Made for China

Article excerpt

Byline: Sonia Kolesnikov-Jessop and Rana Foroohar

With Western markets sagging, luxury firms are tailoring products to the Middle Kingdom.

Conspicuous consumption may be out of fashion in the West. But in China, the luxury-goods business is booming, and the rich are becoming more discriminating than ever. No longer satisfied with snapping up the same Louis Vuitton luggage and Fendi baguettes they can find in New York or Paris, Chinese consumers are demanding luxury goods that are tailored especially to them.

The French luxury giant Hermes, for instance, recently opened a boutique in Shanghai for its new Chinese brand, Shang Xai. The offerings are in stark contrast to the brand's colorful trademark silk scarves. There are Ming-style chairs, eggshell porcelain bowls and jewelry inspired by unusual Chinese collectible baubles, such as teapots. The materials used--zitan wood, lacquer, and Mongolian cashmere--are luxurious, and local. Packed with customers since opening, the boutique has generated huge buzz, and other Western brands are taking notice.

American and European multinationals from Coca-Cola to Procter & Gamble have been trying for decades to capitalize on the world's most populous nation, but for many top brands progress has been surprisingly slow. That's in part because China is still a relatively poor country, with a high savings rate. But also, it's because many big brands have simply dumped their existing products on the Chinese market, with little thought to tailoring their wares to the audience beyond changing the language on the packaging. "Until quite recently, the attitude has been, 'Let's invent in the West and ship to China,'?" says Hubert Hsu, a senior partner at Boston Consulting Group and leader of the firm's consumer practice in China. "It didn't work."

But companies are beginning to wise up--and none too soon. With Western markets for luxury goods in a slump since the financial crisis, retailers are focusing on China, which is on course to become the world's third-largest consumer market, worth $2.3 trillion, by 2025, according to the consulting firm McKinsey & Co. The Chinese al-ready buy more cars and televisions than anyone else, and they are No. 2 when it comes to PC sales. Any number of other categories are booming, from jewelry (up 25 percent a year) to cosmetics (up 20 percent) to luxury automobiles (up 50 percent). "The redistribution of global growth following the financial crisis was more dramatic than anyone could have predicted," says McKinsey's Yuval Atsmon. "There's now a sense amongst many foreign firms that they need to start treating China as their home market."

Although selling to the Chinese market doesn't have to mean emulating a Chinese aesthetic, as Hermes has done, it does mean thinking much more carefully about what Chinese consumers actually want. Hence, a slew of firms have in recent months launched products custom-made for the Chinese. BMW introduced a China-only limited version of its muscly M3, called the Tiger, which is named for the 2010 Chinese New Year and features fiery orange-and-black coloring. French fashion house Chloe will soon launch a Chinese version of its Marcie handbag in red, which is a lucky color in the Middle Kingdom. …