Global luxury brands like Louis Vuitton, Dior, are racing to grab a chunk of the Chinese market — and with good reason, considering the country is home to the third-largest population of millionaires and has become the second-largest consumer of luxury goods in the world. Meanwhile, however, hardly any of the luxury Chinese labels that showed have as strong a global brand recognition as their French counterparts. But that may change.

Angelica Cheung, editor-in-chief of China Vogue thinks it will happen, but not any time soon. “I feel that when everything else is ready — when people and the market are more mature, and people have more of an understanding of brands’ identity and individual style, and also the production side of the whole industry — basically, it takes maturity of the whole chain before that happens,” Cheung told website ARTINFO.

Only a decade ago, the term “Made in China” carried a negative connotation, often associated with cheap, poorly made goods. With more luxury goods being produced in the country, the meaning of that phrase is changing.

“A few years ago, people would hesitate before they used that expression,” said Cheung. “In Vogue China, we’ve had a column called ‘Made in China’ for the past five or six years. But it really means creativity out of China — what people were doing, what people created that was unique and interesting. These past few years, you just see a tremendous growth of young, homegrown talents. Every year the picture looks more promising and different.”

Many European high-end brands like Prada are replacing the “Made in Italy” label with “Made in China,” signaling a higher standard of quality (at a cheaper price) coming out of Chinese factories. “They understand more how these brands work, and they appreciate quality better than before,” said Chung.

But that doesn’t mean the Chinese luxury industry doesn’t face obstacles. “Where Chinese companies are lacking is quality control and product and image design,” said Eggers. “So far, China has not been able to produce a brand with a broad international appeal.”

Cheung cites many factors that affect the potential global success of a Chinese luxury label. “All these European brands, they succeeded for a big mixture of many reasons, so it’s not just about having a talented designer. It’s not just about having very skilled craftsmen,” said Cheung. “It’s many factors — generations of culture, skills, understanding of brands, understanding of quality, understanding of who you are, communication skills, business concepts, everything — understanding of markets. They’re all part and parcel of what makes a brand successful.”

Even though China’s luxury brands have yet to gain the global prestige that Prada, Gucci, Dior, and countless other designer labels have earned, perhaps it’s only a matter of few decades before they will be just as coveted.

In 2010, the New York based agency Pao Principle has recruited a proprietary panel of China beauty buyers for the purpose of understanding their attitudes and usage about beauty products. The findings from this report are helping beauty companies better understand what is needed to succeed in this market. 1,014 panelists completed the survey incentivized by prizes donated by Oscar de la Renta, the study sponsor.

Here are some key findings:

• Prestige consumers are concentrated in Shanghai, are older and tend to either own their own business or work in middle management positions for an SOE or multi-national corporation.
• Mass consumers tend to live either in Beijing or Guangzhou and are primarily students
• Education and training are key to gaining market share as beauty is still relatively new in China
• While skincare usage is high and begins at a relatively early age, color cosmetics and fragrance usage begins in university
• Chinese beauty buyers rely on word of mouth from their friends and family as their primary source of information
• Brand loyalty is relatively low although skincare brands from Avon and Olay have successfully instilled loyalty among their respective consumers
• While mainland Chinese beauty consumers overall did not appear to exhibit price sensitivity, some brands such as Maybelline, pricing can potentially impact their consumption

Given the complexity of doing business in China, there have been many success stories and missteps along the way. This study explains some of the 2010 failures and brand missteps:

• MAC
  • They have had difficultly in communicating their message.
  • As a result, Chinese beauty consumers are confused as they don’t understand MAC’s message
• Clinique Happy
  • Chinese love the fragrance of this luxury brand. However, after mass advertising, has gradually has lost its image as a premium brand.
• Elizabeth Taylor White Diamonds
  • Indian rose ingredient is not very attractive to the Chinese.
  • Average packaging,
  • Insufficient advertising.
• Lancome Trésor
  • Lancome is not perceived as a professional in fragrances
  • Insufficient advertising (fixed since with a campaign started late 2010)

For further information you can get the whole study summary at the study dedicated website, made by Pao Principle.

The report shows a shift in Chinese consumers’ attitudes to luxury purchases, one that has seen them graduate from mindlessly chasing fashion to making far more informed choices – and even beginning to set international trends. In the long-run, says the report, the move to a more mature and knowledge-based consumption pattern in the luxury sector will add to its vitality and sustainability.

As a result, manufacturers in the luxury sector are now paying far more attention to the opinion and demands of Chinese consumers, swayed by their enthusiasm for such products and their more informed purchasing decisions.

Organized by the 21st Century Business Herald, a leading Chinese business daily paper, and supported by Ipsos, a global market research firm, and Fudan University-Bocconi’s fashion and luxuries management team, the report analyzed the behavior of China’s high-end business people – the newspaper’s primary readership group – with regard to luxury purchases. The report is aimed at promoting mature and informed decision-making throughout the luxury sector. During three months of extensive research, more than 150,000 individuals across the country responded to questionnaires about their purchasing patterns and the factors that influence them. In addition, the average number of daily visits to survey’s official website was more than 10,000, with nearly 1,000 online surveys filled in each day. The questionnaire, designed by Ipsos, analyzed a wide range of the target group’s defining characteristics, including industry preferences, purchase motivation, lifestyle choices and social standing. The raw data was subsequently analyzed by the Fudan-Bocconi team.

Professor Lu Xiao, head of the team and an expert in luxury brand management, interviewed scores of participants in randomly selected focus groups. The qualitative data sourced via these interviews, combined with a detailed analysis of the respondents’ opinions, allowed the professor to deliver in-depth insights into the sector. Alongside the report, the favorite brands of the business people surveyed have also been announced. The results show that the China Minsheng Banking Corp was the only Chinese mainland homegrown brand to make the list.

Commenting on the initiative, the event’s organizers said: “The essence of any luxury brand lies in the historical values it embodies. These values need to be continuously nurtured in order to retain their aspirational appeal across all cultural boundaries.”

The majority of China’s rich now live outside of the mega-cities such as Beijing, Shanghai and Guangzhou, said a study published 16th April by the Hurun Report.

About 825,000 people in China have net personal wealth of more than 10 million yuan (1.47 million dollars), according to the magazine, which tracks China’s wealthiest. But about 52 percent live outside the three biggest traditional centres for wealth — Beijing, Shanghai and southern Guangdong province, which includes Guangzhou and Shenzhen. “People are always shocked when they go to the sticks — to the secondary, the third tier cities — and they realise ‘My goodness these places are booming like nobody’s business’,” Hurun’s publisher Rupert Hoogewerf said. “We’re seeing very clearly there’s a trend of the luxury brands moving into the secondary cities.”

Management consultants McKinsey also warned in a separate report published this month of the dangers companies face in focusing on Beijing and Shanghai while underestimating the importance of China’s smaller cities. “In Beijing, the biggest brand names often have several retail outlets, but many go unrepresented in Chengdu or Wenzhou, even though Chengdu has more wealthy households than Detroit, and Wenzhou as many as Atlanta,” McKinsey said.

The southwestern city of Chengdu, with a population of 10 million, and eastern Wenzhou, with 7.9 million residents, are only two examples of dozens of fast-developing cities with populations of more than five million. The number of households with annual incomes of more than 250,000 yuan (36,765 dollars) hit 1.6 million last year and is expected to rise to more than four million by 2015, McKinsey said. Three quarters of the growth in China’s wealthy consumer segment will come from people who currently live outside Beijing, Shanghai and Guangdong, McKinsey said.

Another recent wealth study by China Merchants Bank and consultants Bain and Company reported similar findings. More than 20,000 people who held more than 10 million yuan each in private equity were in the eastern provinces of Jiangsu and Zhejiang alone, it said. Bain’s banking study said 320,000 people across China would have more than 100,000 yuan in investable assets by the end of this year, representing a pool of nine trillion yuan in assets.

Meanwhile, consumer confidence remains unusually high among the country’s rich, with 80 percent of Chinese millionaires saying the economic crisis had not hurt their lifestyle, Hurun said, citing 67 interviews done in February.

Copyright © 2009 AFP.

China’s Rich and Super-Rich Broken down by Region

* Excludes Hong Kong, Taiwan and Macao
** Source: 2007 National Bureau of Statistics