A Louis Vuitton store in Wuxi, Jiangsu province. The French luxury brand opened its first flagship "Maison" outlet in China on July 21. Provided to China Daily

After years of growth, public sector curbs bring halt to lavish spending

The period of breakneck growth in demand for luxury brands in China appears to be over, with many of the world's top brands now working hard to consolidate their positions by improving their service to customers.

Bernard Arnault, the CEO of LVMH, the world's largest luxury group by turnover, said it plans to adjust its expansion in China, and that might mean pulling back from some smaller cities.

The head of the company, which owns a portfolio of more than 60 prestigious brands such as Louis Vuitton, said it had found that many people from smaller cities tend to go to bigger cities to shop for luxury items.

Louis Vuitton has expanded rapidly in China, and has more than 40 stores throughout the Chinese mainland, including cities in central and western regions.

Arnault said the brand's development in China will focus on quality, instead of store openings.

And the company is not alone.

In a statement sent to China Daily, Gucci also said it planned to slow its expansion in China this year.

The Italian fashion and leather goods brand - which has developed its store network in China from five in 2004 to 72 by the end of 2012, spread across 34 cities - said it will develop "at a different pace than in past years", although it still plans to continue opening new stores in China this year.

Zhou Ting, director of the Fortune Character Research Center, said that Gucci - one of the highest-profile international luxury brands in China- may even stop opening new stores in the nation.

She added that the Chinese retail sector's slowdown and what has become the saturation of luxury brand names in some places, means a slowdown in openings is almost inevitable.

Almost all the famous international luxury names have stores in China, leaving very little room for any new ones, she said.

According to US consulting firm Bain & Company, the growth of China's luxury market was just 7 percent in 2012 against 30 percent in 2011, which had made Chinese consumers the world's largest luxury consumer group.

In 2012, Chinese consumers bought a quarter of the world's luxury products, within a global luxury sector which grew 31 percent, said Bain.

But experts say Chinese consumers have become a lot more careful and reasoned in their purchase of luxury goods.

China's luxury market has become more mature, several years earlier than originally expected, said Lu Xiaoming, the president of Organic Plus, which used to manage several high-end brands in China.

Consumers now know a lot more about luxury, and choose their items carefully, making sure they fit their needs rather than simply buying because of the labels, he added.

He said that many international luxury brands have already started noticing consumer indifference.

Sales of luxury brands in China's market did increase in 2012, but growth was not as much as in previous years.

The luxury division of French multinational company Kering - previously known as Pinault Printemps Redoute, or PPR, until a recent name change - which includes Gucci, saw a 17.6 percent rise in sales in China in 2012, against 39.1 percent in 2011.

Richemont Group, another global luxury conglomerate which owns Cartier and Jaeger-LeCoultre, also reported a slowing market in 2012.

"Following several years of exceptional growth in the Asia-Pacific region, in particular China, sales were flat compared to the comparative figures for the same quarter last year," the group said in a trading update for the third quarter ended Dec 31, 2012.

Bain & Company said that watch and jewelry items, in particular, were hit hard by the slowing economy.

The Federation of the Swiss Watch Industry also reported a dramatic fall in the growth of Swiss watch exports to China in 2012 - they increased just 0.6 percent in 2012, after a 48 percent rise in 2011.

It said that luxury watch sales are unlikely to recover this year either, after recording a 9.9 percent fall in Chinese imports in January compared to last year.

Zhou Ting from the Fortune Center said the Chinese luxury market is not expected to recover for at least the next couple of months.

Government policies to curb excessive use of public funds to purchase luxury items are playing a significant part in dampening confidence in the sector.

Many Chinese luxury consumers, who are not civil servants, are also adopting a wait-and-see attitude on luxury consumption, said Zhou.

The boom times are unlikely to return, she added.

"The fast growth, when increases were well into double-digits in China's luxury market, has gone forever," she said.

Experts now suggest that quality of service has become a priority for many international brands.

In the past, analysts often criticized the luxury end of the market for an almost complacent attitude to customer service.

Lu Xiaoming said that companies now realize that to hold onto loyal, existing customers, and to win new ones in a tight market, companies have to "bring luxury back to basics, which means providing a unique experience, backed up by high-end quality and service", he said.

"Luxury brands have to listen to their consumers and understand their needs."

Some luxury brands have already taken action to change their strategy, and get closer to customers.

Louis Vuitton opened its first flagship "Maison" outlet in China on July 21.

Located in Shanghai's Plaza 66, the four-floor store was designed by acclaimed architect Peter Marion.

It is the company's only store offering custom-made shoes and bags in the Chinese mainland.

And to attract local consumers, mahjong and custom-made tea sets are also sold in the store.

Hermes also plans to open its fifth "Maison Hermes" in Shanghai, supplying services including custom-made items.

"We are focused on building long-term relationships with customers, on a more personal and in-depth basis, in order to secure their loyalty," Gucci said in its statement.

The price difference between luxury items sold in the Chinese mainland and overseas is also a hot topic, and many people have now chosen to shop overseas at lower prices.

Import tariffs used to be thought as the main reason for the price difference, but import tariffs are only a scapegoat, some experts say.

The brands themselves insist that logistics costs and other expenses in China mean label prices have to be higher.

Francois Henri Pinault, the chief executive officer of Kering, said the cost of shipping products from Switzerland to China was partly to blame.