Size and growth of the Chinese luxury market : a global perspective

As internal Chinese demand for luxury goods slows and the incredible surge of western luxury brands over the past few years is challenged, many wonder what growth to expect from the Chinese luxury market in the coming year. Meanwhile, experts predict this will become the world’s largest luxury market (in front of the US) by 2015 or 2020.

Is the market really shrinking, or is the available data not being correctly analysed ?
On the one hand, in China, Upper Middle Class purchases (mainly watches, luggage and clothing) are no longer growing and even seem to decline. On the other hand, we have seen foreign luxury markets boosted by the Mainland Chinese buyers.
In Paris, after an unending, record year, luxury stores are out of inventory. Patek Philippe or Breguet limit sales to the Chinese to one watch per passport, in order to keep some for the other buyers. Hermes is overloaded by demand for its large colored (pink, green, blue, anis) Birkin bags. Cartier on the Champs Elysees does not have enough inventory to put the new collection on display. Jimmy Choo is out of eel skin … All this, thanks to (or because of) the Chinese. The phenomenon is not unique to France. In New York for the first time, Tiffany’s flagship store on Fifth Avenue has acknowledged its growth in the first semester is linked to the Chinese tourists. In London, Global Blue detaxing institute has noted a 50% growth in Chinese purchases.

The Chinese luxury market is very peculiar.
Due to a 30% tax on luxury products (luxury products being defined very widely), these products cost 30-50% more in China than in France, where the same product is sold tax free to foreign tourists. This cost differential exists everywhere around the world, since it is in China, a “socialist market economy”, that luxury products are the most expensive, precisely because of this tax.
In such a context, purchasing a Patek Philippe watch or a Birkin bag in China is so expensive that its justifies, in itself, a trip to Hong Kong or (if one has more time) to Europe.
For a long time this phenomenon was not fully understood, because foreign visas were difficult to obtain, which was a real obstacle for the Chinese. This is no longer the case, and with guarantee deposits, European embassies now deliver visas much more easily.  

Marketing to the Affluent Chinese: Target the event, not the individual !

Targeting a specific type of consumer or client when designing a product for China can cause serious headaches. Indeed, it is common knowledge that there is no single « Chinese Consumer », but rather a multitude of Chinese consumer types. The Northern Chinese may be opposed to Southern Chinese, East Coast Chinese to Chinese from the backward central regions, New Money to Old Money, “hard-earned” money to “dirty” money. Is there a key to targeting potential clients in this extremely fragmented market?

For over six years, we have been interviewing affluent Chinese of all sorts about their lifestyle and associated product purchases, and this has convinced us of the following: there IS a common denominator among all the affluent Chinese. For all of them, social events in China are extremely codified and require the display of specific categories of luxury products.

For example:
Rich Chinese often display numerous, expensive luxury watches, which makes us smile and think that the Chinese are avid watch collectors. In fact, during our interviews, the Chinese explain (quite logically) that each watch fits a specific event and therefore multiple watches are necessary: one for the workday, which will be common / low profile i.e. a Rolex or a simple Omega; one for the Board or Communist Party meeting i.e. a premium watch such as a Patek Philippe with complications or an Audemars Piguet ; one for sports activities – a Tag Heuer or a diving watch like the Omega Submariner ; one for parties with sophisticated friends – a diamond watch from Piaget or Cartier… And as people get richer, the events subdivide, specific sports will require specific watches i.e. a diving watch for diving, a Jaeger Lecoultre Reverso for Polo, etc …

The same pattern exists in the women’s universe, clothing for example: at work (all the women work in China) a skirt and a sophisticated top, for shopping a casual outfit which may include trousers, for an evening event a evening gown, for a Charity lunch among women a very sophisticated but this time short dress, for sports – sportswear, for golf – golf apparel, for yoga an indoor outfit made of expensive fabric such as single thread cashmere…

Events are codified and the Chinese are very formal. While it is difficult to describe a « typical » Chinese, all the Chinese across the country will agree on the same attributes to wear at the same types of events. This flows from the strong influence of Confucianism, which dictates what is called Chinese « good taste », or rather the importance, as taught by Confucius, of behaving in the appropriate manner in each specific circumstance. What the Chinese call « Good Taste » today is nothing more than what Confucius called the « virtue of the gentleman ».

The key to marketing a luxury brand or product in China, therefore, is to find the related event, rather than to determine the type of client or consumer. Once you’ve identified the event, you will be able to roll out a lifestyle-marketing plan that will be simple, effective – and very lucrative.

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.  

In 2011, Blulnc Media Turns Hainan into the Chinese Riviera.

In two years, following two editions of Hainan Rendez-vous, and significant editorial support, Asian press group Blulnc has created a new Asian Riviera. By Riviera, we mean a magnificent beach location, jam-packed with wealthy people, and perfectly suited to host their yachts and private jets.

Hainan is a small Southern China island paradise. Until now inhabited by regular people. No one could have imagined Hainan as an elite seaside resort. But it’s become the prestigious meeting spot of the Chinese elite.

In 2009, Blulnc General Manager Olivier Burlot goes scouting for a location. He’s surrounded by his responsible for China, and Delphine Ligniere, owner of the Marketing China Rendez Vous agency. Also along is the Chinese president of the Hainan Visun Royal Yacht Club.

Hainan Rendez Vous is developed with the full support and might of the Blulnc press group. Its partners Inluxe.cn, luxury-insider.com, and propgo.com also pitch in. The entire onslaught of the mighty media group is focused on a 3-day mega Asian millionaires party – mostly Chinese – showcasing private jets, yachts, dream real estate, luxury automobiles, jewelery, and high-end horology.

By the end of 2010, cash orders placed total 90 million euros. Not even including pending purchase options.  

The HNWI and Upper Middle Class : Attraction and Repulsion

Opinion Way and Think Out, two French research institutes, have, both and at the same time, studied the Mainland China people’s relationship with the occidental luxury for several years. Opinion Way, with the help of Chinedge, studied the HNWI and Think Out, the Middle Class. Chinedge and Think Out took on the Upper Middle Class. Chinedge has been working with both institutes and so, had access to both of their studies.

Of course, many similarities appeared : A strong appetence for education as well as a desire to master the knowledge of brands and also how much the social status is linked to the occidental brands. But at the same time, one could point out the formidable tensions which came to light between these two classes, tensions that the brands must take in account if they want to succeed on this market.