Luxury Brand Management: Bringing European Luxury to China

With China set to become the world’s biggest consumer of luxury goods, Chinese applicants are looking to specialized programs at European schools.

Amid the turmoil of the global economic downturn, the luxury goods sector has remained resilient. Though there have been recent indications of a slowdown in some quarters, there are still reasons for industry players to remain confident.

LVHM reported profits of €6 billion last year, PPR’s shares reached a 12 year high on the Paris Stock Exchange in February 2013, and the Richemont Group reported a 30% increase in net profit in May 2013.

While, compared to consumer goods, the sector is fairly niche, it certainly does not lack in global significance. This, in combination with the idiosyncrasies of doing business in the sector, means that a spate of business schools have moved to offer luxury brand management programs, courses and tracks to meet the demands of the industry – with an underpinning of general management training complemented by a sector-specific focus.

“Employers saw the need to recruit managers who have an understanding of the business specificities related to the luxury sector,” explains Luana Carcano, a senior lecturer and coordinator of the MBA Full-Time Luxury Business Management Track at SDA Bocconi School of Management. “While the main principles are the same, on top of these there are some rules of the game. Things like visual merchandise, selling ceremonies, something as simple as which side of the street you are on all become important.”

It is, she asserts, a balancing act. “Sometimes you have to take decisions based not only on data and rationality, but on emotions. It’s something you can’t really teach, but through immersion and case studies, you can come to understand how the sector works.”

There is demand for these specialized programs among MBA applicants. The track at Bocconi admits only 15 students (notably, all of last year’s cohort found employment within the luxury sector), but demand, says Carcano, is on the up. Glasgow Caledonian University (GCU) London’s MBA Luxury Management has proved so popular that it has two intakes a year – though, again, with 26 students split between them, it is still a small program. Demand is particularly high, says program leader, Ruth Marciniak, from Chinese applicants. Carcano also observes a high level of interest from Chinese applicants.

This is not surprising, given the well-publicized strength of luxury brands in China. Goldman Sachs figures show that the sector was worth US$6.5 billion in China in 2010, and it is predicted that the nation will overtake Japan to become the world’s largest consumer of luxury goods by 2015. Around 5% of the global luxury goods market, according to research agency CSLA, is related to gift giving in the country.

European brands remain predominant, so it is no surprise, explains Carcano, that Chinese applicants are looking to European schools for training. “As well as the additional cachet gained by being able to meet top managers and see production plans first hand, students get a deeper understanding of European culture and languages – fluent Italian or French can be a considerable asset. When groups open new offices in China, they need people who really understand what is behind the product.”

As well as the two aforementioned institutions, ESSEC and the International University of Monaco are examples of schools offering a specialized luxury brand focus.

A Chinese future for luxury?

With the market being dominated by European brands, and Chinese students looking to the West for training, can it be assumed that roughly the same principles apply to luxury brand marketing in China as do in West? Or do the nuances of this singular market mean that it must be approached in a unique manner? Marciniak believes it is the former: “Given the research interests of our current Chinese MBA luxury students, evident in the topics they select for their dissertations, currently I do believe the same principles apply.”

“There are obviously specificities involved when working in any country,” says Carcano, “which really matters in luxury culture. But in terms of strategy, European makers are approaching the Chinese market in much the same way. What is different is the implementation – you need local adaptation, to think about communications; there is a lot of emphasis placed on a ‘glocal’ approach. Sometimes this can be more a challenge than the strategy itself.”

The dominance of European brands is something that Marciniak believes will come be to challenged in the long term: “My belief is that Chinese manufacturers will fight back.  Currently many Chinese manufacturers are producing branded goods for Western retailers. They have the knowhow in terms of manufacturing. What they do not have is the knowhow in terms of brand management.  Chinese students coming to Europe to study courses such as our MBA luxury will take that knowhow back to China with them.”

This is an opinion shared by Zhang Lili, presently enrolled on the MBA Luxury Management program at GCU London. “European luxury companies currently dominate the market, but you can see it’s changing. Peng Liyuan (wife of Xi Jinping) wears Chinese designers, new anti-corruptions laws governing gift giving have been introduced. Domestic brands will grow in the long term as a consequence.”

These brands, asserts Marciniak, will most likely focus on the domestic market to start with. But as Carcano points out, Chinese luxury hotel chains like Oriental and Peninsula already compete globally, and Chinese clothing brand Shanghai Tang was acquired by the Richemont Group in 1998, so it is not inconceivable that there will be an export market in the future. We might look to the success enjoyed by Japanese whisky brands for a precedent.

However the future pans out, it seems likely that the luxury sector will continue to appeal to MBAs. And as Carcano points out, this doesn’t just apply to those who aspire to occupy specialist roles: “These companies work like any others. They need people to work in finance, supply chain management and logistics. And they will continue,” she concludes, “to look for these profiles from top business schools.”