China is Giving LVMH a Massive Headache

LVMH’s Asia ex-Japan rev- enue， to which China is the main contributor， fell 6 per cent year on year in the first quarter of this year， steeper than the 1 per cent year-on-year decline in regional revenue in 2014.

With China’s anti-corruption campaign showing no sign of relenting and with consumers increasingly favouring subtler， lesser-known brands， the company faces a struggle to reclaim the cachet of exclusivity from the atrophying impact of ubiquity.

In china， its largest luxury brand‘LV’ is facing a slightly awkward predicament―residents of first-tier cities are losing interest in it.

According to a survey， in China’s first-tier cities―Beijing， Shanghai， Guangzhou and Shenzhen， only 18.8% of survey respondents said LV was their most wanted brand， compared with 38.3% among consumers surveyed in third-tier cities.

Although， currently LV is still the most popular luxury brand in China， in first-tier cities， residents prefer Prada to LV.

Facing this impact， the luxury giant has to try to cross industry， to attract more young consumers by diversified method， it even engaged into catering.

In terms of this， expert in China said， under the background of a slowdown of luxury market in China， LVMH Group is speeding up the opening of product diversification strategy， and its new catering service may bring it new consumers.

Losing Consumers

LVMH， world’s largest luxury group has to admit： Business in China is not good.

In February， 2015， LV’s parent company―LVMH Group announced that its core profit in 2014 financial year fell by 5% for the first time in five years， and after excluding exchange rate impact， Asia Pacific is the only region seeing negative revenue growth， in which revenue dropped 1% the whole year， and sharply decreased by 6% in Q4.

In fashion industry， no luxury company would like to see the happening of“Danniella Westbrook effect”. The phenomenon named after the former EastEnders actress recalls the deleterious impact she had on the Burberry clothes brand after she and her toddler daughter were photographed clad head-to-toe in beige check. The snobbish world of fashion judged the photo a travesty and Burberry’s sales in the UK were hit.

Presently， Louis Vuitton is facing the same problem in China. The French luxury retailer is experiencing brand fade as consumers in first-tier cities increasingly shun its products， according to data from a survey. LV’s problem in one sense is much like Burberry’s： it has become too ubiquitous for its own good.

This is partly because of the zeitgeist among China’s wealthier and more cosmopolitan consumers for individuality and exclusivity. Such people would no longer like to be seen wearing the same brand as， say， the mistress of a“bao fa hu” （overnight millionaires or billionaires）.

A large proportion of first-tier city respondents said they particularly avoided purchasing brands that too many other people owned. When asked to rate the reasons for their luxury purchases on a scale of one to five （with higher scores indicating greater agreement）， survey respondents gave a 3.92 rating to“expressing my personal tastes”.

The decline popularity of LV also shows up among Chinese travelers making purchases overseas. According to a recent annual survey of 1，277 Chinese outbound travelers， only 10.7% of them purchased LV product during their most recent overseas trip， which decreased by 15.5% when compared with last year.

The decline was even more obvious among high-income travelers， among them， only 12.9% （annual household incomes in excess of 350，000 Yuan） bought LV product during their most recent trip， whereas in last year the figure was 24.3%.

Facing the Grey Market in China

The makers of Louis Vuitton con- firmed recently that it is trying to crack down on people buying luxury goods in bulk in Europe and then selling them on in China， in what it calls “the grey market.”

“When you have soaring currencies and increasing price gaps on grey market， you see some market dilution. We’ve placed strict retail restrictions for the amount of products that people can buy. But， when you see someone in a store， you don’t know whether they are buying handbags for themselves or to sell them onto the market in China. We are trying to make sure we are not competing with our own products in the China market but our actions are not entirely bullet proof.” said JeanJacques Guiony， chief financial officer at LVMH.

In fact， LVMH is worried it will involuntarily cannibalise its own sales. This is because if people are “successfully” buying its brands in bulk overseas and selling it at a discount in China， it will find itself trying to compete pricewise with the black marketers.

Buying luxury goods in the US and European market is an attractive prospect for mainland Chinese residents. This is because the average price of luxury goods in China， according to estimations by the Chinese Ministry of Commerce， is about 51% higher than in the United States and 72% higher than in France.

While the goods hold a hefty price tag anyway， import duties range from 10% to 25%， while that type of tax on luxury cosmetic products and alcohol can rise to 60%. This is not to mention VAT being around 17%.

LV Turning To Catering

Facing the decline trend， LVMH Group starts to repositioning brand， including exploiting new product lines. In Chinese market， LV starts to control the expansion of stores.

But this is not enough. In order to attract more young consumers， the luxury giant tries to weaken the label“LV”， and launched more diversified brands， for example， investing Chinese restaurant.

In 2014， LVMH Group entering catering industry for the first time in China. The Group purchased 90% shares of Crystal Jade Group by USD 100 million.

It is reported that Crystal Jade Group was established in 1991， featuring Cantonese cuisine， including various dessert， manual pastry and baking goods. The company headquartered in Singapore， and has over 100 stores in Asia. In 2002， it entered mainland China. Currently， it has 13 stores in Shanghai， Beijing， Hangzhou， Qingdao， Guangzhou， Shenzhen， Foshan and Wuxi， and owning many brands such as Crystal Jade Restaurant， Jade Hotel， and Crystal Jade Kitchen.

LVMH reveals that after purchasing， it will develop Crystal Jade in Middle East and Europe.