The process of importing, distributing and selling luxury goods in China raises further challenges for companies, including a number of difficult questions regarding tax treatment, customs duty, logistics and the transfer of intellectual property.

Customs duty, import VAT and consumption tax can all be charged on luxury goods imported into China. The ability of brands to mark up their goods at dramatic premiums can also prove difficult to explain to tax authorities when the time comes to file income tax returns.

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The challenges ahead

By Nick Debnam & George Svinos, KPMG

Luxury retailing in China clearly presents tremendous opportunities, but also risks and challenges. In addition to heightening competition as is common among emerging markets, the most significant and relevant of challenges for luxury brands concern Intellectual Property Rights (IPR) regulations, the time frame for a return on investment, low luxury brand awareness, booming Chinese tourism and limited retail infrastructure.

• IPR regulations

According to the U.S. Embassy in Beijing the piracy rate in China remains one of the highest in the world and, on average, 20 percent of consumer products are counterfeit. Even domestic companies are troubled by piracy, with a recent study by the Ministry of Information Industry finding that 37 percent of Chinese companies suffered from such problems. Read the rest of “Luxury Brands in China: Part IV” or post a comment

Strategies for luxury brands

By Nick Debnam & George Svinos, KPMG

For certain luxury brands, China has already outstripped both Japan and Hong Kong as the largest single market in Asia Pacific. (37) But the growing presence of luxury brands in China is bringing with it greater competition. The country’s busiest streets, such as Nanjing Road in Shanghai, are witnessing fierce competition among the world’s luxury brands. While some have warned that the China market is becoming saturated, (38) for the time being the environment is still a positive one for potential entrants.

• Marketing

As most Chinese consumers have low levels of brand awareness, they also have low levels of brand loyalty. However this also means that sales staff can be an extremely powerful tool –with the ability to not only inform consumers of the benefits of their brand, but sway them towards making a purchase.

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Profiling the Chinese consumer

By Nick Debnam & George Svinos, KPMG

While hard work and plain living have been revered virtues of the Chinese people for generations, there has been a growth in demand for foreign-branded or imported goods.(19) But running counter to the growing habit of consumption in China is the traditional propensity to save. Though luxury consumption is growing, for most the dominant social idea is still prudent consumption and undertaking no more than you can perform. (20)

Research suggests that while the emerging middle class will continue to save heavily, they will also spend increasing amounts of money. (21) This is consistent with trends that suggest that China’s younger generation of teenagers and twenty-somethings show less of the caution of their parents and grandparents, and far more inclination to spend than to save. Read the rest of “Luxury Brands in China, Part II” or post a comment