4.2 Extended Reading---China success takes Burberry shares higher

IN THIS BLOG POST, I JUST DIRECT QUOTES AN ARTICLE WHICH FURTHER HELP YOU TO UNDERSTAND BURBERRY SUCCESS IN CHINA.

China success takes Burberry shares higher

Posted on April 20, 2011 by Ju Li-chyun

http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20110420000058&cid=1102

Fueled by sales in China, Shares in Burberry reached an all-time high on Tuesday (Apr. 19), reporting a 30% rise in revenue to 860 million pounds in the second-half of the fiscal year.

Burberry, a 155-year-old British luxury fashion house best known for its handbags and check designs, is also looking forward to full-year profits of between 279 million to 300 million pounds at the top end of the market's expectations, according to Chief Financial Officer Stacey Cartwright.

Burberry has extended its brand ownership over the past few years. It added 50 Chinese franchise stores to its retail business in July 2010 at a cost of 70 million pounds and now owns and controls its entire store portfolio in China, where same-store sales grew around 30% in the second half of the year.

In addition, it plans further expansion in 2011 by increasing selling space by up to 13%. Most of this will be in China, Latin America and the Middle East, according to Dow Jones news.

Luxury retailers have enjoyed a strong rebound in their fortunes after the global financial crisis in 2009, driven by growth from emerging markets, particularly China and its luxury consumers who purchase goods overseas.

The earthquake, tsunami and ensuing nuclear crisis in Japan last month struck a huge blow to luxury industries as the country represents around 23% of the world market for hard and soft luxury goods compared with the United States and Europe at 25% each and China at 13%, according to MF Global, a broker-dealer.

However, Burberry's profits from Japan were little affected because they mainly come from the company's licensing business instead of in-door operations.

In fiscal 2010, Burberry reported licensing sales of 97.5 million pounds which generated 82.2 million pounds of operating profit, around two-thirds of which came from Japan.

Japan accounts for around 18% to 20% of Burberry's pre-tax and pre-interest earnings, said Royal Bank of Scotland analyst John Guy to the press.

4.1 Case study---Burberry

Case study---Burberry

According to Wikipedia description that “Burberry Group PLC (LSE: BRBY) is a British luxury fashion house, manufacturing clothing, fragrance, and fashion accessories. Its distinctive tartan pattern has become one of its most widely copied trademarks. Burberry is most famous for its iconic trench coat, which was invented by founder Thomas Burberry. The company has branded stores and franchises around the world, and also sells through concessions in third-party stores”.

There was old news, “China success takes Burberry shares higher”, April 20^th, 2011 was posted on Want China Times, the writer said “Fueled by sales in China, Shares in Burberry reached an all-time high on Tuesday (Apr. 19), reporting a 30% rise in revenue to 860 million pounds in the second-half of the fiscal year”. Showing that the current rise of Burberry is not a coincidence but rather something achieved through strategy will surely be of interest to firms struggling with lack of brand power or those looking to boost brand power.

When Burberry enters into the Chinese market, they pay special attention to the cultivation of brand awareness. Purchase Burberry is not only the product, but also a work of art which has become a symbol of a quality of life. From Jerry Clode, associate director of brand development and marketing explain that “it is a very different Britain that Burberry presents to Chinese audiences. Chinese consumers can’t distinguish Britain from the rest of Europe, but they do recognize London through Western popular culture, such as film stars” (Griffith 2012).

Moreover, Burberry on the use of social media strategy is also very impressive, it is worth learning from other brands, which has established a good relationship with the customer (Messieh 2012). The new Burberry.com website began at the end of 2011, with the site live in six languages and transactions across 45 countries by the year end. The site, known as Burberry World, is the ultimate expression of the Burberry brand, allowing customers globally which connect with all aspects in Burberry. It is also providing the ultimate online luxury shopping experience through a personalized customer service offer that includes the ability to Click to Chat and Click to Call in real time and in 14 languages. The site provides a powerful locus for ongoing efforts to build the Burberry community around the world (On Burberry 2012).

It is fact that Burberry have their own social media site that allows people to post pictures of themselves in Burberry trenches and comment and like pictures of others. According to Colleen Cheng, senior vice president and national business director said that “Many of China’s shoppers rely on blogs and other forms of social media for information about brands.”(Burberry stores in China get high-tech 2011)

“Burberry posted a warm note about a 3D fashion show in Beijing via Sina Weibo, which generated 854 retweets, 104 comments and achieved a total exposure of over 3 million netizens. From the below tweet diffusion model, Burberry can identify effluences performance and evaluate their effectiveness in the spread of brand’s tweet”. Via these a serious campaign, Burberry is effectively locking the main consumers in China which is young generation (The Voice of Luxury: Social Media and Luxury Brands in China 2011). Therefore, it is the key point to affect brand owner which is engaging in these channels through influencer engagement and conversation management.

Furthermore, Burberry has not ignored the management and control of product quality. Outerwear is still the core of the Burberry apparel business, from innovation of modern styles to a timeless of the eternal landmark works was born. A key growth driver, outerwear accounted for over half of mainline retail apparel sales in the year. Due to Burberry pay more attention to product quality and direction innovation, and own e-business website becoming more perfect, which establish effective barriers for counterfeit products, it is difficult to find substandard product in authority routine quality examinations for luxury brands.

Reference: 

Burberry stores in China get high-tech. 2011. http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1302&MainCatID=13&id=20110415000005 (accessed March 20, 2012).

Griffith, G. 2012. How Burberry conquered China. http://www.londonlovesbusiness.com/business-news/bric-countries/how-burberry-conquered-china/1515.article (accessed March 20, 2012).

Messieh, N. 2012. How luxury brands are using social media. http://thenextweb.com/socialmedia/2012/03/20/luxury-brands-using-social/ (accessed March 20, 2012).

On Burberry. 2012. http://brandburberry.wordpress.com/assignment-1-brand-identity/ (accessed March 20, 2012).

The Voice of Luxury: Social Media and Luxury Brands in China. 2011. http://www.fccihk.com/files/dpt_image/5_committees/Luxury%20Committee/The_Voice_of_Luxury_Social_Media_and_Luxury_Brands_in_China.pdf  (accessed March 20, 2012).

3.2 Extended Reading---Retailing Fake Fashion and Luxury in China

IN THIS BLOG POST, I JUST DIRECT QUOTES AN ARTICLE EXPLAIN HOW COUNTERFEIT PRODUCTS AFFECT CHINA MARKET.

 Retailing Fake Fashion and Luxury in China

Posted on August 31, 2011 by Timothy Coghlan 

http://maosuit.com/insights/retailing-fake-fashion-and-luxury-in-china/

Recently I was asked: “what is the busiest mall in Beijing?”. While there is solid data that reveals which malls have the highest sales, calculating foot traffic into malls is very difficult. Therefore the answer was left to my own intuition and experience. One of the malls I came up with as possibly the busiest in Beijing was the Silk Market. Although more of a market than a mall, but for all intensive purposes it acts the same way – a building full of vendors selling home wares, food, fashion and accessories etc. The Silk Market is a massive tourist attraction with literally busloads of tourists pouring into it all day, everyday. The single reason the silk market is so popular is that it is packed wall to ceiling with counterfeit products sold at very cheap prices.

Yesterday on a visit to the Silk Market I was amused to see numerous propaganda signs and slogans promulgating that “intellectual property laws should be protected” and “only buy authentic products”. Not only was the English translation of these signs amusing, but the fact that there was absolutely no attempt to enforce or even acknowledge these ‘rules’ with vendors blatantly selling counterfeit products right beside the signs.

Counterfeit products are one of the biggest issues in the China fashion and luxury industry, causing companies to ‘lose’ millions in sales every year. The term ‘lose money’ is open to interpretation. The fact that someone buys a fake handbag doesn’t necessarily mean that the original maker of the bag would have made a sale if the fake wasn’t available.  With fashion exploding in the media in China everywhere you go one is bombarding with images, editorials and advertisements about fashion. Chinese consumers are becoming enlightened and hooked on fashion and famous brands yet for many, the cost of authentic products is still too high, so they turn to fakes.

Fashion companies complain about counterfeit products, as they rightly should. It is an infringement on their IP. Yet they also understand that fake goods with their logo and designs scattered across the country will increases their brand coverage and recognition. Often a brand will show up in the fake markets before that brand even has a retail store set up in China. Although distressing for brands, this can actually be taken as a positive sign that there is demand and growing recognition of the brand’s products and logos. Another positive that can be taken out of all this is that aspirational consumers will ‘trade up’ and buy the original products once they can afford too.

In China the fake goods industry is one of the most evident forms of organized crime. It still astounds me how the vendors of fake products will have up to date information and full product catalogs of the latest season’s products from the various luxury brands. It seems the only way they could be so current with their offerings is if they have insiders at all the major fashion brands who provide information on new product designs, materials and construction. Imagine that! Spies inside every luxury brand!

In China, getting the latest seasons offerings is as simple as walking up to a stall and telling them you want to a Gucci/Loewe/Mulberry etc. bag from the latest fall/winter collections. They will pull out a brochure, make a phone call and within minutes the bag you requested is in your hands. Last week I was offered a Gucci Bag from the latest season that wasn’t even available in stores yet. Even if your not after counterfeits, its almost impossible to find a non-branded leather product in these markets. I was hoping to buy a simple and economical non-branded leather satchel, yet absolutely everything had a famous brand logo on it. In the end I bought a well-priced and designed item and simple removed the fake brand logo patch when I returned home.

Who buys fakes in China? The answer I dare to say is everyone! From the taxi driver who has fake Fendi seat covers to the university student with the Chanel clutch, people across society purchase counterfeit products. I also know of a few extremely rich individuals who mix and match fake luxury goods with real ones. The fact that they can afford and own a lot of genuine products also allows them to use fake ones without being suspected of doing so. While foreign governments bemoan the proliferation of fake products in China it is foreign tourists to China that drive a large percent of the counterfeit trade.

So although China’s lax IP laws are a very worrying to the multitude of fashion and luxury brands operating in China, it is also prudent to consider how the whole fake goods industry works. It is not only devious Chinese trying to make quick and easy income from stealing IP, but a much larger, international problem.

3.1 Win in China

Win in China

As mention above, the luxury brand owner has to face some new features and changes in China market, there are some relative theories could be helpful for marketers to keep growing in China market.

First, according to Degen said that “the reason Chinese affluent men and women buy Rolex watches and Louis Vuitton bags are not simply because of the Swiss craftsmanship or French design. Their motivation to buy these luxury brands has its roots in the more complex Confucian values and demand for social recognition, and the growing influence of Western values. For this reason it is important to understand the roots and changes of the culture and values that determine the buying behavior of the modern Chine affluent consumer”. These are opposing point of customer, for someone, high brand awareness is the important factor for a purchase which can match their success, and achievement social situation; for others, the product quality is the key decision factor (Keller and Lehmann 2006, 744). Successful luxury brand marketing requires the customer to perceive sufficient value in the luxury good to compensate for the high price charged. Therefore, luxury brands want to succeed in China must obtain high brand awareness understanding. 

Moreover, no one can deny that the types of value sought and the processes of value co-creation is important. The brand owner can not only create and deliver value to the passive customer, but rather through interaction and dialogue embeds value in the co-creation process between the luxury goods and its active customer. According to Tynan et al (2010, 1161) claim that “Brand owners do not just offer value rather they co-create value with inputs and influence from customers and other parties to achieve value sought in terms of exclusivity, recognition, access to privileged information and prestige”.So based on high brand awareness understanding, brand owner creates the most advantage by bringing itself, the right partners and customers together in the co-creation of value. The customer to be equal ‘partners’ and members of the teams that design and produce the products that they want.

Second, in a blue ocean strategy, companies should hence try to differentiate its offerings to specific market wants, and try to become the sole provider of differentiated products or services. With strong market demand, luxury brand's stone expansion cannot ignore the third tier cities which have already replaced the first and second tier cities to become the fastest-growing area in the retail market (Luxury sales aid world economy 2012). In other words, luxury brands can not only aim for the big cities like Beijing and Shanghai, but are also accelerating their efforts to expand into the second and third tier cities. Second and third tier cities like luxury virgin territory for luxury brands which is a blue ocean in China, with great potential of development. Ensure sufficient training, tracking, incentive mechanism to deliver professional service in second and third tier cities which maintain consistent service levels across shops in all city tiers at whole China. This is very important the development strategy for luxury brands.

Third, as mention above the customers of the luxury goods online stores are mainly the consumers the age between 20 to 40 who have a well-paying job. Compared to the wealthy, they pay more attention to the price-quality ratio which can suit their lifestyle. During this period, e-business for luxury brands face a lot of challenges. It is essential to examine that quality awareness of luxury goods is the solid basis of the luxury market. Consumers’concern about the price-quality ratio is the key point regarding the development of the luxury market (Wiedmann et al 2007, 5). Online markets are full of high quality counterfeited luxury products and copycat products, which is the chief obstacle facing the luxury brands' e-business as they try to improve it (Hays 2008). Therefore, a luxury brand must establish their own unique sales site, distinguished fake and counterfeit effectively. Based on their customers' trust, which make consumer awareness that even online shopping they also can enjoy the same level of service and also can purchase the satisfied product.

Then, counterfeiting product is a luxury brand in current market cannot ignore the topic. Are there any marketing strategies available to companies that can help them avoid the attentions of counterfeiters and potential legal troubles or costly litigation? Unfortunately, there is no perfect way to control the threat of counterfeiting completely, but there are some practical measures could reduce the risk. The first and most effective preventive method is to invest in building and maintain a strong brand, to the point that customer loyalty is so strong that customers will not be prepared to switch to cheaper, counterfeit alternatives (Lambkin and Tyddall 2009, 44). Therefore, as mention above, luxury brands must co-create value which convey effective information to consumers which make them recognize their culture equity and establish a strong brand loyalty. The next preventive measure is education. Specifically, in China most marketing and brand managers have only the vaguest concept about the patent or trademark status of their brands. According to Lambkin and Tyddall (2009, 44) said that “Often the first time they are forced to confront such issues is when they are challenged by counterfeiters and discover to their chagrin that their brand names, designs, processes, etc. have no legal protection because they never thought to investigate what was possible”. A modest amount of education explains a variety of adverse situation possibility, which make them initiative to seek effective measures and realize the importance of brand protection.

To sum up, for luxury brands, the China market is unbelievable large but also extremely complex and the competition is inevitable, more and more luxury brands will entry into China, luxury brands must find a suitable path for their development.



Reference: 

Degen, R. 2010. Opportunity for luxury brands in China. http://www.europeanfinancialreview.com/?p=1250 (accessed March 20, 2012).

Hays, J. 2008. Luxury goods and brands in China. http://factsanddetails.com/china.php?itemid=1889&catid=9&subcatid=62 (accessed March 20, 2012).

Keller, K., and D.Lehmann. 2006. Brands and Branding: Research Findings and Future Priorities. Marketing Science 25(6): 740-759.

Lambkin, M., and Y. Tyddall. 2009. Brand counterfeiting: A marketing problem that won’t go away. Irish Marketing Review 20(1): 35-46.

Luxury sales aid world economy. 2012. China Daily. http://www.china.org.cn/business/2012-01/17/content_24425150.htm (accessed March 20, 2012).

Tynan, C., S. McKechnie, and C. Chhuon. 2010. Co-creating value for luxury brands. Journal of Business Research 63(11): 1156-1163.

Wiedmann, K., N. Hennigs, and A. Siebels. 2007. Measuring Consumers’ Luxury Value Perception: A Cross-Cultural. Framework Academy of Marketing Science Review 2007 (7): 1-23.

  

  

2.2 Extended Reading---The World’s 10 Most Powerful Luxury Brands

IN THIS BLOG POST, I JUST DIRECT QUOTES AN ARTICLE. 

The World’s 10 Most Powerful Luxury Brands

Posted on April 28, 2010 by Lauren Sherman

http://fashionista.com/2010/04/the-worlds-most-powerful-luxury-brands/

Last year was rough for luxury brands. While mass fashion labels and retailers began to feel the effects of the recession as early as 2007, luxury retailers were isolated for a bit longer. Those circumstances made 2009 a challenge.

That’s why very few gained value on Millward Brown Optimor‘s annual list of the World’s Most Powerful Brands, released this morning. (A little background: Millward Brown is part of WPP, a massive company that’s made up of a bunch of advertising firms, including Grey and Ogilvy & Mather. Optimor does brand analysis for many of these firms.)

Fashionista chatted with Millward Brown Optimor director Pierre Dupreelle, who worked on the list. Dupreelle explained that while the luxury category was down overall by 3%, it’s still an exciting place to be. Brands like Burberry and Prada–which didn’t make the top ten this year–made strides in digital marketing. What’s more, brands like Louis Vuitton and Hermes actually did better than last year.

Why is that? Well, brands that focused on heritage and history instead of high fashion did better. Louis Vuitton’s travel campaign, Gucci’s appraisal partnership with Christie’s and Hermès’ sponsorship of a horse competition in Paris served them well. “They’ve been very quick to respond and recenter their brand positioning.”

Here are the top ten most powerful luxury brands in the world, according to Millward Brown:

1. Louis Vuitton

Last year’s ranking: 1

Overall Brand Value: up 2% to $19.78 billion

Louis Vuitton’s focus on its heritage as a travel brand helped it to retain its core customer–the jet setter.

2. Hermès

Last year’s ranking: 2

Overall Brand Value: up 8% to $8.46 billion

The majority of Hermès is still family-owned (71% is family; 29% is public shares), which means it has the luxury of taking risks when it wants to and staying the course when it doesn’t. For instance, the company–which also owns shoemaker John Lobb–chose at the end of 2009 to buy Shang Xia, a new brand based in China tailored to the Chinese consumer. What’s more, not only does the company charge far more for its handmade leather bags than its competitors, it also keeps tight control on who can sell those bags. (That’s why you shouldn’t find Hermès leather goods anywhere but its own retail boutiques.) This year, the firm also chose to focus on its heritage, sponsoring a horse competition in Paris.

3. Gucci

Last year’s ranking: 3

Overall Brand Value: up 2% to $7.59 billion

Gucci’s partnership with Christie’s–in which the firm appraises vintage Gucci luggage and handbags–gave it a one-up on its competitors. Now, the PPR-owned luxury goods maker has a tighter control its secondary market.

4. Chanel

Last year’s ranking: 4

Overall Brand Value: down 11% to $5.55 billion

Chanel’s dip in brand value is a sign of the times, according to Millward Brown Optimor director Pierre Dupreelle. During the recession, consumers turned to more practical products. While Chanel still attracted many with its classic quilted bags, cosmetics and fragrances, those determined to buy just a few investment pieces stayed away from the ready-to-wear. However, Dupreelle feels that consumers are looking for some newness in 2010, which Karl Lagerfeld always brings to the runway. He predicts the fashion house will see an uptick over the next couple of years.

5. Hennessy

Last year’s ranking: 6

Overall Brand Value: down 1% to $5.37 billion

This LVMH-owned cognac brand is ultra popular in China.

6. Rolex

Last year’s ranking: 5

Overall Brand Value: down 14% to $4.74 billion

Rolex, along with many other high-end watch and jewelry makers, suffered greatly throughout the recession.

7. Moët & Chandon

Last year’s ranking: 8

Overall Brand Value: down 12% to $4.28 billion

While it’s not as strong as it once was, Moët is still the top champagne brand.

8. Cartier

Last year’s ranking: 7

Overall Brand Value: down 19% to $3.96 billion

Cartier’s dip in sales affected its ranking. The Richemont-owned brand reported lower sales through its own boutiques and a more severe decline in sales to third party retailers.

9. Fendi

Last year’s ranking: 9

Overall Brand Value: down 8% to $3.20 billion

Fendi, which is pretty much only known for its string of hit “It” bags here in the US, has an incredible presence in Asia. LVMH is aiming to position the brand, whose ready-to-wear line is designed by Karl Lagerfeld, as its answer to Gucci.

10. Tiffany & Co.

Last year’s ranking: unranked

Overall Brand Value: up 6% to $2.38 billion

While Tiffany didn’t even rank on last year’s list, the brand was heralded in 2009 for its refusal to discount, as well as its plans for expansion in both Asia and Western Europe.

2.1 Justifies issue as important to marketers

Justifies issue as important to marketers

Due to the rapid increase of the rich population, as well as the high-speed development of the economy, luxury markets in China are also expanding greatly. However, while we see plenty of beautiful and exiting data, no one cannot ignore some new situations or changes in China market. How to face these changes and problems become the important point for luxury brands gain further development in China.

The big character for the China luxury market is the continued trend of increased domestic shopping ability. So this growing popularity of demands should help to increase the market size for luxury products which can strengthen brand awareness and aspiration(Debnam and Svinos 2007). Although plain living and hard work have been revered virtues of the most part of Chinese people or authority, there has been a growth in demand for foreign-branded or imported goods (Growing economy lifts demand for int'l brands 2004). That’s the reason why consumer can continue to see growth of store openings by all brands in China. However, lower price and better product selection still remained top two reasons for Chinese customer spend for luxury brands. So it is very important for luxury brands understanding Chinese consumers more clearly and more deeply (Lu 2008, 4). Luxury brands want to gain sustained growth must to review their situation in China.

The next trend is Chinese consumers expect comprehensive and differentiated service experience (China luxury market study 2010). It is fact that with economic boom China consumers are becoming more sophisticated and demand better service experience both within and outside of China. Brands begin to build large flagship stores for gain better consumer experiences(Asia Luxury: Chinese luxury brand strategy for breaking dislocation 2010). Moreover, some brands have already localized after sales services which hope to further improve their after sales system. In addition, many retailers “buying back” franchise operations to regain control over the brand(China luxury market study 2010). If we ignore this important trend, it is easy to make luxury brand in China losing its competitive advantage, so to analysis the China market, we can ensure that luxury brand in China continue to grow.

Third, luxury in e-business and social media tools in China is becoming more and more popular, but still in the primary or mediate stage and is still too risky which has different business model at the same time (Luxury e-commerce finding its way in China 2012). Surveys have shown that the majority of Chinese consumers of luxury products are now aged between 20 and 40, while the main population of internet users ages between 10 to 49. There is considerable overlap of the two groups. This is the main reason for luxury e-business rapid development in China (Debnam and Svinos 2007). Those main groups born after 1978, and after the ‘one child’ policy was introduced in 1979 by the Chinese government. Their parents doted on their single child, assisted enthusiastically by the grandparents, so they prefer buying the most expensive items they can afford to suit their lifestyle. Therefore, how to deal with the relationship with these groups has also become an important problem for luxury brands keep growing in China.

Fourth, according to Debnam and Svinos (2007) explain that “while the Chinese luxury goods market is growing rapidly, an equally fast-growing segment of local industry has been counterfeiting”. It is a fact that counterfeit goods are illegal, low-priced and often lower quality replicas of products that typically possess high brand value (Lai and Zaichkowsky 1999, 182). Due to that counterfeit products grab the parts of the market share, some product even beyond the genuine brand sales, consequently, make brand owner sales rate and benefit becoming decline, even some factory collapse. Counterfeit products damaged the reputation of the luxury brand product, let the consumer resembles the authentic (Hieke 2010, 160). It is , therefore , many consumers had taken after the vendor comes down to the responsibility of the head and seriously undermined the credibility of the brand manufacturers. Moreover, many retailers “buying back” franchise operations to regain control over the brand, it is widely acknowledged that fighting for the counterfeit product will be required to pay a plenty of fee, which will make the brand owner in the economic and spiritual aspect is overwhelmed (China luxury market study 2010). In other words, How to face the counterfeit products and how to improve the product quality are both sharp issues for luxury brands which cannot avoid it in China.

Above four questions is current luxury brand in China wants to maintain sustained growth and keep market share must have to think about the problems, as well as the confusing place. These four problems are also the barrier for luxury brands keep growing market share in China. Therefore Luxury brands need to be careful and make sound strategic decisions regarding the future development.

Reference:

Asia Luxury: Chinese luxury brand strategy for breaking dislocation. 2010. http://eng.hi138.com/?i263279_Asia_Luxury:_Chinese_luxury_brand_strategy_for_breaking_dislocation (accessed March 20, 2012).

China luxury market study. 2010. http://www.bain.com/publications/articles/china-luxury-market-study-2010.aspx (accessed March 20, 2012).

Debnam, N., and G. Svinos. 2007. Luxury brands in China. http://www.kpmg.com.cn/en/virtual_library/Consumer_markets/CM_Luxury_brand.pdf (accessed March 20, 2012).

Growing economy lifts demand for int'l brands. 2004. http://english.peopledaily.com.cn/200407/26/eng20040726_150791.html (accessed March 20, 2012).

Hieke, S. 2010. Effects of counterfeits on the image of luxury brands: An empirical study from the customer perspective. Journal of Brand Management 18(2): 159-173.

Lai, K., and J. Zaichkowsky. 1999. Brand imitation: Do the Chinese Have Different Views?. Asia Pacific Journal of Management 16 (2): 179-192.

Lu, P. 2008. Elite China: Luxury Consumer Behaviour in China.Singapore: John Wiley & Sons.

Luxury e-commerce finding its way in China. 2012. http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20120212000042&cid=1202 (accessed March 20, 2012).

1.2 Extended Reading---International Luxury Brands May Face Product Quality Enforcement In China

IN THIS BLOG POST, I JUST DIRECT QUOTES AN ARTICLE WHICH FURTHER HELP YOU TO UNDERSTAND CURRENT SITUATION BRAND PRODUCT IN CHINA.

International Luxury Brands May Face Product Quality Enforcement In China

Posted on April 5, 2010 by Sheppard Mullin 

http://www.fashionapparellawblog.com/2010/04/articles/enforcement-of-fashion-laws/international-luxury-brands-may-face-product-quality-enforcement-in-china/

China celebrated its Customer Right Protection Day on March 15, 2010. The Administration for Industry and Commerce of Zhejiang province (the “Zhejiang AIC”) issued penalty decisions to several well-known international luxury brands such as Hermes, Hugo Boss, Dolce & Gabbana, Paul & Shark, Trussardi, Tommy Hilfiger and Versace based upon routine quality examinations which found goods sold in China to be substandard.

According to findings by the Zhejiang AIC, the geographical places of manufacture of the substandard luxury goods are located in eleven countries and regions, including Italy, Turkey and France. The major problems with the imported luxury goods were quality and safety issues and counterfeit materials. The Zhejiang AIC detailed such problems as: (i) disqualified color adhesion; (ii) failure of PH value testing; (iii) excessive content of formaldehyde; and (iv) misdescribed fiber content. The Zhejiang AIC has seized the substandard luxury goods and filed cases against entities who sold such luxury goods.

With its continuing growth as a major contributor to the global economy, China has been recognized by international luxury brands as an emerging multi-billion dollar consumer market with a legal system that is less advanced as other nations regarding consumer protection. Since joining in the WTO, Chinese authorities have observed the significant market for international luxury brands and the huge numbers of local consumers who are actual and potential market consumers. In recent years, more and more consumer complaints have been voiced regarding product quality.  Chinese central and local government authorities have given attention to strengthening consumer protection and enforcement against substandard products produced by foreign luxury brands.

Consumer protection laws in the People's Republic of China are based upon two major laws: Chinese Product Liability Law (the “PLL”) and Law of Protection of Consumer Rights and Interests (the “LPCRI”). The PLL requires that all goods must be safe to consumers and their property, and adhere to State Standards or trade criteria enacted to ensure the health and safety of people and their property.  The LPCRI gives customers the following rights: (i) inviolability of their personal and property safety; (ii) accurate and true information regarding the goods they have purchased and the services they have paid for and received; (iii) free choice of goods or services; and (iv) fairness in consumer transactions. Although, currently, no large-scale recalls of foreign luxury goods have occurred in China, consumers who have suffered from personal injury or property damage resulting from their purchase or use of goods or services have the right to demand compensation pursuant to the LPCRI. Under the PLL, the retailers of foreign luxury goods may also be fined.

The respective Administrations of Industry and Commerce (“AIC”), at both central and local level, are the key consumer protection enforcement authorities.  The State Administration of Quality Supervision, Inspection and Quarantine (“SAQSIQ”) plays the important role of inspecting and making determinations regarding product defects. In product defect cases regarding luxury brands, consumers usually report problematic products to local Consumer Protection Associations, which are civil consumer protection organizations.  Consumer Protection Associations have no administrative or judicial enforcement authority but act as an intermediary for consumers to report typical cases or widespread complaints about brands to the AIC or SAQSIQ. Such reports may trigger local or even national AIC or SAQSIQ investigations concerning such products.

Where Luxury Brands Have Goods Produced in China:

Major raw materials of textile and baggage products are locally sourced. Most products manufactured in China and other Asian nations are produced under OEM arrangement by local manufacturers (especially in southern and eastern areas).  Quality control enforcement systems may be based upon the luxury brand's licensing requirements but in some instances local quality control may be difficult to enforce in China at a consistent level of high quality comparable to the licensor's own factories and headquarters.

Under such circumstances, maintaining effective quality control and enforcing such requirements locally with the Asian manufacturer and material suppliers are essential in order to ensure the consistent high quality of branded products. The contractual arrangements with the local sources and manufacturers and the maintenance of control of tools, molds, usage of machines, qualification of workers, quality inspection, enforcement of internal quality rules, and compliance with compulsory product quality specifications and standards are all critical to production and manufacturing by luxury brands in China. In certain cases, local manufacturers may take on additional work and increase the manufacturing output of a factory without advising or receiving approval of the contracting party. In addition, in some cases, manufacturers fail to destroy or return to the licensor all rejected or substandard goods and instead sell such rejected goods to the local “underground market”, which may then give the public access to such rejected goods. These rejected and unauthorized luxury goods in the Chinese marketplace have caused trouble for luxury brands in China.

In terms of the brand reputation, some critics have said that many luxury brands do not have sufficient consumer support or after-sale services in China. Even though China has no applicable recall policy, Chinese consumers view luxury branded goods in China as being of the same high quality as the luxury brand. Luxury brands which establish a network of supportive post-sale support and policing of unauthorized and pirated goods, as well as procedures for return or recall where goods are substandard, will help protect their brand equity as well as avoid difficulties with Consumer Protection Associations and AIC or SAQSIQ investigations.

With respect to consumer sales, the LPCRI and PLL, and even the contract law of China, courts are very protective of consumers and will interpret standard contracts or unilateral contracts that favor the sellers only against the drafter. As the LPCRI and PLL both seek to protect consumers, luxury brands should carefully review their sales and post-sale consumer policies in China to ensure that such policies a "fair” to consumers and afford basic consumer rights to ensure that consumer complaints or legal actions are avoided.