Luxury Brands Are Gaining Ground in China

Even as consumption of luxury goods has fallen worldwide, China’s appetite for high-end retail has shown a strong upward momentum. Italian men’s brand Ermenegildo Zegna continues to see a steady flow of new customers through the doors of its 60 retail outlets in China — “more than I expected,” says Ken Kress, head of Zegna’s China operations. “The bottom line is that the overall economy and diversification of wealth have continued to grow.”

Zegna isn’t alone. While Wall Street was still reeling last November, LVMH (the French luxury group with products ranging from accessories to spirits) reported double-digit sales growth in the country during the third quarter of 2008, led by high-end leather goods brand Louis Vuitton. And, while wine and spirit connoisseurs around the world are showing restraint in purchasing pricey bottles, China was the largest market for sales of LVMH’s Hennessy cognac in 2008.

On July 17, Louis Vuitton opened its fourth global flagship store in Shenzhen. Other high-end labels are following suit: On July 24, Giorgio Armani cosmetics formally launched its counter in Mei Long Zheng Isetan, a high-end department store in downtown Shanghai, to target the fast-growing number of women consumers in the city, and French fashion brand Hermès has announced plans to open three to four new stores across China during the next three years.

According to World Luxury Association data, China recently leapfrogged fashion-conscious Japan to come in second behind the U.S. in consumption of luxury goods. Chinese consumers spend well over $6 billion a year on designer bags, cars, clothes, accessories and cosmetics, the Association says. In addition, a recent report by McKinsey, titled “Understanding China’s Wealthy,” predicts that China will be home to the fourth-largest population of the world’s wealthy by 2015.

Read more about China’s expanding luxury market in the current issue of China Knowledge at Wharton.