Aug 02 2011 

The Chinese HNWI and ultimate Luxury: Will the Rise Ever Cease?

Chinese Dollar millionaires total one million today, according to the latest Hurun Report. That’s a lot of very wealthy people, even if nations like the USA or Japan still count more. Fact is, Chinese currency is weak, and the cost of living in Beijing or Shanghai is still cheaper than New York or Tokyo. And so Chinese millionaires are considerably wealthier than their American or Japanese counterparts. What’s more, when they travel abroad, they benefit from a 12% tax refund on luxury goods. Applied to big ticket items, this can represent considerable sums of money, thereby increasing their buying power.

The luxury industry facing this population is changing and reaching its limitations, as products are often out of stock. This is what happened to Bordeaux cru wines. In four years their customers mutated and “Chinesefied”. I won’t even mention Chateau Lafitte. A similar situation also affects brands like Patek Philippe in Paris, where the company decided to cap the number of watches sold to Chinese customers to one per passport. Unless they do this, they cannot supply their other customers. And we’re talking about a brand with entry-level prices starting at 17,000 euros. Additionally, Patek CEO Thierry Stern has also raised the alarm on global sapphire glass supplies starting to wane. This will surely be problematic for the luxury watch industry who needs this material to produce their scratch-proof watch glass. Another brand like Hine Cognac, the only vintage Cognac producer and supplier to the Queen of England, is facing production capacity problems. The only solution is letting prices rise.

Some of the most famous brands based their luxury on exclusivity by limiting their stock in a natural, organic way. But these houses are already in trouble, and the people at the top don’t realize that China is nowhere near its growth peak. Its number of HNWI grows by about 20% yearly (Bain). And when this growth starts to stabilize, it will be India’s turn. Its population is projected to grow beyond China’s. India will pick up where China leaves off in terms of volume. And will add its own mass of Asian dollar millionaires to the luxury consumer pool.

So what will happen? If Chinese dollar millionaires increase three or four fold, will prices follow in the same path? And if so, will Europeans, who produce these rare products, even be able to afford them any more? Are we destined to become the world’s luxury manufacturer like China was for consumer goods without even being able to enjoy them? If so, will brands remain credible?

Or will we have different ranges of products for Asia and for the Western world? And if so, what happens to the concept of globalized brands, and how do you maintain brand consistency?
Will we have to rethink certain luxury product lines based on raw material availability? Are there enough alligators in the world to satisfy Asian demand for Hermès Kelly handbags? What will our world become with an industry for the “poor” and another one for the “very wealthy”?
The sheer volume and growth of the Asian continent will alter luxury and influence it. But it’s important to realize this and anticipate it today lest we lose our very being.

In regards to the notion of luxury itself, consider the following: Hermès, of all brands, recently lowered its prices in Korea even though demand there keeps increasing. This clearly indicates that the concept is mutating, that ethics are becoming the ultimate luxury, and that fundamentals of luxury need to be rethought.

By Nathalie Omori. Filed under HNWI |

10 Comments

  1. by Kelly Smith, Aug 02 2011

    I think if you are not running business in China, you should consider buying stock and fund that related to business in China. It will grow faster than any other part of the world, at least for next few years.

  2. by Passini, Aug 02 2011

    Toujours intéressant et passionnant. Il est vrai que l’éthique est l’esthétique de l’avenir.
    Maryline

  3. by Passini, Aug 02 2011

    Toujours intéressant et passionnant. Il est vrai que l’éthique est l’esthétique de l’avenir.
    Maryline

  4. by Nathalie Omori, Aug 02 2011

    Thanks a lot Passini

  5. by Sindy Liu, Aug 02 2011

    That is a great article Natalie!!!!! some facts that will become increasingly important for luxury retailers to face!!! I’m very surprised by the price decrease by Hermes in Korea, why they do this??? the company seems having quite a few unusual strategies lately…i’m very curious to know ‘why’?

    about the demand to meet chinese consumers, i think the one product allowed by one customer is probably the best way to control brand exclusivity at the moment, long term wise, we’d have to wait and see, China is experienting some domestic changes and problems right now which may affect luxury market, but it’s too soon to tell…

    another thing is regarding the brand exclusivity, i think it’s not a very good thing for long term brand image in terms of the luxury brand positioning, but i dont’ think keep raising prices is the only solution, besides, that means the brands ignore the consumers in mature markets, and that’s just not right, because actually chinese/Asian consumers look up to the West for inspirations. and there will be more up & coming young chinese who travel more and want to learn more about the European heritage which luxury is an important part of it, if they learned the fact that no Westerners can afford luxury anymore and luxury is somewhat a ‘history’ and now only to please the rich chinese who may only know how to splash cash instead of understanding luxury, then these more educated well travelled Chinese probably won’t like luxury as much as they could, in a long term the effect could be negative on the luxury image?

    or on a 2nd thought, maybe they should produce a 2nd line aimed only in chinese market under the brand’s name, distributed in China to meet local demand…although some will still want to buy the main collection, hmmm, difficult indeed.

    but on a 3rd thought, on the issue of crocodile skin or fur, maybe brands can see it as an opportunity to educate consumers with government because animal cruelty is a huge problem in china so i’m sure local government or some well educated rich chinese would like to work together with the brands, on how to use animals in the right way, e.g. ethical usage of fur/skin….etc.

    just some of my thoughts….criticism wellcome!

  6. by Bala Catherine, Aug 03 2011

    Thank you for the newsletter.
    I would like to ask what the HNWI acronym stands for ?
    C. Bala

  7. by Nathalie Omori, Aug 04 2011

    High Networth Income (millionnaires in dollar in cash)

  8. by Laura QIU, Aug 04 2011

    I like the idea that “fundamentals of luxury need to be rethought”.
    Sometimes, I can’t help thinking: how do we connect the historical & cultural richness with the modern & internationally perceived luxury? How do we associate the appreciation of the quality products & service with the good will & spirits that a luxury brand intends to convey?
    Clients’ needs are evolving, so should the ultimate definition of the “luxury”.

  9. by Rosalind, Aug 04 2011

    Appreciate your article. Supplying demand of luxury goods for an increasing population of high income consumers in Asia boggles the mind. Luxury aside, as purchasing power of a middle class rises, the need of resources/materials to manufacture extreme, massive quantities of consumer goods cannot be sustainable.

    Would not be surprised to see more auction sites pop up selling previously owned luxury items. Seems this is already taking off. And there are services selling/bidding for experiences, such as driving a Bentley for an hour. If you can’t own, you can at least experience.

  10. by Nathalie Omori, Aug 05 2011

    interesting Rosalind, you should build a company in China, you have great ideas

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