CASE STUDY: LOUIS VUITTON IN CHINA
About Louis Vuitton in China
Louis Vuitton is part of the largest conglomerate of luxury goods Louis Vuitton Moet Hennessy
(LVMH), with headquarters in Paris. First Louis Vuitton store opened in Paris in 1854. This designer
started to create luggage products in 1859, developing the brand’s original flat-bottom trunks with
Trianon canvas. (Pardes, 2016). Louis Vuitton started operations in Asia, opening its first boutiques
in Japan: in Tokyo and Osaka. Next year, they opened a store in Singapore at Ngee Ann City.
Louis Vuitton opened its first mainland Chinese shop in a Beijing hotel in 1992. 13 years later they
opened a flagship store, in 2005, a three-level, and 17,000-square-foot boutique in a mall located
close to a luxury Beijing hotel.
The brand started to compete in the online shopping marketplace, launching an e-commerce
service in China, in July 2017, seeking to capitalize new opportunities in this market, where online
sales have been controlled by local Internet giants like Alibaba. (Williams, 2017).
Due to an economic slowdown in China, Louis Vuitton had to close a certain number of stores in
the country, since 2015, especially in mid provincial cities, Suzhou, Guangzhou, Harbin, and
Urumqi. These are cities where the economic strike has been more prominent due to a traditional
dependence on the manufacturing business. (Will, 2015)
Why China?
China is the second largest economy on the planet, after the United States, and it is projected that
it would overtake American economy as the world’s largest economy before 2030. This country
has been playing an important role, being the main contributor to global GDP growth since the last
financial crisis of 2008. (Colvin, 2017)
China is a member of the BRICS country group, a limited set of 5 emerging economies that have
been the main players for global economic growth during last decade. Due to their huge
population and expansion of industry and service sector, this economy represents vast
opportunities almost any product.
According to the World Bank, during last years of liberalization policies and market-based
modifications, 800 million Chinese have been lifted out of poverty. (World Bank, 2017). It
means there is a larger middle class and expanding high class, that is creating greater
advantages for luxury goods consumption. An aspirational middle class would be a great
opportunity for LVMH, as there are more people demanding their goods.
Recently, there have been projections that show growth for the luxury industry in China, after
years of instability and slowing demand. In fact, in 2015, the industry started to suffer little
slowdown due to certain policies that affect the behavior of sales, such as high taxes for import
goods, and anti-corruption polities. According to a report released by the consultancy group Bain
& Co and Altagamma (Italian luxury industry association), China will see a recovery of 6-8% growth
in 2017.
The Chinese behavior in luxury goods has an enormous impact on the global performance of the
luxury industry, as Chinese purchasers account for about half of the global market. For next years,
the luxury market is predicted to expand at an average annual rate of 3 to 4%, until to reach 280
billion-290 billion euros in sales by 2020. One of the main causes of this development will be the
increasing number of population in Chinese middle class. (Vidalon, 2017).
For 2020, the Luxury
800 million Chinese
goods industry will Second largest
have been lifted out of
grow average annual economy in the planet
poverty
rate of 3 to 4% in China
Forecast 280 billion-290 Challenges: high taxes
billion euros in sales by for import goods, and
2020 anti-corruption polities
Illustration 1: Chinese Market
Luxury Culture In China
Regarding Culture, people from Chinese high classes have the interest to display wealth without
discretion or refinement, creating an accepted appetite for luxury and expensive possessions.
(Olenski, 2017). This traditional cultural aspect has been changing, with the emerging of
millennials that see luxury brands differently. According to Dr. Tina Zhou of the Shanghai-based
Fortune Character Institute “In the past, luxury goods were seen as a symbol of wealth and status
for Chinese consumers, now they buy luxury goods for their enjoyment.” (Horton, 2016).
During last decades, some industry groups such as Richemont, Burberry and Gucci have seen years
of expansion in this Asiatic country. Louis Vuitton Monet and Hennessey group have been part of
it.
High taxes have been traditionally a negative factor for the import of luxury goods because it
increases local prices. In consequence, it moves thousands of people to travel abroad and buy
those products overseas. Singapore, Hong Kong, and Europe are the favorite destinations. Chinese
is the largest nationality of outbound travelers since 2012. And the high net worth Chinese
individual makes 5.9 international trips per year on average. Therefore, Chinese population has
been exposed to a wider variety of luxury items and brands, creating stronger brand awareness.
(Kumar, 2018). Fortunately, in last year’s Chinese government have reduced some duties of luxury
goods in certain zones to encourage domestic consumption and tourism.
Another cultural aspect Louis Vuitton Group need to consider is that wealthy Chinese consumers
usually take a more investment-oriented approach towards luxury purchases and they would
simply consider this activity as a means of self-advancement. Additionally, they are more willing to
experiment with brands and goods. (Kumar, 2018). They often feel that shopping is an enjoyable
hobby rather than a routine, according to a research made by Millward Brown. The firm found that
68% of Chinese respondents felt “happy or overjoyed” when they go shopping, while only 48% of
Americans and 41% of British said the same. (Spelish, 2017)
China Cultural Aspects
investment-oriented
customers
Exposure to luxury brands
for travelers
Cultural interest to display
wealth without discretion
or refinement
68% of Chiness see
shopping as an enjoyable
experience
Illustration 2: Cultural Aspects of Chinese luxury goods customers
Challenges of Louis Vuitton in China:
One of the challenges LV group have faced has been a consequence of the rapid growth of China
middle class. When this brand arrived, it was an adorable brand of the newly rich elite. It was a
symbol of ‘status and social arrival’. In an emerging rich society, affluent consumers increase their
interest in brands and logos that would be socially recognized.
Nevertheless, when people’s revenue increased, more Chinese consumers had access to luxury
products. Soon, modest paid white-collar employees used to save all their wages, just to buy a
Louis Vuitton item. It meant Louis Vuitton started to become a more mass brand, losing its feature
of exclusiveness and privilege.
The strategy of LV was looking to maintain a distinctive relationship with their VIP wealth clientele.
They invested in maintaining this, giving exclusive access to new products launched, and
invitations to exclusive events organized inside the LV boutiques.
To reduce massive exposure to the brand, in 2010 they stopped the opening of new boutiques in
the country. By that time they had forty-one stores. Bernard Arnault LVMH CEO said: “Those who
want to buy Louis Vuitton items must travel”. Similar to thousands of wealthy Chinese who travel
to France to purchase lower taxed items. The group’s strategy was to limit the opening of outlets
and focus on products with higher added value. (Business Fashion News, 2013)
Besides that, Louis Vuitton tried to reduce the use of their iconic logo in products sold in China and
launched modified designs to give back premium sense to their brand image. New bags and
handbags were created without a big logo or brand’s initials in a limited edition with special
clientele treatment. This treatment consisted to organize a reception of special guests in an
exclusive lounge, where the shopper can create their style product, selecting from different
shapes, colors, types of leather. The client had then to wait from 5 to 13 months to receive that
personal item, enhancing the idea of exclusiveness and that they were wearing an extraordinary
piece of art. (Perry, 2016)
Over- Loose of Recovering
exposure Exclusiveness Rich Clientele
Give exclusive
Stop Store
New Products access to new
Opening
with smaller products
Logo or
Brand's Personalize
Enhace travel Initials items for rich
for shop
clientele
Illustration 3: How Louis Vuitton has faced their cultural challenges
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