The global luxury market shrank last year for the first time on record, and it would have shrunk a good deal more were it not for growth in China. In a few short years China will become the largest luxury market in the world, and luxury brands are doing everything they can to get their logos into Chinese wardrobes.

China, You Sexy Beast

Yves Carcelle, the chairman and chief executive of Louis Vuitton, is a firm believer in his company’s place in China. “I believe so much in the future of the region that I have my four year old son taking Chinese lessons,” he has said.

Carcelle isn’t the only one making entreaties to the East. The chairman of Pernod Ricard SA has even come around to the idea of Chinese people drinking his company’s Chivas Regal whisky with green tea. “If that’s the way they prefer to drink it, we’re very happy with that,” he was quoted as saying. “Drinking our product with tea is a way of cultural harmony.”

Luxury brands are brushing up on Chinese culture because, quite simply, they have to.

The luxury market stumbled in 2009, falling eight per cent worldwide during the global recession according to business consultants Bain & Company. In China, however, the market marched on with all the sureness of a Chanel-shod Shanghainese, growing by 12 per cent. The Boston Consulting Group says China has recently overtaken the United States as the second largest luxury market in the world, and by 2015 they see China overtaking Japan for the top spot.

Invasion of the Bulgari Snatchers

Luxury brands are also catering to Chinese shoppers at stores in Western countries. Radha Chadha (pictured right) is the Managing Director of Chadha Strategy Consulting and co-author of The Cult of the Luxury Brand: Inside Asia's Love Affair with Luxury. She says that “if you go to stores in Paris you’ll see that a lot of the consumers are Chinese. Brands are making sure that this key consumer is being catered for wherever in the world it may be. There are store salespeople for instance who can speak the language, and the collection that is in the store would take into account what the Chinese consumer wants.”

Why? Because in recent years Chinese have bought more than half of their luxury purchases overseas, where they’re often significantly cheaper. A spokesperson for Gucci told TALK that “Chinese consumers will probably be the driving force of the luxury industry in the years to come, because of the size of the market and because of easier possibilities for consumers to travel abroad.”

It’s a practice with a historical precedent. The Japanese were huge shoppers abroad over the past decade. “They kept luxury stores going all over the world,” Chadha says.

Pay and Display

China is integral to the future of luxury brands but why are they so popular here, in a country where the per capita income is around US$3,300?

Radha Chadha argues that different markets consume luxury brands in very different ways according to their level of economic development. “China is in the showoff stage. It’s about new money. It’s about using these brands to demonstrate success, and these brands have a very clear sign language. They have loud logos.”

While consumers in developed markets moved away from conspicuous labels and logos during the recession, the most popular luxury brands in China remain some of the most showy. According to a survey of China’s rich by Hurun Report, Louis Vuitton is their favourite brand. (It’s a brand which is also popular with another fast developing market called “Kanye West”.) Chanel is the favourite among Chinese women.

“If your objective was to let the world know that you have money then there’s no point using a very discreet brand because who would then know?” Chadha says. “It is about conspicuous consumption; it is about showing off and that’s a function of where the Chinese market is today. It’s a similar story in Russia – it’s an emerging market. If you look at India it’s the same thing.”

Yet China’s love for LV and other luxury brands seems more ardent than that of other developing countries.

“I think the appetite for luxury brands is more intense, I would say, among the Chinese vis-à-vis income,” Chadha says. “In China there are obviously lots of people who are very poor and luxury doesn’t play any part in their lives, but if you look at the upper part of society, and I would include some of the middle income people in that as well, then for them luxury brands are already a part of their lives. If you take two identical incomes in China and India I would say the Chinese would be buying a lot more than the Indian would.”