Chinese companies are buying foreign brands so they can introduce the brands and their products to shoppers in China, according to retail experts.
The appraisal followed Chinese conglomerate Fosun sealing two offshore investment deals in two weeks, adding Austrian luxury textile maker Wolford AG and French luxury couture house Jeanne Lanvin SAS to its portfolio.
“Because of Chinese consumers, a group like Fosun can buy a foreign luxury brand at a price most others cannot, because they can then bring them to China and capture a lot of additional value,” said Jeffrey Towson, professor of investment at Peking University. “The Qatar Investment fund doesn’t have a home population that is 50 percent of global luxury spending.”
Towson said international fashion brands can be extremely lucrative.
In China, a brand’s country-of-origin plays a major role in consumer decision-making, said Paul Temporal, a global expert on brand creation and an associate fellow at Oxford University’s Said Business School.Temporal said brands that are bought by Chinese companies tend to experience minimal interference with the brand name and what it stands for.
“For example, it would be most unlikely and very unwise, for Fosun to change the name of Lanvin,” he said.
Temporal said the acquisition of foreign brands also helps Chinese companies learn more about emotional brand building, and helps them gain access to foreign markets. But he said the best brands are seldom sold, so China will also need to establish its own global consumer fashion brands.
In recent years, Fosun has invested in several fashion companies, including Italian menswear company Caruso, German clothing brand Tom Tailor, and United States luxury house St. John.
Pundits said Fosun’s acquisitions are aimed mainly at bringing new brands and products to Chinese consumers and have less to do with entering new markets because Chinese consumers today are many and they are much more sophisticated than they were five years ago.
“They have traveled to Paris, seen the luxury goods of London and Tokyo … They now want these things in their daily lives in China,” Towson said.
While buying sophisticated fashion brands may help bridge the gap between “Made in China” and “Branded in China”, experts say Chinese companies will need to be cautious about what they buy.
Jonathan Reynolds, an associate professor in retail marketing at Oxford University, said: “Chinese investors should be careful in identifying appropriate targets for investment or acquisition, rather than being rushed into buying whatever might be on sale today.”
Reynolds said some previous investments made by Chinese companies, particularly among brands with which there was no strong resonance within the Chinese market, have not always worked out.
“Also, traditionally, Chinese firms have tended to take something of a hands-off approach to the management of their investments,” Reynolds said. “If they are to successfully understand and support the strategic growth of their purchases globally, they may need to become more interventionist.”