Small can be beautiful for luxury brands
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E-mail China Daily, June 1, 2012
Children's products may be the next growth point for international luxury brands in China, and the little ones could be a more lucrative market than their parents, who are ready to splash out on prestigious products for their offspring.
A report by Albatross Global Solutions, a Hong Kong-based consulting firm specializing in the luxury industry, said that 60 percent of 900 survey respondents reported spending more than 3,000 yuan ($474) a month on luxury goods for their children last year. The percentage spending that amount was just 40 percent in previous years.
According to Frost & Sullivan, a US-based market consultancy, annual per household spending on children's products in urban China is expected to reach $1,256 by the end of 2013.
China is already the world's second-largest luxury consumption country after Japan. Industry analysts have said that Chinese luxury consumers are younger than their overseas counterparts, who are also likely to have younger children.
Luxury goods for children (up to age 14) mainly mean clothing and toys.
Profits on children's products are higher than those on goods for adults, because less material is used but the prices aren't much lower, said Yang Qingshan, guest researcher on luxury goods and services at the University of International Business and Economics in Beijing.
"It's imperative that luxury manufacturers extend their business into children's products. It's a huge market, but the costs are lower," said Yang.
Nice niche
Because of the high profits, children's products will be a lucrative niche market for luxury manufacturers, experts said.
Some international luxury labels are playing catch-up in the kids' market in China.
"Kids' (product) lines will be a growth point in China," Patrizio di Marco, president and CEO of Gucci, told China Daily in April.
He said Gucci will open more children's product stores on the Chinese mainland. The company already has one in Hong Kong.
Gucci entered the worldwide market of children's clothing in 2010, and has sold products in seven flagship stores on the mainland since then.
As the first luxury label to offer children's products back in the 1960s, Baby Dior opened a specialty store in Shanghai in 2010, its only such store outside Paris.
The big names in luxury have an edge in the children's market, because Chinese consumers prefer to choose brands they know for their children.
The Albatross report said that Gucci Kids, Burberry Children, Baby Dior and Armani Junior are all popular in China.
It's natural for Chinese parents "to transfer their preferences in luxury goods to their children", according to the China Research Center for Children's Industry.
Safety is also a big issue.
"I trust the luxury brands with better quality, and they are safe for kids," said Zhang Fan, a 30-year-old mother with an 8-month-old son.
Zhang, an office worker in Beijing, said she spent thousands of yuan on some luxury garments and shoes for her son.
Room to grow
However, children's products still account for a very small share of the luxury market. The segment is only just taking off, compared with centuries of history for the mainstream luxury industry.
Burberry's financial results show that children's products only contributed 4 percent to the brand's revenue in the 12 months ended in March, the smallest of any of its product lines.
But revenue from children's products increased 287 percent from 2006 to this year, according to the Burberry's results.
"Manufacturers did not care about the kids' business in the past and most of them just displayed kids' products on some shelves in their regular stores," said Yang.
The situation will change, because luxury manufactures have to find a new growth point amid the slowing expansion of China's luxury market, Yang said.
"Kids' products will be their choice, and I expect to see more specialty stores for kids' luxury goods in China," Yang said.
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