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.  

A strange trade in Chinese tourists at the Galeries Lafayette in Paris

In 2010, 700 000 Chinese tourists visited France, of which 95% came to Paris and went shopping at the large department stores.  Although data for 2011 is not yet available, Chinese visitors in Paris are clearly much more numerous than last year.

In August 2008, during its popular 8pm news program, France’s leading TV channel TF1 broadcast the following video, prepared by its news department.
The video focuses on the difficult subject of Chinese tourists shopping at the Galeries Lafayette, the most prestigious of the large Parisian department stores. To facilitate your understanding, Zhenji has subtitled the discussion in English and Chinese.

Feel free to share this article widely through Twitter or email : the Chinese tourist should know how he is treated by his tour guides in Paris, and how his money is being diverted.

It’s all in the video : http://www.youtube.com/watch?v=sCw2RZVDx8k

Return of a Certain Shanghai Spirit : URBN Hotel

Shanghai’s architecture and buildings look nothing like Beijing’s. The destruction of Hutons and square court houses in Bejing made a lot of noise. But the Shikumen and private restoration initiatives in Shanghai made less headlines. Shikumen is what the traditional popular worker housing structures were called. Many were restored into lofts by wealthy Chinese nationals or foreigners.

The URBN Hotel in Shanghai is a perfect example of such a restoration project. The building housed the old Post Office. And as often happens with Shanghai business ventures, an Australia-based Chinese national and an American joined forces to revive this old structure into a loft hotel in this central Shanghai neighborhood. You can still see the old postal building’s supporting beams throughout the hotel restaurant.

It’s all about preserving heritage here. The omnipresent waxed wooden floors were salvaged from French Concession housing units. The mosaic paneling is assembled from  Chinese junks. The wall stones come from old French factories still bearing their owners’ original seals. The walls are made of Suzhou slate.  

Chinese Tourism Organizers in Paris Missed the Hotel Boat

I work regularly with the French Association of Chinese Guides in Paris and the Union of Chinese Tourist Organisms throughout France. My goal is to help large luxury brands with a Parisian presence grow their Chinese tourist sales figures in France.

Shangri La Entrance

For over 10 years now, Chinese tourism organizers in Paris took one thing for granted: that the Chinese tourist would never pay a premium to stay at the higher-end properties – namely 4-star hotels or Palaces as they’re called (recall that France does not have a 5 star hotel classification, and the highest-class properties are labelled as as Four Plus stars).

If you look at daily rates for Palaces, figure 750 euros per night, not including breakfast. The 4 star plus hotels charge around 450 euros a night. Although these prices can seem excessive, they’re in line with what you’ll find in NY, London, or Geneva, for example.

But Chinese travel organizers in France never took the time to analyse what was going on in China’s high-end properties like the Shangri La, the Hyatt, or the Four Seasons. As such, they have been grossly underestimating the modern HNWI Chinese tourist’s buying power.

Shangri La Salons

They still relegate their clients to second line properties like the Concorde Lafayette or the Meridien. And they steer them to lower-end shopping centers like Galeries Lafayette or Printemps when in fact, they should be delivering them to the Triangle d’ Or or Place Vendome.

I had lunch early January with a representative of the guides and travel agencies in question, and we had the following amazing exchange:

“Nathalie, I had lunch at the Shangri La yesterday and check this out: the hotel is packed with Chinese tourists on their own probably paying 700 euros a night. It’s mind-boggling. What’s worse, they’re not even using our services anymore.”

“Mr. X, this is exactly what’s going on right now in these hotels in China and Southeast Asia where Chinese citizens don’t need visas. You should work with these high-end properties instead of scratching your head.”

“We can’t do that. We negotiate the lowest possible prices for our clients. The lowest rates in Paris. But these hotels won’t work with us.”  

When Chinese People Go Shopping in Paris

Once upon a time… I had to receive my first group of Chinese business tourists for the department store in Paris where I was supposed to develop this specific foreign clientele.
It was 16 years ago and I am still working on the chinese tourists shopping today. As the marketing rules have not been changed since, they are still applied by almost every department store here and this is what it looks like: the stores dealing with Chinese tour operators and their emissaries, the tour leaders, must retrocede 5% to the tour operator and to the tour leader 10% of all the sales amount they have made with each group. If this was not put into practice, the tour operators would prefer to take their customers to some more dubious addresses like Paris Look or Benlux which would not at all be able to propose the same range of goods or brands.

Today department stores are commmissioning heavily chinese purchases in reducing their margin. In doing so, their objectives are not only to raise their turnover but also to accelerate the speed of stock rotation of their products that is in increasing their financial profit. They now look like monsters soaking up all the Chinese customers going through Paris or even through other european shopping sites. Anyway every tour operator visiting european capitals does end in our french department stores sometime.