Chinese brands struggle in luxury market

Updated: 2013-01-28 07:21

By Xie Yu in Shanghai (China Daily)

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Established Shanghai brands should be offered financial aid from the government to ensure their survival. That was the message given to the city's top political advisory body over the weekend.

The Shanghai branch of the Chinese Peasants and Workers Democratic Party, a non-Communist group, suggested authorities set up a special fund to help local brands "enter first-tier commercial zones".

"Rental prices for units in the best locations, such as on Nanjing Road or Huaihai Road, range from 70 to more than 100 yuan ($11 to $16) a square meter, which is too high for most local brands," reads the proposal.

Established brands that show potential need more support to ease their financial stress, said the proposal, which was submitted to the Shanghai committee of the Chinese People's Political Consultative Conference.

The party is a member of the committee, which began its annual session on Saturday.

An earlier report by the Shanghai Academy of Social Sciences said just 10 percent of Shanghai's traditional brands are making a healthy profit. Roughly 70 percent are struggling, with the rest on the verge of bankruptcy.

Shanghai is home to many household brand names, including Three-gun underwear, Conch shirts and Maling food. In the 1980s and early 1990s, it was fashionable to be seen wearing Shanghai-made products. But as more overseas brands have arrived in China, local names have lost their place in the market.

Shanghai Hero Group was once China's most prestigious pen maker, famed for its iconic black Hero pen with gold inlay that was used in 1997 at the signing ceremony for the Hong Kong handover.

The company said late last year that it plans to sell a 49-percent stake to a new partner after suffering severe losses for the past two years.

"Foreign brands are much stronger, not only in financial strength but also many have a clear strategy," said Qi Xiaozhai, director of the Shanghai Commercial Economic Research Center. "They came into China with a Westernized look that was desired by many young Chinese."

Diana Tsai, CEO of Bundshop, an online design company in Shanghai, said she feels branding is more important than quick sales.

"Consumers, especially young people, are totally different from their parent's generation," she said. "An age-old brand really has to be open-minded and adapt to the fast-changing market, or people won't buy it. Financial support just won't help."

China has the world's fastest-growing luxury market, but some Chinese brands struggle to get a foothold.

Consulting firm A.T. Kearney has predicted that a younger generation of Chinese shoppers may return to the local brands.

"The turning point ... will be the influence of a new Chinese generation ... those born in the 1980s and later who have more exposure to better-quality Chinese products and will prove more confident about purchasing them," the consulting firm wrote in a recent report.