University of Southern California

China’s Growing Sophistication of Consumers and Luxury Brands
Andrew Wu, Group President of LVMH group/China, Shares Insights on a Booming Market
May 2, 2012 • by News at Marshall

Andrew Wu, LVMH group president, greater China, is in a unique position to speak about changes in consumer culture in China. As group president since 2005 of the LVMH group, whose more than 60 renowned brands include Louis Vuitton, Moet Hennessy and Dior, the Shanghai native has witnessed the rapid growth of his country’s consumer demand and hunger for luxury goods. Wu shared insights on a rapidly changing China and rising consumer culture with students, faculty and staff during a presentation on April 23 at Seeley G. Mudd Hall on USC’s University Park Campus, presented by the USC Marshall School of Business and USC Roski School of Fine Arts.

Wu outlined several factors needed to understand China today, led by the speed at which change has occurred and will continue to occur. “Within just one generation, people went from riding on horseback to bicycles to cars,” said Wu. In the 40 years since President Nixon visited China, Wu said the country has moved from a Bamboo Curtain to an Open Door; not only do millions of Chinese travel overseas–a number expected to reach 100 million by 2015--but income per capita has risen from under $100 U.S. dollars in 1978 to more than $4,000 in 2012.

“China came from an era where there was material deprivation for decades and obviously there was economic scarcity. Up to the early 1980s these were typical scenes, people waiting in line to buy basic things, food in particular. Today you see people queuing up for Louis Vuitton bags in Shanghai. China collectively is very rich,” said Wu.

While the overall economy has slowed–because of a decrease in exports due to the worldwide economic downturn and by a slowdown in government spending—consumer spending, particularly on luxury goods, is still on the rise as mentioned by Wu. McKinsey & Co. for one estimates China is on pace to top Japan as the world's largest market for luxury goods, estimating a sales surge of 18 percent annually, translating to $27 billion by 2015. (That’s a fifth of the worldwide total and up from just $10 billion in 2009.)

“It used to be during the Cultural Revolution that we needed permission for everything, we have since then moved to possibilities, and we are now going for preferences. Self -confidence has risen to an unprecedented level,” said Wu, before offering several cautions about doing business in China.

“It’s wrong to assume consumers are homogeneous, especially not within the younger group,” said Wu. “China is not just one country, but many subcultures, with varying tastes both culturally and likewise for consumer goods.”

While the top 10 cities for retailers remain stable, Wu said distribution is by far the biggest challenge of doing business in China, with success coming from mastering local idiosyncrasies and getting the details right.

Despite the challenges, Wu said that China remains and will remain an incredible market of growingly sophisticated consumers.

“In China, luxury consumption in the past was totally unaffordable, reachable only for the very top rulers. Today we see extraordinary “pent-up” demand and explosive capacities for such consumption, but we already know that the new generations will become more demanding and selective,” Wu said.

About the USC Marshall School of Business
Consistently ranked among the nation's premier schools, USC Marshall is internationally recognized for its emphasis on entrepreneurship and innovation, social responsibility and path-breaking research. Located in the heart of Los Angeles, one of the world's leading business centers and the U.S. gateway to the Pacific Rim, Marshall offers its 5,700-plus undergraduate and graduate students a unique world view and impressive global experiential opportunities. With an alumni community spanning 123 countries, USC Marshall students join a worldwide community of thought leaders who are redefining the way business works.