big or bigger than Tokyo, there will be fewer but bigger stores. As for smaller cities, the brands want to reach more cities where there is a clear demand for their goods, but they must ensure they do not compromise their standards as they rush to expand, which is especially important in China, as for many consumers this will be their first exposure to the brand." Some brands are prepared to expand more slowly than others, concentrating on quality rather than quantity.

Montblanc, for instance, which has been investing in China for nearly 10 years, opened its "worldwide concept" store in Beijing on Jan 12, at which it will offer a unique customer experience for Chinese shoppers. As Montblanc's biggest investment in the Chinese market yet, the new four-level store in Sanlitun, displaying a full spectrum of its luxury collection, from its ever-growing range of genuine Swiss timepieces to writing instruments, leather, jewelry and accessories, is also the largest Montblanc boutique in the world. It indicates how important the China luxury market is seen by the brand.

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