Chinese luxury market -- all smoke and mirrors?

AccessAsia's review of Dana Thomas's Deluxe: How Luxury Lost Its Luster has some really interesting stuff about the state of luxury goods in China. When I was there in September, I was surprised by the Rolls Royce dealerships in Shanghai and Beijing, and by the number of "high street" luxury brand stores lining the main drags, but AccessAsia says it's all a facade.
Thomas makes two points about luxury that apply to China and are the root of the problem. In order to drive their brands as prestige labels with high margins, they must 1) conceal how they’re cutting corners and costs in manufacture, and 2) conceal their sales performance. If they fail, then the whole rotten house of luxury collapses. The major trick is that luxury is now truly an industry that uses sweatshops, hires ex soap salesmen and is composed of hideous conglomerates such as LVMH. By being part of groups that do not reveal breakout figures, you can hide the truth – i.e. LV can be doing well as a brand, while Givenchy and Kenzo are disintegrating, and Fendi has never made a penny, but as long as only group results are issued, and LV can cross-subsidise the dying brands, then all can appear hunky dory. In China, with press reports of factory conditions few, ‘made in’ requirements lax and corporate transparency weak, the luxury groups thrive in fertile soil...

An increasing number of brands manufacture in China. Those luxury handbags women crave? Mostly now invariably made in China, though manufacturers sign strict confidentiality agreements with the brands never to reveal this fact. Several Guangdong factories make bags for a range of brands you pay fortunes for – hence a nice 15% minimum margin on bags. Access Asia was recently in a Chinese factory where the same workers on the same production line were making US$2,000 bags for an Italian brand, and US$35 bags for JC Penney, at the same time. Ever wondered why Coach has so many stores in China? Easy – they make virtually all their bags here. Prada, LV, Furla – all now largely made in China. And that’s where the cost cutting starts, and then continues, with no linings and cheaper thread, glue rather than stitching, as well as cheap labour. Still feeling classy? And typical mark ups on bags once you move to China? Think roughly under US$100 to make a bag, which then retails for US$1,200 upwards. Still think you’ve bought status? And it’s also the high-end ties and scarves. About US$25 max to make in China, and retailing for somewhat more. Still feel exclusive? Or just conned?

Link (Thanks, Richard!)


  1. vrythng tht’s wrng n ths wrld s nd wll b Chn’s flt. Chn s nt rlly ntn bt nthr dmnsn flld wth rbt zmbs. n th yr 49 .D. th dmnsn f Chn chngd ts nm frm “Bzrr-mrc” t “Chn” s s t vd ny sspcn tht Chn s th cmplt ntthss f ll vls tht mrcns hld dr.

    Th bggst mstk y wll vr mk s trstng Chns prsn. mn, rn’t thy ttlly nt vn gvng Tbtns tny lttl rsrvtns t lv n, nd csns t rn?

    Chn’s ltmt gl s t stl r mtns s thy cn rn thr grbby lttl fngrs ll vr thm, grnnng ll th whl.

    n wy t dft Chns prsn s t nt lt thm d mth hmwrk nd thn tll thm bt “Chrstms” nd “rnnng wtr”. Whn thy thnk bt rnnng wtr nd lptps thy wll wthr nd d.

    ls, whn Chns prsn hrs th wrd “dmcrcy” thy nstntly trnsmgrfy nt svrl smll rbbts tht fl fr thr lvs t th thght f nt bng prt f ttltrn rgm. Hldng n pl n yr hnd prvnts th rbbts frm rntng nd frmng swtshp wrkr tht stls mrcn jbs.

  2. Apart from being a pretty good example of sarcasm, what does that have to do with the question of whether the Chinese luxury goods market is misreported?

  3. I’ve never understood how luxury fashion goods sell for retail in China anyway. You can go the markets, befriend a seller (“show me the good stuff”) & buy the same items for pennies.

    I suspect that many of the so-called counterfeits are actually the real thing that’s found a back door out of the legitimate factory.

  4. It was the same in Taiwan until a few years ago, when a lot of that kind of labor moved to the mainland. Manufacturing just shuffles around. Ask any Taiwanese person about what you can buy at the “Under the Bridge place.”

  5. “Misreported” is a misnomer, in this case. The great scam of luxury goods has a lot to do with the great scam of the Bush administration- they both rely on a lazy and collusive press corps. I’m not suggesting that we give Givenchy the third degree, but honestly, from Sassy to the NYT, the fashion industry simply buys their way into prestige without earning a single bit of it, and the rest of the luxury goods industry is worse.

    For every feature that says “Prada’s stuff looks like crap this year” or “Bang & Olafson makes overpriced ugly junk”, there will be twenty photo spreads or sidebars hailing these things as the second coming of Christ.

    The situation is worse in China partly because they don’t have Consumer Reports. There’s assloads of new money, a culture that is strongly conformist, and a media that has even lower standards that the US. Chinese fashion magazines don’t even have sex columns, for God’s sake. It’s just shopping shopping Gong Li horoscope shopping shopping. Censorship makes most publications into an inane hash, and the government is hoping that buying crap will work as a substitute for having a vote.

    What is refreshing about China is the access one has to the manufacturing base. They still haven’t managed to completely alienate the manufacturer from the buyer. If I want a new suit, or a string of pearls, I’m getting the first one from a tailor, the second one from a wholesaler. Sure, they’re yenim’s brand, but they’re as nice or as crappy as I can stand/afford. Brand names, after all, came about because when you don’t know your tailor, the tag is some kind of assurance that the sleeves won’t fall off your coat next week.

    This is ironic because in other areas of commerce, Chinese people are hard bargainers. Buying vegetables, Chinese consumers are among the toughest, most discerning in the world. Buying cars, they’re lambs to the slaughter.

  6. Well, I’ve always heard stories a few of the allegedly “fakes” are actually the real deal, except they have minor faults (usually on stitching or printing) and are destined for outlets in the areas they’re manufactured, except someone manages to import/export them over the western side, so this doesn’t surprise me one bit.

  7. I really like the cover of that book, and I’ve always been interested in how luxury marketing works (seriously, how do you begin selling a bag for $1000?). I’ll have to buy a copy. Alas, Amazon only lists the hardcover version, so I might wait for the paperback edition. I can’t afford the luxury of high end cardboard binding.

  8. Say i get an order for 10 000 Pravda hand-bags. I make 50 000 using the available workforce (just 6 hours more on the shift for the workers)…deliver the 10 000 to the customer. Keep the rest for myself, which i sell underground (internationally, not just under the bridge in beijing) at a fraction of the price it will be sold on “high street”; Same product.
    Only, suckers will buy the brand at a ridiculously superior price than what it’s worth (worthless).

    Like Nike for example…..why does it cost 14$ to make them, and we buy it here at 170$, hmmmm. shipping?
    oups, are they still sponsoring this site?

    So yeah, luxury goods are not what they seem….

  9. SILVA:

    I’ve had reputable, independent jewelers in the US compliment me on my Cartier watch whilst they charge extra to use the specific Cartier case & strap tools. The watch in question? $15 in Shanghai.

    Now you tell me…

  10. The people of China could grow a counterculture that rejects class and materialism, and all these seedy Western luxury goods. But that might get them thrown in prison camps as subversives, besides being so yesterday/communist.

  11. I wonder at the language here…isn’t the whole point that luxury, especially fashion, is illusion, even smoke and mirrors?

    It is all a particular consensual hallucination. A bag is worth $1,200 because you pay $1,200 for it. Someone who pays $20 for the bag that was made right after it on the assembly line doesn’t actually have a $1,200 bag.

    They may be visually indistinguishable, but they are not the same. They are of course physical objects, but their value is in their essence as social signifiers, and a $1,200 bag is not the same, no matter it is identical in appearance, as a $20 bag.

    We are on the edge of a precipice. So much of our economy, and the world economy, and the hopes and dreams of literally billions of people that they can get out of abject poverty, rest on a faith in the value of inexpensive manufactured goods.

    At a utilitarian base level that ‘can’t’ go away. If you want a spoon or a pot and other things being equal you’ll go for the least expensive item. All hail the effectiveness of market capitalism at lowering manufacturing costs (said in a mix of snark and reverent awe).

    But most of ‘our’ consumption is not at anything like a utilitarian base level. It is almost all style, and flash, and self actualization, and self expression.

    We buy and consume because we can. Because it is fun. Because it is an expression of who we are, or who we want to project that we are.

    The word ‘discretionary’ while true misses the point. We buy and consume because we are defined by our patterns of consumption. Because we define ourselves with our patterns of consumption.

    BTW I don’t mean this in any particular way as an indictment. It is just how we are. But what happens if we change? Not all at once, and not all of us, and not completely.

    But what happens if a few of us spend a bit more of our time making things rather than buying them? If we engage in the leisure of personal production rather than the leisure of personal consumption?

    From a personal perspective I believe that leads to more fulfilling lives, but what else happens?

    Does the economy collapse? Consumer confidence in Chinese goods is in a tailspin…see this article from today:

    Don’t buy that, it is dangerous…buy a mig welder and make it yourself…

    (sorry to rant…well, not that sorry :-)

  12. ^^well, actually, ever since the gold standard was abolished in 1962, money itself has no value other than the value we attribute it.

    I would feel so empty if i was defined by my pattern of consumption.

  13. I disagree that luxury is in essence all smoke and mirrors. Luxury can sometimes be all branding and design, but that is rare, and truly is for suckers. When you compare a real $1200 handbag to its $20 knockoff, the difference is evident. The idea is what is being knocked off, but you cant duplicate quality of materials and craftsmanship. Compare these two vehicles:

    From a distance and with a good photographer, the chinese version of the BMW x5 looks great.But when you see the car up close, as I have, the differences are appalling. No one would for an instant mistake the chinese version to be a luxury car. No smoke and mirrors there. A luxury item is a luxury item for a reason, QUALITY.

  14. Wal-Mart, like many retailers on the wave of lead coming to the U.S. from China, has taken non-disclosure a step farther by refusing to name both the importer of the tainted, bite-sized toys it recalled on Friday, but also the country of origin (or the actual manufacturer). Why would Wal-Mart protect a Chinese manufacturer?

    I investigated this non-stop for a couple of days and wrote about it on my blog on Sunday.

    David B.

  15. David, I’d go look at your blog, except for the fact that you constantly (and redundantly) post the URL in every one of your comments that I’ve seen. Blog-pimping is bad, m’kay?

  16. The nice flip side of China is that you can get hand crafted goods to a design you choose. I’m getting good quality hand tailored shirts for about 20 USD per shirt. The materials and craftsmanship are good. The design is what I want, and not some branded crap.

  17. Sorry, I don’t run ads of any kind on my blog, nor can I afford link bait-and-switch scams or featured search results – I don’t know how else to promote it. know where

    David B.

  18. I’ve been shopping at Jimo Lu in Qingdao. There were plenty of perfect knock off bags, a lot of crap ones too. The good ones aren’t cheap ~$100-200 US if you haggle hard. I wouldn’t knock the quality of the nicer bags. Perfect stitching and good materials were used.

    I did notice on my trip that the Beijing’s Hongqiao market was more discrete about their nicer counterfeit bags. You would pick a bag from the catalog and then a runner would fetch it. Nothing of quality was sitting in the booth.

  19. JJASPER:

    I think it’s great that you’re so comfortable and have such a positive level of post-purchase satisfaction. Are you taking a medication that allows you to ignore the fact you’re exploiting a repressed and beaten people who vastly, vastly live in abject poverty – including the workers that make your shirts?


  20. True,and unfortunate, but not new. In The Book in 1966, Alan Watts wrote:

    […] most of our products are being made by people who do not enjoy making them, whether as owners or workers. Their aim in the enterprise is not the product, but money, and therefore every trick is used to cut the cost of production and hoodwink the buyer, by coloring and package chicanery, into the belief that the product is well and truly made. […] But the whole scheme is a vicious circle, for when you have made the money what will you buy with it? Other pretentious fakes made by other money-mad manufacturers.

  21. The funny thing is that the mainland Chinese residents who have an appetite for non-counterfeit “luxury” products take shopping jaunts to Hong Kong, where there is no duty on luxury goods. The PRC government heavily taxes luxury goods so that the stores in Shanghai may offer pretty objects and air conditioning, but shoppers are few and far between because the identical items costs hundreds less in HK. There are special shopping tours to HK, where people will pack into a hotel room like sardines, and shop to their heart’s content at the luxury palaces in HK.

  22. To David B.:

    You don’t have to spam your blog address. Just tell us ‘I commented further on my blog’ and if we’re interested, we’ll get your address from your profile and have a look.

  23. In all honesty, though I’m sure China has its share of irresponsible business practices, the recent Mattel fiasco has left me wondering how much of these latest China scares are genuine and how many are your average “yellow peril” sentiments perpetuated by shady journalism. I mean what better way for U.S. businesses to (a) defend against foreign competition and (b) utilize a handy scapegoat for errors, than to use the old “yellow peril” stereotype which is so ingrained upon people’s collective consciousnesses?

  24. It just a shame anybody desires these Euro-trash luxury items from a rotting culture. China, of all places, with thousands of years of their own innovations in art and design, would benefit greatly by dumping the West and looking to the future instead.

  25. I wasn’t “SPAMing” my address, PTERYXX, I was adding my signature to my comments.

    This isn’t exactly related to Luxury knock-offs, but I think the only reason the evil, corrupt, and brutal Chinese government hasn’t collapsed is because the U.S. is propping it up. China is in worse condition than the U.S.S.R was before it fell.

    Poverty permeates the country, poverty unlike what we know – and not just the urban areas, people in the rural areas, living and working on farms, don’t have enough to eat. They lead lives of misery.

    So much of the livable space is a toxic waste dump. Unless you’ve been there, it’s hard to imagine (given the photos of skylines and construction the media publishes).

    There is no middle class to speak of and the wealthy are buying permission for their wealth from the government. Instead of focusing on their people and developing their economy, the Chinese government focuses on appearance like the Olympics and beating us in the space race with what little they have. Sound familiar?

    It’s a house of cards and the only reason it continues to stand is that we’d outsource breast feeding if it was feasible.

  26. This isn’t about handbags or China, but related to #6 Will‘s comment that this is the result of a lazy and collusive press, I’d like to point out what good investigative reporting looks like.

    From the Dallas Food blog is this multipart story on Noka chocolates. If you’ve got some time, read it through. It is quite informative and well researched.

  27. David B:

    That little wrench icon next to your name takes people to your homepage — or would, if you included “http://” before the URL in your profile. (You can click the link beside my name to get to mine, for instance.) You don’t need to include the URL as part of your signature — and it is considered bad form to do so.

  28. As someone from a “rotten culture” in old Europe I’d gladly pay 1200$ (or 1200 €) for a handbag if
    – there were only 100 of it
    – the leather would be of extremely good quality, not too thick, yet smooth and of no endangered species or reptiles
    – it was made by a master of his/her craft who would have to be paid accordingly
    Never going to happen.
    But I just don’t like the thought that children get some cents (American or Euro, doesn’t matter) for something I am supposed to appreciate as the ultimate luxury.
    Same goes for replica bags – they don’t “feel” right. Cheaper, yes, made under the same conditions, yes – for me it’s just wrong.

  29. I feel better knowing that people who can afford $1200 bags aren’t feeling any better about their Chinese crap than I am.

    s n sd: tkng ll th vwls t f ppl’s psts s TRD nt WRD.

  30. Dave B., we appreciate the comments you’ve posted here, but BB’s forums are for conversation, not self-promotion. We can only hope that self-promotion wasn’t the sole reason you were here, and that you’ll stick around.

    BTW, I’ve bent BB’s moderation policy by deleting rather than disemvowelling your URLs. There are no vowels in “http://www,” and interested readers might have mistaken the broken versions for your real URL.

  31. Um, David, I believe JJasper is in China. $20 for a shirt is not exploitation in China, it’s reasonable exchange.

    About ten years ago, shortly after the fall of the Soviet Union, there was a “Chinese market” in Budapest that we used to frequent. It was literally Chinese in the sense that it was built of shipping containers and sold stuff straight off the rail lines or barges or whatever the hell transport modality got stuff there, and all the sellers were Chinese. And the food stall vendors were, like Vietnamese, sold you stuff that would take the roof of your mouth off.

    That stuff was dirt cheap — I got a nice jacket there with a removable faux-fur lining, probably paid about $10 or $20 at the time (I don’t remember) and wore it for years. The lining’s zipper self-destructed in about a month, but the rest of the jacket lasted well.

    Did I oppress a suffering people by buying a jacket there? Should I have paid much more in the States for a jacket still made in China? I’m pretty sure by buying from a Chinese distributor, at least as much of the money went to the people who made the jacket.

    In this instance, I’m on the side of capitalism — and I think it’s crucial to be able to distinguish between capitalism (buying from a vendor) and corporate capitalism (buying from a Nike dealership, say). In the former, the market works, mostly; in the latter, power overwhelms actual market forces, and distortions like advertising and this luxury effect kick in. There is waste, and most of that waste is in the form of paying rich people for their connections instead of paying productive people for their work.

    Wow. Preferring capitalism really makes me sound like a Commie these days, doesn’t it?

  32. Back to the actual subject of this thread —

    My everyday purse is a Coach Bag. I’ve had two of them now that were identical in all particulars, because after I lost the first one I realized I’d liked it better than any other shoulderbag I’ve ever owned, so I replaced it with a duplicate.

    I bought the first one (brand new) at a Brooklyn stoop sale. The second, I got on eBay. I would never have bought either of them at Coach Bag’s normal retail prices, but there’s real value in the product itself.

    That’s a pattern I’ve been seeing all my life. In the lower-priced range, you get overcomplicated, flashy goods that are indifferently manufactured from cheap materials. You can find some solid, well-made products in the luxury goods bracket, but they’re marked up to unreasonably high prices.

    Only occasionally do you get products that combine proven designs, high-quality materials, and reasonable prices: Maytag washers, Revereware pots, Moleskine notebooks, Stetson hats, Harris Tweed jackets … you know what I mean. They cost more than the cheap trash, but they last a lot longer, and they’re far more satisfactory.

    Overpriced luxury goods and cheap Wal-Mart trash are both aspects of fashion. They’re just sold to different markets. This would be a different world if more of the manufactured goods available to us emphasized value instead.

  33. The tailors my family deals with in Shanghai are working in a shopping mall, not a sweatshop.

    I’m in NYC. My mother and step father is in China.

    If I walk into an R.A.G. store in NYC, I can buy $20 crappy mass manufactured shirts that probably were made in a sweatshop, possibly a sweatshop here in NYC.

    So yeah, I’m comfortable with the exchange of labor for goods.

  34. I’m not sure I understand this completely, but it reminds me of a lot of things– “remedies” from the late 1800’s that were actually dangerous, junk bonds in the early 20th century, “The Emperor’s New Clothes” . . . . Does China really understand the pitfalls of capitalism yet? Boom vs. bust.

    I worry where this is all headed.

    As for the inherent value of luxury items, a knockoff handbag is one thing, but I can say from experience that knockoff guitars that say “Gibson” on the headstock and yet only cost $99 plus shipping, DO NOT sound or play anywhere near as well as a US-made Gibson. This probably translates to other items, like golf clubs and watches.

  35. What is “TRD nt WRD” anyway? Disemvowelling sometimes makes posts all the more attractive. It’s like a puzzle! I end up dwelling on them far more than other posts sometimes, because anything worth censoring must be worth reading, as school boards across the country occasionally demonstrate.

    Let’s see…

    “s n sd: tkng ll th vwls t f ppl’s psts s TRD nt WRD.”

    That first bit is tricky too. As? So? No? An? sd is probably “said”. Well, let’s skip it for now, it’s probably not important.

    “Taking all the vowels from people’s posts is ___ not(?) ____.”

    Given the context, it must be negative in nature. TRD nt WRD. Hmmm.

    They should do disemvoweled crossword puzzles as an extra level of difficulty.

  36. 1) I have purchased a number of expensive handbags for my wife, and my own bags are designer as well. Why? 2 reasons:

    a) They look nice and are totally frivolous. That’s what makes them LUXURY. It’s not like you’re in the Prada shop looking for the best bang for the buck. You’re in the Prada shop because you want a Prada bag. Duh.

    b) Actually, the workmanship on these ultra-expensive products is… phenomenal. Okay? Something can be frivolous and still be a good product. It’s not either/or. You’re paying for a design. That’s why it’s “designer.” All the designer bags (I’ve not been drawn into designer clothes, because how long are you going to wear that $500 shirt?) we have are both beautiful and functional. And durable. My wife carries a Prada bag sometimes that she bought almost 15 years ago, and it looks brand new. No one buying these things is buying them BECAUSE they are well made and functional, granted, but that doesn’t mean that they AREN’T well-made and functional. They also look hot.

    2) I’m tired of people whining about sweatshops in China. Right now there is such demand for labor in China that factories are expected to provide dorms and all sorts of perks to draw workers. They are all in bitter competition for hands. Due to the exchange rate and general cheapness of things in China, that means that people do pretty well on very few US dollars. Don’t look at the number and assume they live next door to you and freak out.

    And what is wrong with sweatshops anyway? They are an intermediary step between abject poverty and a more comfortable economy like what we enjoy in N. America, W. Europe, Japan, etc. All of our societies went through that step. Eventually the workers get to the point that they can demand better conditions. This has already begun in China.

    Moreover, according to friends who’ve lived and worked in China, places like Nike are the most-favored places to work because of the money and perks. China is making money hand over fist from these deals. Grab an econ textbook or take a trip over there (the latter will be more fun and taste better–get over there for the food while it’s still cheap!) before you start predicting the imminent and catastrophic fall of the sky.

    3) What is worrisome about China is that the yuan isn’t open. It’s pegged to the US dollar at 8:1. If it were open, it’d be worth more. They are effectively hacking the exchange rate system to make sure it’s cheap to build stuff over there, which keeps money coming in from countries who didn’t self-destruct in the middle of the last century, which allows them to get better and better at building harder and harder stuff, and even to start designing some great stuff themselves. At what point will they open the currency, and will we all be totally and completely fucked in the process, being totally dependent on their factories which will have suddenly become prohibitively expensive? Will they control the means of production? Will they buy us all out?

    Are we screwed?


  37. @TERESA –

    “That’s a pattern I’ve been seeing all my life. In the lower-priced range, you get overcomplicated, flashy goods that are indifferently manufactured from cheap materials. You can find some solid, well-made products in the luxury goods bracket, but they’re marked up to unreasonably high prices.”

    This is one of the things I’ve noticed, too. Modern industrial methods make adornment trivial, and one often has to pay a premium for simplicity. Clothing has to be the ultimate example. A shirt which both fits and lacks a prominent, ugly logo is as rare as hen’s teeth.

    In some areas, this calculus breaks down- my cheap Chinese DVD player has many more USEFUL features (multi-region, multi-standard, VGA and digi-optical outs…) than most “luxury”-brand players.

    But conversely, I would argue that many of the “low priced” items you cite are overbuilt monstrosities, despite their simplicity or sturdy design, and that many an object’s utility stems from its obsolescence.

    $10 Moleskine notebooks are a glaring example- for $1.25 I can replace it with a simple spiral-bound or legal pad. The sewn binding will not protect my notebook from it’s real enemy- being filled with trivial nonsense no one will ever want to look at again.

    Nor will an $85 (or $50!) Stetson protect itself from falling off my head and blowing into Tiger Leaping Gorge, to be swept irrevocably away. Any conditions where I would want to wear a Stetson will immediately expose that Stetson to conditions I wouldn’t want to subject a “nice” hat to. I would rather wear the hat they gave me at the Sheraton- I certainly won’t weep over it’s loss.

    Nor, in fact, will a Maytag washing machine ever use less energy or water to do its job, which it performs otherwise admirably.

    There are many, many tools and everyday items in our lives where the good enough thing is actually the superior one. Not in every case, of course, but in fact in far fewer cases than we suspect to be true.

    Which brings us back to “luxury goods”. They are only very occasionally better built than the average. But they very effectively communicate our social position. In China, they’re still working out the bugs on just how to best exploit this tendency, because material wealth is still relatively new, but there’s no fetish for the “genuine”, as there is in the US, and it’s real work to convince people who grew up without pervasive capitalism that what you buy = who you are. There are a lot of bugs still to work out.

    (What I find ironic is that BB is filled, in fact, with links and commentary on luxury items, albeit items which put you firmly into the San Fran Graphic Designer / Williamsburg Knitter class. See the recent Bird Lamp.)

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