Luxury Brands Look to China

With the future of our global economy still uncertain, more and more executives are looking to China, specifically to the Chinese consumer — who just might be able to lift the global economy out of recession.

New research from McKinsey & Co. indicates that, by 2015, China will be home to the world’s fourth-largest population of wealthy households, an estimated 4.4 million. McKinsey also reports that presently, about 80% of China’s wealthy are between the ages of 18 and 45 (versus 30% in the US). Jing Ulrich, the chairman of China equities at Morgan Stanley, was recently quoted in Forbes as saying of China, “With the global recovery unlikely to be smooth, domestic demand is likely to remain the primary engine of growth in the remainder of 2009.” In a Wall Street Journal op-ed last year, Zachary Karabell argued that “the rise of the Chinese consumer is the only thing standing between them [global companies] and a decline in their business.”

And Chinese consumers are ready to spend. Ruder Finn Asia recently partnered with Albatross Global Solutions in developing the 2009 China Luxury Forecast, which found that, in Greater China as a whole, more than half (50.3%) of respondents claim they will not let the global economic downturn affect their purchase of luxury goods. Additionally, the Forecast found the Chinese buyer to be remarkably loyal, with nearly nine out of ten (89.3%) respondents saying they would stick to their preferred luxury brand despite the crisis.

According to the research, Louis Vuitton and Cartier were two of the most preferred brands among Chinese luxury consumers. These brands have had a presence in China since they first tapped into the market in the early 1990s, but new entrants are gaining ground as well. In July, Audi AG witnessed a jump of 42.5% in monthly sales from the previous year in China and Hong Kong. In 2008, China was the largest market for Hennessy cognac.

This performance in the luxury segment outpaces a still-impressive retail sales growth. As reported last month in The Economist, China’s consumer market has increased by 8% a year in the past decade while, in the past 12 months, retail sales have grown 17%, although this figure could be inflated by government purchases.

And Chinese consumers engage with brands online. Almost 90% of the respondents in the China Luxury Forecast say they use the Internet to gain a better understanding of luxury brands and products. (Over 310 million people in China have the Internet, and the world’s top blogger in terms of visits is Chinese &#8212 Xu Jinglei.) In this way, China is very similar to the US in that companies can support their marketing efforts with effective online communication.

By embracing the loyal Chinese buyer, who is increasingly becoming wealthy, consumer brands hope to drive growth and maybe — if we’re lucky — pave the road to economic recovery.