Challenges rise for luxury brands

(China Daily)
Updated: 2008-06-20 14:56

In the survey, respondents earning more than 8,000 yuan per month traveled overseas on average 2.3 times per year.

"In terms of their consumption patterns, China's consumers are very willing to buy luxury products overseas. This is partly because the high levels of duty and value added tax within China mean that products overseas are often significantly cheaper, but also Chinese consumers want the experience of visiting boutiques or flagship stores," said Debnam, citing over half of the survey's respondents also buy luxury goods as gifts for others when traveling.

While Chinese consumers show a strong desire for luxury products, they remain cautious over credit. In most product categories, fewer than 10 percent said they were willing to buy luxury items on credit. Some 29 percent of respondents still do not own a credit or debit card, while only 10 percent owned three or more cards.

As China's luxury market continues to develop, luxury companies are also changing their business models. One emerging trend is a willingness to invest directly in China's luxury and retail sectors.

However, the report suggested distributors and joint venture partners can still play a valuable role in helping develop a brand's presence.

In terms of franchising and joint venture arrangements, adequate incentive for the licensee are needed as well as clear terms outlining compensation should either party wish to end a joint-venture agreement.

The report also highlighted the tax implications brought about by the choice of business models of luxury companies. In particular, China's new Unified Corporate Income Tax Law introduced the need for contemporaneous documentation of transfer pricing, and companies now need to take a serious look at proactively managing their transfer pricing risks.

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