With the rise of newly affluent consumers in the Asia-Pacific capitals of HongÂ Kong, Seoul, Shanghai, Mumbai, and other fast-growing metropolises, ultra-luxuryÂ brands like Chanel, Louis Vuitton, Cartier, Ferrari, Hermes, BMW,Â Prada, and Rolex are aggressively expanding their physical footprints andÂ shifting their marketing strategies to reach this new audience.
Most luxury brands have focused on indigenous cultural, demographic, andÂ behavioral differences to craft regional marketing messages that informÂ neophyte shoppers about their brandâs value proposition, and their longÂ heritage of fine craftsmanship, innovation, and exclusivity. âThere is still someÂ confusion regarding the identification of mid-tier brands from top-tier brands,âÂ explains Sandilya Gopalan, vice president and Asia-Pacific practice leader atÂ Cognizant Business Consulting. Unlike the more mature American, European,Â and Japanese markets, âthe Chinese and Indian luxury retail markets are justÂ getting exposed to luxury items and high-level customer service,â he says.
THE POWER OF PRESENCE ON HIGH STREET
All luxury brands leverage a customized mix of print, television, and socialÂ media to deliver their unique message to shoppers, but chief among theirÂ marketing strategies is having a shop located on the worldâs priciest retailÂ streets. âPutting luxurious flagship stores on the high streets of Asia-Pacific isÂ critical,â says Milton Pedraza, CEO of Luxury Institute, the New York-basedÂ research and consulting firm.
Madison Avenue in New York and Michigan Avenue in Chicago are theÂ shopping thoroughfares of the wealthy in the United States. Overseas, theirÂ counterparts are Queenâs Road Central in Hong Kong, Tokyoâs Ginza-ChuoÂ Street, Orchard Road in Singapore, Mumbaiâs Altamont Road, and NanjingÂ Road West in Shanghai. âThe newly affluent travel a lot, and know the luxuryÂ brands from their excursions to Europe and the U.S.,â says Pedraza. âA highendÂ store at home demonstrates the power of the brand, and is considered the topÂ form of marketing.â
These are robust times for luxury brands in Asia-Pacific. China is speedingÂ past the U.S. to become the worldâs largest luxury market for consumer goods,Â and Bain & Company estimates that luxury sales in greater China (a regionÂ encompassing Taiwan, Hong Kong, and Macau) will grow by 6 percent to 8Â percent in 2013. With personal income across all of Asia-Pacific ex-JapanÂ during 2012 up 13.8 percent to $28 trillion from the previous year, itâs no
surprise that luxury brands are salivating at the prospects laid out before them.
Many brands are already reaping significant rewards from their expansionÂ efforts, and expectation is that this is still the beginning of a phase. ForÂ instance, the French conglomerate LVMH recently reported that it nowÂ generates more revenue in Asia-Pacific ex-Japan (28 percent) than it does inÂ the U.S. (23 percent), with 670 stores in Asia-Pacific ex-Japan and 644 in theÂ U.S. Similarly, of the 28 stores Tiffany opened in 2012, two were in Mexico,Â one in Brazil, five in the United Arab Emirates, and eight in the Asia-PacificÂ region (with six in China).
Manufacturers of high-end automobiles are accelerating investments in Asia-Pacific, as well. Jaguar Land Rover is expanding its sales network in China,Â and CEO Ralf Speth recently told Xinhua, the official press agency of China,Â that he expects the country will soon overtake North America as the companyâsÂ second-largest market behind the United Kingdom. Luxury carmaker Audi,Â meanwhile, plans to launch nine dealerships in second-tier cities (provincialÂ capitals) in India to drive its growth. Recently, it opened dealerships in theÂ Indian cities of Lucknow and Bhubaneswar.
Not all the fun is happening in Asia-Pacific, although many brands haveÂ definitely drawn a bullseye on the region. In Brazil, the Iguatemi SĂŁo PauloÂ mall hosts Chanel, Burberry, Gucci, and other pricey shops. Iguatemi recentlyÂ opened a 384,000 square-foot mall in Brasilia, and its CEO Carlos JereissatiÂ Filho told The New York Times that the luxury market will branch out toÂ second-tier cities like Campinas and Belo Horizonte.
A similar phenomenon is underway in China, where BCG predicts that lower-tierÂ population centers will generate more than half of Chinaâs economic growthÂ by 2020. For instance, Louis Vuitton has been focusing on second- and third-tierÂ cities such as Hohhot (the provincial capital of Inner Mongolia, currentlyÂ experiencing a mining boom) and Urumqi (the capital of Xinjiang, ChinaâsÂ western-most province). âLouis Vuittonâs stores in these regions nowÂ outnumber the brandâs first-tier city stores in China by nearly three to one,âÂ says Gopalan.
THE STORE DEFINES THE BRAND
âLuxury brands are all about experience,â explains Piers Schmidt, founder andÂ chairman of London-based consultancy Luxury Branding. âAs Apple provedÂ with its stores, people want theatre in retail. In emerging markets whereÂ authenticity has been an issue because of replica products, a store also saysÂ âthis is the real, genuine stuff.ââ
A store tells the story of the brand while creating an emotional connection,Â says Lorre White, self-styled âLuxury Guruâ and president of White LightÂ Consulting. She points out that Luxury Swiss watchmaker Blancpainâs newestÂ and third store in Shanghai (its eighth store in China) is the largest of theÂ brandâs 30 âboutiquesâ worldwide, and sports a lounge bar, terrace, andÂ customer service center from which customers can observe the meticulousÂ work of the watchmakers in action through windows. Similarly, Ralph Laurenâs first Asian flagship store (in Hong Kong) is a three-story monolith with 10,000Â square feet of showroom space. The facade features a massive recreation ofÂ the painting Bridle Path at Hyde Park by French painter Octave Denis VictorÂ Guillonnet, an artwork owned by the brandâs eponymous founder.
Making such bold brand statements isnât something these brands can take lightly. The cost of opening such stores in Hong Kong can be staggeringânearly 50 percent higher than a similar spot on Fifth Avenueâmaking it theÂ worldâs most expensive city for retail space. (According to a report earlier thisÂ year by CBRE Group, annual retail rent in Hong Kongâs high-end shoppingÂ market was $4,328 per square foot.)
In India, Gopalan says most of the luxury stores are located in five-star hotelsÂ due to a lack of high-end retail space, whereas in Singapore and China brandsÂ are building mega-stores on the high street to reach out to shoppers and buildÂ brand awareness and image. âThese are some of the brandsâ largest stores inÂ the world,â he says. âThey have become iconic and a must-visit.â
Although flagship stores are considered a marketing necessity, the businessÂ actually conducted in the shops is secondary. âIn China, high net worth peopleÂ often donât buy at the local flagships, because the price is 30 percent higherÂ than in the U.S. or parts of Europe,â Pedraza points out. With markups due toÂ high import duties and taxes, Pedraza says shoppers âdo research at the localÂ shops, but tend to buy on their travels instead.â The lack of business is not aÂ detriment, he adds, given the storesâ marketing value.
NEW CONSUMERS WANT NEW MEDIA
Clearly traditional print media, TV, Internet, and social media platforms can beÂ effective channels to attract consumers into stores, but each channelâs relativeÂ effectiveness value depends on the behavior of consumers in the marketsÂ theyâre used in. For instance, print advertising in high-end fashion and lifestyleÂ magazines is much more effective with luxury consumers in the developedÂ nations of Asia, because they have a more mature relationship with theÂ category. Unlike social media channels, âadvertising in magazines is a way toÂ demonstrate your credentials to the wealthy,â explains Pedraza.
The wired masses in Asiaâs emerging markets, however, are more familiar withÂ and receptive to digital and social media, making them considerably moreÂ effective platforms for advertising than print media. According to a recentÂ McKinsey & Co. study, e-commerce in China has increased at a 120 percentÂ annual clip since 2003 (compared with 17 percent in the U.S.), but luxuryÂ brandsâ use of online, mobile, and social channels for marketing and brandÂ awareness purposes comes with a price. âYou need to balance accessibility onÂ the web with the exclusive positioning of your products,â Gopalan explains. InÂ other words, luxury brands may erode the distinctiveness of their products byÂ selling them through such mass-marketing channels.
LUXURY: A GOOD FIT FOR EVERYONE
Demographics have a very limited role in brand marketing decisions in Asia-Pacific today, with luxury brands tending not to tailor their messages toÂ younger or older individuals because they believe that luxury transcends age.Â Still, Gopalan points out that a few luxury brands like Armani have unveiledÂ âproduct diffusion lines,â essentially less expensive versions of their higher-endÂ merchandise that will encourage customers to buy pricier items as their incomeÂ rises.
Down the line, luxury brands owned and produced by companies in Asia-Pacific and other emerged markets are expected to crop up. âSome of theÂ Chinese beauty and skin-care brands are beginning to take off, but in manyÂ cases they have copied Western brands and given them Chinese names,âÂ Pedraza says. âEventually, inroads will be made in luxury automobiles,Â clothing, and other categories. The Chinese are extremely confident andÂ competent. That combination can be deadly for their competitors if theyâre notÂ careful.â
But for now, itâs the established luxury brands that still have the advantage.Â âManufacturing and distributing a luxury product is easy,â says Pedraza. âTheÂ hard part is the âhalo effectââthe must-have features characterizing all luxuryÂ brands. That does not occur overnight.â
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Author Bio: Russ Banham is a Pulitzer-nominated business journalist and author ofÂ numerous books, including The Ford Century, the international best-sellingÂ history of Ford Motor Co.
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BMW represented 0.99% of the T. Rowe Price European Stock Fund as ofÂ June 30, 2013. The following securities were not held by the T. Rowe PriceÂ European Stock Fund, the T. Rowe Price Japan Fund, or the T. Rowe PriceÂ Blue Chip Growth Fund as of June 30, 2013: Audi, Cartier, Chanel, ChristianÂ Dior, Blancpain, Burberry, Emporio Armani, Gucci, Hermes, Ferrari, LouisÂ Vuitton, Jaguar Land Rover, Prada, Ralph Lauren, Rolex, Tiffany. The fundsâÂ portfolio holdings are historical and subject to change. This material should not
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