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The Formula For Success

Since the departure of Liz Claiborne’s CFO Andrew Warren, and the subsequent change in name to Fifth & Pacific, the company has seen a 13% drop in its share price. It seems clear that many fashion houses are now struggling.  It’s not just high street brands that have to adapt,  but also many high-end brands are now changing their tactics to stay profitable.

One of the tactics is to target Asia’s newly rich, especially in China. Prada plans to open 50 new stores in China over the next three years, while Armani group plans on opening 35 new sales outlets each year. At the same time to keep Dolce & Gabbana’s exclusive brand image, the company decided to close down D&G, its diffusion line.  They also plan to open 15 new boutiques within the next two years. Mr.Gabbana notes ‘American was the last 100 years, China is the next 100’.

To appeal to Chinese and Asian clientele, luxury houses are now also adopting the strategy of promoting heritage and craftsmanship. They believe when customers understand the culture of the brand, they tend not to hesitate spending more on expensive products. In the video above (from 7.11 min), a group of luxury brand executives are talking about how this strategy works, and how they became successful in China.

All in all, I think it too earlier to tell if all these marketing plans in Asia will prove profitable enough for the luxury brands. As Robert Frank, author of Richistan, wrote in his WSJ blog about ‘Chinese millionaire market‘.

The Chinese rich have been supporting markets for everything from Bordeauxs to Birkin bags and Gulfstreams, making up for slack demand in the US and Europe. If the Chinese economy has a hard landing, the newly rich are sure to take a hit. If they lose their consuming confidence, the business of selling to global rich will become a lot tougher.

What will happen this year is uncertain, especially with the nightmare of European market. Who will survive? We’ll have to wait and see.

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