Chinese Consumers and Brand Name

On one nice spring day, in one of the world’s greatest fashion destinations, Paris, my wife and her friend decided to do their shopping before flying back home.

As they were touring the streets of Paris, they got stopped by two ordinary dressed, early forties, Chinese ladies.

To my wife’s and her friend’s amazement, the Chinese ladies asked them if they can do them a favor, pointing out to a near by store. It was the world famous, brand name store “Louis Vuitton”.

The favor was to go in the store, and buy them more Louis Vuitton bags than they already had bought. They held out a big stack of money to show that they had the money, but needed only my wife and her friend to do the purchase for them.

Not understanding the motive at the time, my wife and her friend declined to do so. It was only later, that the reason of the request of those two Chinese ladies made became obvious.

As it was discovered, Louis Vuitton limits the purchase of their bags, particularly to Chinese buyers.

Now, this is when my inquisitive nature came in. One always assumed that increasing sales was a target for stores. More sales, means more money.

Apparently, there is a story behind this consumer-brand relation mystery.

Over the last two decades, according to estimation of the National Bureau of Statistics in China, Chinese GDP has increased 10.9 % a year, every year. And according to the same Bureau, the per capita disposable income showed a real increase of 10.2 percent year after year.

All this new wealth has driven the emergence of a new middle class, and one that is keen to show off just how far it has come from the farm fields. And the best way to do this? With a Louis Vuitton bag, Omega watches and a bottle of Möet. The result is an extraordinary boom in the big luxury brands in China. Gleeson (2007)

The Chinese spent $4bn-$5bn on luxury goods in tourist hotspots such as Hong Kong and Italy in one year, and another $1bn-$2bn at home. Gleeson (2007)

Goldman Sachs estimates that within the next five years the number of Chinese people in a position to spend on such non-essentials will rise from the current 40 million to 160 million. Accordingly, Citigroup expects that annual sales of luxury goods in China will grow by 21% over the next five years, as per Elaine Moore in the FT. Goldman Sachs also predicts that the Chinese will be buying nearly 30% of the world’s luxury goods within ten years. Gleeson (2007)

As Debnam and Svinos (2007) demonstrates, the motivations of why Chinese consumers purchase luxury brands bear similarities to those in other countries. But status and self reward are two particularly strong motivations in China. For example: