While McKinsey spins a positive take on the potential for growth in Chinese consumer spending, foreign businesses in the consumer luxury space respond in the negative.
When Eric Douilhet opened China’s first Paul Smith and Moschino fashion boutiques in 2002, he didn’t expect they’d be making money by now. He didn’t think they’d be losing this much, either.
“I was definitely expecting sales to be higher, the losses to be smaller,” says Douilhet, 43, president of Bluebell (Asia) Ltd., which also operates Jaeger clothing and Davidoff cigar stores in China. “People are too optimistic about China.” He declined to quantify the losses.
We find this extremely interesting, considering that it has recently been reported in the Taiwanese press that over half of the largest 250 Taiwanese entreprises in China are barely profitable.
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Which idea do you buy into – a future Fort Knox or a grinding money-pit? Perhaps both are fundamentally correct. The snail’s paced growth of a consumer market in China does not necessarily dovetail with one’s hopes for a consistently profitable revenue stream.
As we have stated consistently over many years, investment in China must be approached skeptically. Expect less where more seems possible. Temper enthusiasm with caution.
The Who’s Not Making Money in China? by AsiaBizBlog, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.
Those companies that go into China correctly with the appropriate product at the appropriate price for the Chinese market will do well. Those that don’t, won’t. The basic business rules apply to China like everywhere else. I find it weird how some companies and the press often think otherwise. There may be 1.3 billion people, but you still have to have the right business model to make money.