Acquisition Of High-Profile Western Brands By Chinese Companies Gives Chinese Designers And Brands Broader Distribution Base
In the wake of the global economic crisis, several Chinese companies have gone on global shopping sprees, spurred by the one-two punch of a drop in luxury consumption in developed markets and a motivation to control the sale of high-profit luxury goods inside the Chinese mainland. Although China, as the world’s most populous nation, has a massive consumer base, much of that base remains far below the income level of regular luxury consumers, meaning domestic companies often experience a difficult conundrum — if they want to tap into the wallets of China’s 1.3 billion consumers, they generally have only two real choices — toss brand equity aside and focus on the lowest-price-point consumer or bring a foreign brand with much higher brand equity to China and target the emerging middle class and wealthy consumers. As a result, the transition from local to global (or maybe more accurately, glocal), seems natural. In the capitalism-on-speed world of China’s major metropolitan areas, either you go global or you’re crushed by your competitors.
This week, the subject of Chinese companies purchasing established western fashion brands was raised in a Reuters article (via Canada’s Financial Post), which focused on the delicate balance some major Chinese companies are dealing with at the moment — whether to try to purchase distressed foreign brands to sell in the brands’ existing established markets or simply to buy the brands then control them as they please within the Chinese market. There is no guarantee that consumers in developed markets will bounce back from the recession to spend as freely on luxury goods and haute couture as they once did, but at the same time the majority of Chinese consumers are not in the market for these goods. Additionally, Chinese fashion companies may not yet have the management experience necessary to oversee a western brand (or its employees) in its usual markets, so time will probably be necessary for Chinese companies to work out the kinks that would emerge down the road if they were to focus too strongly on overseas markets.
According to some sources — such as the exporter interviewed in the Reuters article — Chinese companies shopping for western fashion brands would be better off counting on the continued growth of the Chinese middle class, as this area should see sustained growth that may outpace the rebound of the consumer in developed countries.
After decades of Made-in-China garments, China’s fashion industry is keen to move on from being just a mass manufacturer of clothes. It now wants to own western brands and to sell them to China’s 1.3 billion consumers.
The right to sell brands of several international fashion labels locally, such as Aquascutum and Pierre Cardin, have been recently acquired by Chinese clothes makers and sellers.
“It is a good time for Chinese firms to buy prestigious and well-established brands overseas and to introduce the brand back to the mainland China market, instead of building their own brands which is too time-consuming,” Chan told Reuters.
“Mainland China customers are gaining more and more sense of global prestigious brands as the economy opens up,” she said.
This stimulus has helped sustain the rise in incomes of Chinese shoppers, who are increasingly viewed as a rich seam of profit for luxury and fashion brands.
Bruce Rockowitz, president of global consumer goods exporter Li & Fung, suggested that cash-rich Chinese enterprises should focus more on acquisition opportunities in domestic markets rather than on buying and managing western brands outside the home market.
“I think most Chinese companies don’t have a strong enough management and setup yet to oversee these sort of American companies. There is a huge cultural difference, huge mentality difference,” said Rockowitz. Li & Fung’s customers include U.S. retail giants Wal-Mart and Target.
“If I was Chinese, I would look at all the opportunities in China. And I would take western brands and bring them in to China and not the other way around.”