Pham Viet Anh, Dinh Trong Nhan

Younger Buyers Challenge Luxury Retailers in Asia

By Bettina Wassener

The New York Times, November 18, 2009

Principle: The Three Fundamental Economic Questions

Answering all three fundamental questions correctly is the very first condition to succeed in any economic attempts, varying from your small shop’s daily trades to big multinational contracts. These questions are: 1. What to produce and how much? 2. How to produce? 3. For whom to produce?

For the first question, it includes two minor questions (what to produce and how much), however, it aims at only one target: our scarce resources’ problems. Mr. Greedy must consider WHAT he could exploit from his resources, WHAT his potential customers want and HOW MUCH he could produce. If he do the first puzzle well, Mr. Greedy would move on to the next one: HOW to produce. Well, our potential economist would solve this problem easily (thanks to our advanced technology). But now he comes to one big problem: How he could benefit from these products? He has to analyze and clarify a list of his potential customers who would satisfy him. This is the third fundamental economic question: FOR WHOM to produce (determining the potential markets).

Now it’s time to drop the theoretical glasses and see something real. We have Zegna – the 99-year-old Italian luxury men’s wear company. Its retailers – “traditional, sedate, salon-like Zegna” appear in almost fashion world’s capitals: Milan, New York or Paris. But when this fashion emperor decide to penetrate into Asia (in this case – Hongkong), it has to change the current appearances of its retailers. “The new 678-square-meter store boasts spacious rooms; a huge, shiny facade that is brilliantly at night; a sleek, modern design; a highly visible location in one of Hong Kong’s main shopping districts”. Yep, this change in appearance leads to considerable change in benefit: “Of the 870.6 million in revenues...last year...36 percent of total revenue came from Asia-Pacific region”.
1. Zegna’s strong points: - Luxury’s men wear
2. Its original Western customers: older --> loving formal
3. Asia potential customers: • Age: more younger and dynamic --> “sport apparel” and “upper casual” • Diverse in regions (considering China):
– Cities on the coast: “Western-style formal wear”
– Country’s interior: “casual clothes”

We have one fashion emperor and its noticeable success on Asia market coming from its changing appearance – like a puzzle than a miracle: Why they have to change? Why these changes lead to success, not collapse? We’ll try to solve this puzzle partly by using the very basic tool of Microeconomics: Applying three fundamental economic questions.

First of all, Zegna answered the third question FOR WHOM correctly. It is clearly aware of the current situation: its potential customers now are not the old European businessmen but the “first-generation entrepreneurs” who really need something more youthful and dynamic. As a result, Zegna will not use it’s resources to produce all classic suit like other brands which try to apply the same model they have in Europe. Instead of that, Zegna produced more “casual” and “sport” suits. By doing that, Zegna maximized consumer satisfaction or we can say, Zegna has the good WHAT TO PRODUCE answer. And finally, for the second question, HOW TO PRODUCE, the only thing we can say is that machines don’t make Zegna’s production. It’s production, like suit, shoes, ties … are handmade. And again, it’s a correct answer since “Asian shoppers like in-depth information about the craftsmanship that goes into its suits and top-quality textiles”