In the eighteenth century, the concept of luxury focused on its moral and social implications. The image of the polyamorous profligate surrounded by luxurious silks, in a smoky opium den comes to mind. Luxury often meant decadence and social ruin, which often drew upon both the Christian and Classic traditions. In our contemporary world, luxury has adopted a cultural-political aspect that is closely associated with capitalism in an era of abundance.
Victorian Era opium den in which the upper classes indulged in drugs and polyamorous pursuits.
Luxury now represents something “comfortable” which the middle classes can enjoy in an era that moved away from the utilitarianism and tyranny of communism, when individuality had been oppressed in lieu of likeness and conformity. Luxury condos, luxury cars, and the luxury market all target the general population with the psychology of luxury to indicate the comfort of living in an era in which the individual is free to express themselves in an array of styles and colours.
At the highest contextual level, luxury is also which something people “collect” which accrues value over time, and considered the same as an investment; whether art, jewellery, archaeological artefacts, sculpture or classic cars, it’s a way to move capital around. In this way, luxury is also paradoxical to the concept of planned obsolescence; it correlates with high art, and meant to withstand the test of time.
The original Apple iPhone, launched in 2007. As with most electronics and mobile devices, they weren't built to last more than a couple of years. Planned obsolescence, or built-in obsolescence, in industrial design and economics is a policy of planning or designing a product with an artificially limited useful life, so it will become obsolete (that is, unfashionable or no longer functional) after a certain period of time.
In a throw-away culture where people buy fast-food, fast-fashion, disposable objects such as mobile phones and electronics that are only intended to last a couple of years, luxury has come to be recognised as a sign of lasting refinement, a symbol of American and European innovation. Interestingly, as the sales of luxury brands steadily declined in the US over the past decade, luxury has become a large market for nations such as China. China alone represents 32% of all global luxury car sales and 32% of all luxury products and its luxury sales grew 20% to $22.07 bln in 2017 from the year before.
China: A Global Consumer of Luxury Products
Although, China has become the number one global consumer of luxury brands, it is also ironically, the place where the production of replica luxury brands is also centered. This kind of philosophy permeates through the population, where luxury is a concept that can only be imported, but not produced domestically. To a degree, the Chinese government and such popular online eCommerce companies, such as Alibaba have been attempting to curtail the distribution of replica luxury brands whilst many other companies have been attempting to copy the tested traditions of other innovators.
Youxia, the copycat Tesla car, produced in China is not popular amongst Chinese luxury consumers
For China to become a global producer of its own luxury brands, it is necessary to change the philosophy of its people. Although, China has given birth to iconic philosopher-entrepreneurs such as Jack Ma and Zhang Xin, both of whom have shaped China’s landscape into a place of entrepreneurship embedded in a landscape of modernist architecture, China must lose the global perception of its nation being the headquarters for sweatshop labour and human rights abuses.
Chinese factory workers, lining up to go to work. Known for their subjugation of workers, Chinese people often work 12-14 hours a day for just pennies a day, which has been criticised by international humanitarian agencies as inhumane and akin to human slavery.
Embracing humanitarian issues and creating an atmosphere of freedom and liberty is a necessary climate in which to nurture luxury brands. The “backbreaking work” of factory workers as they live in dormitories embedded within the barbed wire fences of factories and work 12-14 hours per day creates the impression of a nation still trapped in the era of the indentured servant and the oppressive climate of communism, in which luxury cannot exist because of the operational mentality that is at odds with liberty.
A Tale of Two Brands: Burberry and Volkswagen
When Burberry moved production to China, the luxury brand started to suffer; now Burberry is unofficially known on the street as a “fast-fashion” brand with a “Made in China” label and not quite a luxury brand made in the UK due to the short-sighted management team that decided to move a significant part of its production to China in 2006. Although, they initially had made some short-term financial gains when they moved their production base to China, the Burberry brand is struggling now to become relevant in the luxury market.
When we examine the luxury market today, automobiles that are at the forefront of the luxury market, German cars have prevailed. BMW and Mercedes lead in production and revenue around the world and Porsche has steadily remained an iconic brand. The parent company of Porsche also did something extraordinary by also creating a car for a secondary market, Volkswagen in 1937, in order to address the growing discontent amongst the population in which there existed great social and financial inequality. In German, “Volkswagen” means, “The People’s Car”; yet very few people might realise that Porsche and Volkswagen parts are interchangeable. In effect, Volkswagen was able to dominate a market that Porsche could not reach and vice versa, without the loss of quality, and without the loss of the stature of each brand.
Volkswagen, "The People's Car". Volkswagen is the top selling brand in China and Europe.
In China, 5 of the top 10 best selling cars are Volkswagens. Volkswagen and Porsche, which are owned by the same parent company, and possess interchangeable parts, are marketed towards two different sectors of the population, although Volkswagen is primarily produced abroad in Brazil, China, Mexico, Nigeria whilst Porsche remains firmly rooted in Germany with some parts made in Finland.
US automobiles, such as Buick, also suffered when they moved production bases to China, similar to the Burberry brand when it lost its luxury image when it moved production to China. Instead, the US market chose Japanese brands made in the USA (eg, Toyota, Honda) as the staple of modern American living.
San Francisco Venture Capitalist Stewart Alsop II was denied a Tesla Model X when he wrote an inflammatory critique of a Tesla event. He later wrote subsequent humourous blog posts lamenting why he was denied a Tesla vehicle and had to "settle" for a BMW when he was ejected from the wait list after speaking to CEO Elon Musk.
One of the most appealing aspects of the Tesla brand is that it is a distinctly US produced car, in which there has been an ever steadily growing demand. Venture capitalists have been on the waiting list for different models of the car for a year or longer. In fact, amongst luxury cars, Tesla is one of the most desired brands in the United States. Because Tesla is uniquely American, just as Porsche is uniquely German and Aston Martin is uniquely British, it has created an entirely new luxury status of American elitism. Although, in the current economic climate in which people are outraged by highly paid executives living in the lap of luxury, at the same time, social inequality has fuelled the luxury market further, and Tesla has become the brand that represents a technocratic society; the socially enlightened elite that champions against global warming and sexism. Due to this cult of personality, the Tesla copycat made in China is neither popular nor desirable in China because of the psychological perception that true luxury is not a replica product.
Richemont, the Swiss watchmaker that owns Cartier and Mont Blanc destroyed $539 mln of its luxury watches to prevent them from entering secondary, discounted markets in order to preserve its luxury brand image.
From replica Chanel bags, to “fake meat”, Asians and other luxury target demographics have the distinct mindset that anything fake is not worth collecting nor consuming and that one must pay for quality and authenticity. In the current mindset of the Chinese demographic, luxury is something that can only be imported into their country, and not domestically produced.
The Adoption of Secondary Brands
Elon Musk, the CEO of Tesla, has said sometime ago that he had wanted to start a news website called, “Pravda” which means, “True” in response to the negative press he has been recently receiving from the media. However, this could present a great opportunity to promote the ideals of truth and freedom in a nation, such as China, to distribute a secondary brand of car that targets the Chinese/ East Asian demographic.
Many luxury brands have protected its primary brand through the creation of secondary market brands that are targeted for different population demographics. In the 1950s, the luxury European watchmaker Jaegar LeCoultre known for its 14K gold watches created a secondary brand, LeCoultre, made of gold fill and gold plate for the US market; Porsche and Volkswagen are owned by the same parent company, and whilst Porsche is still popular amongst its luxury demographic, Volkswagen or “The People’s Car” has dominated sales on many different continents from China to Europe, and due to the interchangeable parts of both Porsche and Volkswagen, they are essentially similar cars with different branding, although Porsche has retained its luxury status by keeping its production bases firmly inside Germany.
In a similar way, a Tesla + China partnership could give birth to a new secondary brand (真理? 自由?) with a production base in China that targets the needs of the East Asian demographic, whilst Tesla itself remains firmly rooted in production in the US.
In the US - one of the biggest imports are cars at 4.2%. This could grow exponentially over the next 10 years to 6% if US car and motorcycle producers keep its “Made in the USA” philosophy to protect their luxury brand. Although, short-term financial gains may appear tempting in order to satisfy investors and look good on quarterly financial statements, a 10-year-plan has to be considered which affects long-term growth and profitability of a brand. Whilst many brands, such as Burberry, Buick and many others have suffered in short-sightedness as they lost their brand appeal, Tesla could incorporate a strategy similar to what Porsche had undertaken when it had launched the Volkswagen, “The People’s Car”, which would then become the number one most popular vehicle brand in nearly all the major continents of the world 80 years later.
By Sierra Choi
This article originally appeared in www.globalfounders.london