Biz Unusual

Luxury brands wrest back China market

Updated: 2010-08-07 16:59
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With its growing economic muscle, China has become an increasingly important contributor to the bottom lines of makers of luxury goods, as such brands appeal to many keen to show off their newly acquired wealth.

Earlier this week, Coach said its China business could reach $250 million by fiscal 2012, and double from that by fiscal 2015 -- a sizeable contribution for a company expected to post about $4 billion in total revenue for its current fiscal year.

Lamborghini, the Italian luxury sports car maker owned by Volkswagen, said its sales more than tripled in China to 86 cars in the first half of 2010, making the market its second-largest after the United States, even as its global revenues fell 2.6 percent with 674 cars sold during the period.

To keep their China expansion alive, many of the global players are expected to move into China's second- and third-tier cities in the coming years to tap demand there.

The largest cities in China's coastal areas now form the main sales base for most luxury goods makers, but are home to just 5 percent of the population, leaving huge room for growth inland and in smaller cities, said Selina Sia, a retail analyst at Mirae Asset Financial Group.

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"Just like a newborn baby, it's in infancy stage," Sia said. "You have to get the quantity and at the same time you have to build and protect your image."

Swiss luxury goods maker Bally said earlier this week it plans to expand into lower-tier Chinese cities in coming years and has started opening boutiques in Hohhot in Inner Mongolia.

Analysts said rapid development of high-end shopping malls and retail spaces across the country should help the domestic expansion of luxury groups, especially as mall operators could offer attractive terms to land big-name brands.

"Luxury brands don't like to spend a lot of money, its all about branding generally," said Steve Yi, chief strategy officer of Grey Group, a global market communications agency.

"They will depend on family and friends' opinion" to appeal to consumers.

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