As consumers' fashion horizons expand, they show off their individuality rather than logos.
(The article was originally published on China Daily Asia Weekly)
By Franklin Yao and James Button
During a recent consumer focus group in Wuhan for a premium menswear brand, one of our respondents arrived wearing head to toe Louis Vuitton, with “LV” logos prominently on display.
This would never happen in Shanghai.
Over the past few years, one of the key consumer trends we have observed in Shanghai has been a shifting focus from “brand” to “style” among the city’s fashion elite. Whether we are interviewing men or women, college students or successful white-collar workers, the overall theme has been the same: Consumers want to express their personalities through the way they dress. Rather than showing off logos, they show off their taste, individuality and their ability to “dress with attitude”.
In Wuhan this is still a novel concept: The majority of premium consumers treat “brand” as a proxy for style, and turn to the logos they know for conﬁdence and social validation. This is due to a number of factors: Fewer options, less experience with brands, and lower exposure to fashion information. Tellingly, even the store managers and salespeople at premium international retailers in Wuhan tend to be noticeably younger and less knowledgeable than in Shanghai and Beijing.
That said, when customers are dressed head to toe in Louis Vuitton, they have money to spend. Although fewer in number, these high-end Tier 2 consumers spend nearly as readily as their counterparts in Tier 1 cities. They aren’t necessarily spending it at home, either: More than half of the Wuhan consumers we interviewed had made their last luxury purchase abroad, albeit in Hong Kong rather than New York.
As Tier 2 city consumers become richer, better traveled, and expand their fashion horizons, we expect the perception of brand vs style among premium consumers to gradually evolve towards what we are currently seeing in Shanghai. This is a reﬂection of what we call “the experience curve”: Paths along which consumer preferences change as their spending power increases and they become increasingly sophisticated and exposed to new options.
Every brand has a unique experience curve: Take Marc by Marc Jacobs handbags as an example. When a Chinese woman purchases her ﬁrst luxury handbag, she will not buy Marc by Marc Jacobs. She will select Coach, or Louis Vuitton, or Gucci, all of which have high brand recognition and logos that provide instant credibility. However, as she becomes more experienced with luxury handbags, she has less to prove through a logo and an increasing desire to stand out from the crowd of Louis Vuitton-toting white collars. Only at this point, conﬁdent to use her handbag to make a statement of her personal taste, will she buy Marc by Marc Jacobs. The style driven Chinese consumer who buys Marc by Marc Jacobs handbags is made, not born.
Experience curves differ across customer segments. Picture two women in their early 20s living in Shanghai, with the same background, degree, job and salary. The only difference is that one is from Shanghai and the other is from another city.
The woman from Shanghai is almost certain to be further along the consumer experience curve. Living with her parents and ﬁnancially supported by her family (and their ownership of a Shanghai apartment), she is free to spend the majority of her income on apparel, accessories and cosmetics. Provided with this ﬁnancial security and growing up surrounded by foreign brands, she has had several years to develop her own interests and style. Her non-local counterpart, paying her own way in the city and being exposed to a wide assortment of brands for the ﬁrst time, takes longer to achieve the same levels of spending power and conﬁdence in style. She has less time and money to cultivate a diverse set of hobbies and interests.
When we recently evaluated the market for niche, alternative youth brand, not only did we ﬁnd that the majority of potential customers live in Shanghai and Beijing, but they are originally from these cities as well. Those potential customers who moved to Shanghai or Beijing for college or work are almost always too late to play the game: By the time they develop the prerequisite spending power and sophistication, they have begun to age out of the brand’s target demographic.
The most successful brands in China know their customers and are able to anticipate their trajectories as they become more sophisticated. When E-Land Group introduced the Teenie Weenie brand to China in 2004, its “Ralph Lauren meets teddy bears” aesthetic was exactly what fashionable young women in Shanghai aspired to wear. Over the past nine years, the brand’s expansion and growth has been fueled by the evolving tastes and spending power of customers in Tier 2 and 3 cities. It has become a mainstay of premium shopping centers across the country and is doing better than ever.
In Shanghai, however, Teenie Weenie is losing its luster: Fashionable young women would rather shop at Zara, I.T or Novo, orother brands that are bringing the latest Western, Korean and Japanese styles to the market. To accommodate these shifting tastes, E-Land has begun working with a brand that is relevant to what Shanghai’s fashionable young women want today, and
has partnered with Kate Spade to open shops in Shanghai’s most fashionable malls.
Kate Spade stores have opened in many of the more developed Tier 2 cities as well, including Wuhan. Already, a critical mass of customers has emerged in these Tier 2 cities that have the spending power and style sophistication to support a not-yet mainstream and accessible luxury brand with a logo only a few will recognize. This group of sophisticated customers will continue to grow and evolve. The great challenge for Kate Spade and other brands in the coming years will be to understand and plot the trajectories of Tier 2 customers to drive their distribution plans, assortment and approach to marketing — while at the same time remaining relevant to their existing customer base today.
Will a respondent walk into one of our focus groups in Wuhan in the near future, toting a Kate Spade handbag? It’s only a matter of time. But rather than a walking billboard, we expect her to personify Elle’s style pages: Dress by DvF, shoes by Tory Burch, topped off by a perfectly matched Kate Spade bag.
Franklin Yao is managing partner at SmithStreet, a Shanghai-based strategy consultancy; James Button is a senior manager, focused on consumer goods and retail.
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