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?


(Thanks, Richard!)