The trend of retailers going international is nothing new, particularly given the explosion of domestic growth in China and India. Brands within the US see rich opportunities in the Far East regions but that does not come without its own bevy of problems. So what’s preventing luxury brands from raking in the money from Asian markets?
Luxury brands face the problem of China preferring digital presences to be based in China or at the very least leveraging as many Chinese assets as possible. Yet another barrier is the ever-present filtration of digital content, well known to be the reason Google failed miserably in its push into China.
In an article by Luxury Daily, Joe McCarthy tries to explain some of the issues plaguing the push into China. Of the most prevalent issues, latency and the flexibility of content hurt returns, especially when targeting upscale consumers known to desire a certain standard.
“Delivering content to Chinese eyeballs is very challenging due to the ‘Chinese Firewall,’ for any company looking to tap into the huge revenue potential of this region,” said Mehdi Daoudi, co-founder and CEO of Catchpoint Systems, New York. “To get around this challenge, global companies need to leverage services that are physically located ‘on the ground’ in China, but this adds complexity. The more external providers that a company uses to deliver web content, the more potential points of failure are introduced and the more risk for a performance problem.
”A simpler way to present this problem is to examine the issue caused by a website hosting a Facebook widget that is not delivered via Chinese CDNs. Inevitably, the latency of having to pull data from servers located in the US could take several seconds longer than the website itself takes to load. Either that or the website in and of itself could fail entirely due to the script blocking other key applications. Neither experience is suitable for a luxury consumer.
In yet another twist, high levies and taxes against luxury goods as well as a Chinese luxury cosumers growing accustomed to travel provide further barriers to economic growth for top labels according to an article by the Business Standard. Some brands have to view the expensive foray into China as a window of opportunity when Chinese consumers travel to other markets.
"Given the slowdown in luxury retail sales and more Chinese travelling overseas, the shops in China are now for window shopping. Instead of opening three or four in each city, they might just open one or two," said CLSA senior research analyst Susanna Leung.
For each twist, there is a countermeasure as those who invest in developing brick and mortars in top Chinese markets often see the return in travelers consuming their goods abroad.
"Really the investment we're making in China is so that we also benefit when they travel outside China," Burberry Chief Financial Officer Carol Fairweather told analysts in January.
Large firms such as LMHV, Kering (Gucci) and Burberry have expressed concerns about the challenge of luxury retail in a growing market, and all have similar plans to slow expansion while still retaining locations in key downtown areas like Shanghai and Beijing. To top it all off, the presence of brands such as H&M and Zara that have grown in prestige and reputation in the Chinese markets looms ever nearer. As with any maturing market, luxury products often lose mid-level consumers to mass-market brands, inevitably having to focus on a premium or ultra lux market segment.
