Global brands from L’Oreal SA to Gucci face new competition in their race for a share of the $33.7 billion Chinese luxury market: homegrown Chinese brands.

Shanghai Jahwa United Co., established more than a century ago, sells a revamped line of products, including 1,000 yuan ($159) perfumes, whose package is designed by Demos Chiang, great grandson of the nationalist leader and Taiwan’s first president Chiang Kai-Shek. Eve Group has more than 400 boutiques which sell its own brand of luxury menswear to clients that include Chinese film director Zhang Yimou and martial arts actor Jet Li. Other Chinese luxury brands are appealing to a nation of consumers yearning to celebrate their country’s long history and rich cultural heritage.

“China’s manufacturing was very backward 30 years ago, and consumers worshiped and pandered foreign goods and ideas,” Jahwa Chairman Ge Wenyao said. “Foreign products are still good but the aura surrounding their brands is no longer there.”

The move to pricier offerings is a shift for China’s consumer industry, which has been mostly associated with cheap knockoffs. As Chinese consumer brands become more ambitious they may pose a bigger threat to luxury and high-end brands in China.

“There’s no reason China won’t be able to develop its own luxury brands,” said Ashok Sethi, Shanghai-based head of consumer insights at TNS Research International. “Many international brands make their products in China.” 

Luxury good demand in China has risen with increased wealth and growth in the world’s second-biggest economy. The number of millionaire households in the country climbed 31 percent in 2010 to 1.11 million, ranking China third behind the U.S. and Japan, according to a Boston Consulting Group survey last year.


Fastest-Growing Market

Luxury-sales growth in the world’s most populous nation will slow in 2012 from an estimated pace of at least 20 percent last year, said Katherine Chan, an analyst at Royal Bank of Scotland Plc in Hong Kong. The luxury goods purchases in China and by Chinese consumers reached a total of 212 billion yuan last year, Bain & Co. said in December.

Shanghai Jahwa, whose products include shampoos and kitchen cleaners, is trying to sell more high-end Made-in-China products under its Herborist brand, which is based on Chinese medicine and is sold in 1,200 stores across the country.

The company’s products are sold through LVMH Moet Hennessy Louis Vuitton SA’s Sephora unit at 200 shops around Europe, including Paris and Milan, where it recorded sales of 4 million euros last year.

A L’Oreal media officer, who asked not to be identified because of company policy, declined to comment on competition with local high-end brands.


Two Sisters

The Shanghai-based company also revived in 2010 a 114-year- old cosmetic brand called Shanghai VIVE, or “Two Sisters” in Chinese. Chiang helped redesign the brand when it was reintroduced in 2010. Its 890 yuan, 50 milliliters perfume is comparable with fragrance of the same size, such as 760 yuan Gucci Guilty Toilette, 900 yuan Guerlain Idylle and 980 yuan Christian Dior SA’s Midnight Poison.

Jahwa has the manufacturing know-how and it needs foreign talents and expertise in branding and marketing to help develop its products, Chairman Ge said. The company hired a former designer of Salvatore Ferragamo SpA to design its scarves. Jahwa has eight VIVE shops in Shanghai and Beijing with plans to accelerate store openings and expanding to overseas markets, the company said. It wouldn’t disclose financial details for the brand.


Luxury Menswear

Beijing-based Eve Group has four foreign-named labels ― Eve de Uomo, Notting Hill, Kevin Kelly and Jaques Pritt. Its ready-to-wear clothes under the Kevin Kelly label are sold for as much as about 20,000 yuan. Its fifth label, called Eve Cina, will be introduced this year with designs of Chinese elements.

China Garments Co., another luxury menswear maker, plans domestic collections that will be made in Italy by Raffaele Caruso SpA, which makes menswear for brands including Christian Dior SA. Its claim: the company offers clothes comparable with top international brands but 20 percent cheaper.

“Ten years ago people looked down on Chinese brands,” Zhan Yingjie, chief executive officer of Beijing-based China Garments, which is introducing made-to-wear and ready-to-wear clothes. “The situation now is different. China has the ability to create its own brand and can operate a luxury brand very well.”


Appeal to Pride

Over time, brands that play up their Chinese lineage may benefit as shoppers become more patriotic, said Nick Debnam, a Hong Kong-based head of consumer markets at KPMG China.

“It’s a pride for Chinese culture,” Sethi from TNS said. “Chinese are extremely proud of their years of history and culture,”

Some European luxury brands are positioning themselves to be part of the rise of Chinese luxury brands. Shang Xia, which is owned by Hermes International SCA, aims to appeal to customers domestically and abroad and promote Chinese heritage, handicraft and philosophy, Chief Executive Officer Jiang Qiong- er said in an interview.

Shang Xia, which means “Up-Down” in Chinese, was founded by Jiang and Hermes in 2008 with the French maker of Birkin bags and silk scarves serving as a majority shareholder. 


Chinese Heritage 

“What we are doing is to revive Chinese traditional heritage and to add functionality to them for people’s daily life,” said Jiang, wearing a black suit and a Shang Xia-branded dragon ball style necklace.

Its only shop in Shanghai’s major shopping area on Huaihai Road sells jewelry, clothing, furniture and leather goods based on Chinese styles with prices ranging from a 880,000 yuan rocking chair made from Zitan wood, a precious wood favored by Chinese emperors, to a 150,000 yuan Chinese Mahjong set, and a 25,000 yuan porcelain Chinese tea set. It plans to open its first boutique outside China in Paris’s Rue de Sevres and China’s second store in Beijing.


Challenges

Chinese brands may still have their work cut out for them at home before they reach the level of the most prestigious European brands.

“Part of the reason for foreign brands being so desirable in the luxury segment is because of their foreignness, said Tim York, head of planning at advertising agency J. Walter Thompson. ‘’They immediately convey status. If you are a local luxury brand, there isn’t a lot happening in your favor unless you are very established and very world renowned.’’

Gaining that acceptance also takes time, branding experts say.

‘’A brand needs at least 15 years to build,’’ said Lu Kun, Shanghai-based fashion designer who has made clothes for Paris Hilton. ‘’A brand needs history.’’ 

(Bloomberg)