China: Incubator of Luxury’s New Business Models

Abstract

Luxury brands have built their tremendous development on a specific business model that was developed in Europe in the 1980s and 1990s — at a time when China was not even on the radar of most luxury executives. This business model has ensured that gross margins are consistently above 60 per cent and, in some cases, reach 75 per cent. Most American luxury brands, which had gross margins between 50 per cent and 60 per cent, have since replicated this business model and, as a consequence, grown their gross margins (Figure 15.1)¹.