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The demands for luxury brand products are always high in China in comparison to most western countries. It is not uncommon for Chinese white-collars to save up to buy high-end, luxury goods. In recent years, a market for more affordable luxury goods (平价奢侈品) emerges in China and is gaining popularity among the Chinese consumers. A number of American, European brands launched and flourished in China, such as COACH (蔻驰), Michael Kors (迈克科尔斯), Rebecca Minkoff (瑞贝卡明可弗), Longchamp (珑骧), etc. Many white-collar, middle-class Chinese consumers are abandoning high-end, pricy luxuries and switching to more affordable and quality promising brands.

Affordable Luxury Gaining Popularity Among Middle Class in China

According to Daxue Consulting recent marketing report, the middle and upper middle class account for the majority of the urban households. Many middle and upper middle class may save their salary to purchase luxury items, however, they will not purchase a large number of luxury items. Therefore, better design, high quality, and affordable luxury brands are in their favor.

“In the next 10-20 years, China will enter the educated luxury consumption era, and affordable luxury brands will become the main force of the luxury market. The current China luxury market is similar to the Japan luxury market 10 years ago, which is personalized, and rational now. China will follow that principle.”

– Patrick Lee, Chairman, and CEO of Michael Kors Greater China

Understanding the Reason Behind the Prosperousness of Affordable Luxury Market in China

The location of shops and shop décor of affordable luxury brands follow the high-end luxury brands’ style. Majority of the more affordable luxury brands’ stores are located near high-end luxury brands. In Shanghai IAPM mall (环贸iamp商场), brands like Michael Kors, Coach and Longchamp are located on the ground floor together with high-end luxury brands such as Saint Laurent Paris (圣罗兰), Givenchy (纪梵希), Bvlgari (宝格丽), etc. Affordable luxury’s shop décor follows a similar pattern to the more high-end luxury. Michael Kors’s store décor is similar to Saint Laurent Paris’s store décor, both having spacious, bright store area with simple décor. Customers have the same shop experiences in affordable luxury stores as in high-end luxury stores but paying a much lower cost on the product.

The prices for affordable luxury brands are generally much cheaper in comparison to more high-end luxury brands. A 28cm Prada bag costs￥15600 Yuan on Jingdong and a similar looking 28cm Michael Kors bag is only￥1899 Yuan. Many customers preferring the style of a high-end bag have the alternative choice of a similar design but with a much cheaper price. Even though prices of these affordable luxury brands are lower than other luxury brands, however, it is still reasonably higher than standard brands. A lot of consumers might prefer standard brands when it comes to items that goes out of season quickly or that requires quite a lot of, such as appeals.

Many affordable luxury brands make use of key opinion leaders (KOL) in China. Many of these brands increase their customer base and brand exposure in the entertainment industry. Street photographs of famous Chinese celebrity Yuanyuan Gao (高圆圆) featuring Michael Kors’ and Longchamp’s bags along with other more high-end brands. Many Chinese consumers can follow the look without spending a large sum of money. A lot of Chinese consumers also like to follow the trend in western countries. Michael Kors’ 2016 Fall collection features Olivia Palermo, a famous American socialite, making use of KOL effect on Chinese consumers.

Daxue’s expertise

Daxue has worked with many international brands in the luxury industry, our consultants have conducted market research for a famous french affordable luxury brand that is already establish within the Chinese market, several methodologies has been conducted in order to understand deeply the Chinese middle-class buying power. Daxue has performed 8 Focus group in 1st tier and second tier cities in China.

Possible Threats Affordable Luxuries Might Encounter

A major threat that affordable luxuries are facing currently is the lowering of the price of high-end luxury brands along with these brand bringing out more affordable product series. Due to the decrease in demand in the Asian market, Prada’s (HK: 01913) stock price dropped to a historical minimum in January 2016. The $3000 USD bag line was taken down from the display due to no sales at all. At the same time, it is dramatically lowering cost and introducing more low-cost lines at the same time. Prada (普拉达) is not in the game along, many other high-end luxury brands face a similar change. On another note, as increase in disposable income among Chinese consumers along with the lowering of the prices on high-end luxuries, many may switch back to purchasing high-end luxuries, especially for designer bags, watches, etc. as these often symbolizes dignity and their social standing, Chinese people are often much concerned with their “face” (面子).

Prada’s Annual Stock Trend, Adopted from Bloomberg (http://www.bloomberg.com/quote/1913:HK)

By understanding Chinese consumers’ purchasing behaviors, affordable luxury brands have created a successful market in China. By taking account of possible threats, the market is expected to further flourish and mature in China.

To know more about the affordable luxury in China, contact us at dx@daxueconsulting.com