The Luxury Con…Be Boring to Succeed

...

Thomas makes two points about luxury that apply to China and are the root of the problem. In order to drive their brands as prestige labels with high margins, they must 1) conceal how they’re cutting corners and costs in manufacture, and 2) conceal their sales performance. If they fail, then the whole rotten house of luxury collapses. The major trick is that luxury is now truly an industry that uses sweatshops, hires ex soap salesmen and is composed of hideous conglomerates such as LVMH. By being part of groups that do not reveal breakout figures, you can hide the truth – i.e. LV can be doing well as a brand, while Givenchy and Kenzo are disintegrating, and Fendi has never made a penny, but as long as only group results are issued, and LV can cross-subsidise the dying brands, then all can appear hunky dory. In China, with press reports of factory conditions few, ‘made in’ requirements lax and corporate transparency weak, the luxury groups thrive in fertile soil.

As money is cut back on production and quality (think Burberry’s recent China relocation) so it is ramped up on advertising and marketing (‘smoke and mirrors’ in English) to convince consumers they’re buying class and status. It’s little surprise that Richemont, a highly successful luxury group, emerged from a South African tobacco business – selling cigarettes to teenagers and luxury goods to adults is a closely related business in terms of base concept.

An increasing number of brands manufacture in China. Those luxury handbags women crave? Mostly now invariably made in China, though manufacturers sign strict confidentiality agreements with the brands never to reveal this fact. Several Guangdong factories make bags for a range of brands you pay fortunes for – hence a nice 15% minimum margin on bags. Access Asia was recently in a Chinese factory where the same workers on the same production line were making US$2,000 bags for an Italian brand, and US$35 bags for JC Penney, at the same time. Ever wondered why Coach has so many stores in China? Easy – they make virtually all their bags here. Prada, LV, Furla – all now largely made in China. And that’s where the cost cutting starts, and then continues, with no linings and cheaper thread, glue rather than stitching, as well as cheap labour. Still feeling classy? And typical mark ups on bags once you move to China? Think roughly under US$100 to make a bag, which then retails for US$1,200 upwards. Still think you’ve bought status? And it’s also the high-end ties and scarves. About US$25 max to make in China, and retailing for somewhat more. Still feel exclusive? Or just conned?

more:
http://www.accessasia.co.uk/weekly%20update.asp