The rising importance of China in luxury and fashion has taken a new twist. While a recent Bain & Co report found that China is the fastest-growing luxury market in the world, and the Boston Consulting Group showed that China is jockeying to become the largest luxury and fashion market by 2015, recent economic forecasts underscore a slowing Chinese economy. Some luxury brands such as London-based Burberry already have been hard hit by the slowdown and have revised their earnings guidance downward.
Is the luxury and fashion industry party over in China? Probably not, but five trends show how the scene has changed.
First, Chinese customers generally have moved from mere followers to burgeoning global tastemakers in less than a decade.
This can be seen in two arenas of global consumption: Chinese customers are, on average, much younger than their Western counterparts; and the customer base. While the average European and American customer of luxury goods is typically aged 40 to 45, in China, customers are often in their 20s or 30s. And, while luxury consumption in the West has been dominated by women - especially in segments such as fashion, leather goods, and jewellery - this is not the case in China, where men lead the way beyond traditional male-dominated segments such as watches.
Both younger customers and men are two major potential growth segments for an industry that is considered "mature" in Europe and the United States.
Chinese customers could lead the way in a global evolution of the luxury industry, as well as be an inspiration for maturing markets.
Second, Chinese investors recently have shown their savoir-faire in acquiring Western fashion "sleeping beauties", and reviving them. This is the case of French fashion house Lanvin, acquired in 2001 by Taiwanese-based Shaw-Lan Wang. Wang hired Alber Elbaz as creative director for the house, and turned it into the most creative fashion firm in the world, according to the renowned Journal du Textile bi-annual ranking. Similarly, Hong Kong-based Fung Brands acquired 80 per cent of Paris-based Sonia Rykiel earlier this year, and helped the brand survive difficult economic times and secure future growth drivers, although industry analysts agree it is too early to call the operation a success.
Third, the expansion of Chinese brands abroad has big potential. So far, it has yielded mixed results, and it is important to understand why. For example, Chinese sportswear brand Li Ning has not yet succeeded in developing a successful retail strategy in the US, notably because of the fierce competition of local players such as Nike which have managed to develop a global presence over time. Li Ning has instead developed an online strategy, and with time, might find its niche in retail.
Another potential success story is Bosideng, which recently opened its first store in London. Bosideng and some other Chinese brands are attempting a brand-upscaling strategy based on significantly improved quality and higher prices. However, it is not clear whether Bosideng is attempting to grow abroad or to just gain legitimacy from foreign experiences for its market at home. Moreover, today, Chinese luxury brands do not have the heritage and tradition that would help them compete in Western markets. This will come in time.
Fourth, the expansion of Western luxury brands in China has significantly changed the way Western brands do business. The acquisition of Chinese brands such as Hong-Kong-based Shanghai Tang by luxury empire Richemont has paved the way for the inclusion of Chinese brands in the portfolios of large Western conglomerates that were mostly dominated by Western brands. Similarly, the development of Shang Xia by Hermes, and the opening of a "boutique" in Paris, shows that these Chinese brands acquired or developed by Western investors can actually be successful. This raises the question of the impact of China on the identity of Western brands and conglomerates through the translation of well-established brand names for Chinese customers, the development of new brands and lines and so forth.
Last but not least, a new wave of creative talent under Chinese influence is starting to leave its mark on Western fashion in general, and on its core - Parisian fashion - more specifically. For example, since last year, two Chinese designers, Ling Liu and Dawei Sun, have been the lead creative team at French house Cacharel. Similarly, Masha Ma has created a line in Paris that has received very good reviews.
What is fascinating is not only that they are successful in Paris, but that they were able to blend several cultural traditions. Liu and Sun both studied in Paris at the École de la Chambre Syndicale de la Couture Parisienne, and Ma at Central Saint Martins in London. They all learned the touchstones of European fashion and were able to merge them with their own creative talent. This new Chinese wave in Parisian fashion - which also includes designers such as Yin Yiqing - mixes craft and style. It is representative of a major evolution of the relationship of China with fashion and luxury, a move from status-based consumption to style-conscious consumption and production.
Chinese customers have the potential to inspire the world and move from followers to leaders. Chinese investors have myriad opportunities to seize through acquisitions in the West. However, Chinese brands still have some way to go before being able to compete with their Western counterparts, notably in mature markets. These trends should not hide the deeper issues that deal with a redefinition of the Western brands through their Chinese development and the rise of a Chinese "new wave" in design, luxury, and fashion, both in the West and China.
Frederic Godart is an assistant professor of organisational behaviour at Insead business school, which has campuses in France, Singapore and Abu Dhabi.