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- 21 Feb 2013
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How Well Do We Really Know the Chinese Luxury Consumer?


Shanghai Tang’s Spring 2013 campaign

Beyond the buzzwords, what is really happening in China’s luxury market? And where should luxury brands direct their resources to capture the emerging affluent?

This morning I attended Luxury Outlook 2013, presented by The International Luxury Business Association in partnership with Ipsos and The Boston Consulting Group.

The theme, Luxury in China, What’s Next? examined the factors which may impact future growth in China, the role of the new middle class and the balance between physical retail and e-Commerce. Below are some of the most important ideas to surface.

 More than half of Chinese luxury goods consumption occurs outside of China 

Not So Surprisingly

BCG research confirmed that more than half of Chinese luxury goods consumption occurs outside of China. Chinese consumers travel to purchase luxury goods not only because of high local taxes on such items, but to connect with brands in their place of origin, particularly in Italy and France.

Wealth is increasing steadily in China and centres of affluence are constantly shifting. In 2010 there were only 2-3 cities with household net worth over $2.5 million, by 2020 there will be more like 5-6.

Wealthy consumers are increasingly younger, as the original segment of luxury consumers – namely Chinese businessmen over the age of 40 – freely pass on wealth to their children without the constraints of inheritance tax. These younger consumers grew up with luxury and are often digital natives.

 Chinese consumers continue to be driven to purchase luxury as an affirmation of social success 

Chinese consumers continue to be driven to purchase luxury as an affirmation of social success, which is largely based on an underlying ‘group’ culture. Logos continue to play an important part of luxury consumption, despite rising interest in niche or lesser-known brands.

Research conducted by IPSOS posed the question ‘What is Luxury’, and the overwhelming response was ‘a brand’, rather than a product characteristic or level of service. Chinese consumers identified Louis Vuitton, Gucci and Chanel as embodying their idea of luxury.

For the moment, China remains a demand driven market. Despite longstanding associations with luxury and the existence of domestic luxury brands, the Chinese luxury market will remain driven by Western luxury brands in the immediate future.

 Chinese consumers are becoming more and more interested in learning about the heritage of brands 

Chinese consumers are becoming more and more interested in learning about the heritage of brands, details of the products and forming personal relationships with these stories.

Limited edition products continue to perform well in the Chinese market as Chinese consumers value rarity, scarcity and the idea that a certain product was made ‘just for them’.

Discounting also plays an important role in the retail process, but should never be advertised as a reason to bring clients in store, as it diminishes the ‘just for you’ affect the consumer craves.

 Segment China in it’s own right, rather than a segment of Asia 

More Surprisingly

Many speakers mentioned the need for luxury brand marketers to segment China in it’s own right, rather than a segment of Asia. Shanghai Tang CEO Raphael le Masne de Chermont specifically noted the cultural differences between northern and southern consumers and how they directly affect consumption habits.

In celebrating the recent Chinese New Year the brand sent vouchers to it’s VVIP’s – consumers spending more than $80,000 HKD p.a. – and noted that consumers in the south would spend as close to the voucher amount as possible, whereas northern customers would spend four to five times its value, as a gesture of ‘face’.

Angelito Tan, founding partner of Robert, Tan & Gao Luxury Consulting, also noted the effect that various cultures has on product assortment. Specifically he urged luxury brands to understand the varying symbolism of colour between regions in selecting products and developing marketing materials.

 By 2015 China will have more internet users than the United States and Japan combined 

Though the connected nature of China is nothing new, the figures are quite astounding. By 2015 China will have more internet users than the United States and Japan combined. 90% of respondents surveyed by IPSOS had a smartphone, 59% had a tablet.

An overwhelming 74% of respondent’s would like to receive Push Notifications on their smartphones directly from brands, 73% would be happy to receive non-product related news, and over 70% receive SMS directly from brands. The same amount would be happy to be geo-located and sent offers from nearby boutiques.

The e-Commerce landscape is not how we know it in the Western world. Apart from the obvious lack of Google or Facebook, Chinese consumers use the internet in a different way to search and shop. An overwhelming 80% of consumers seek products using Taobao, described as a hybrid of Google, eBay and Amazon.

 The Chinese eCommerce consumer expects services not widely offered in the West 

The Chinese consumer also expects services not widely offered in the West, such as same day delivery, multichannel exchange and refund, and cash on delivery. Local eCommerce platform 360 Top is one of the dominant platforms with over 80 million registered users, roughly 15 million more people than the entire population of France.

Finally, what Chinese consumers buy is shifting. When asked about purchase intentions for the next twelve months, between 48-53% of respondents plan to spend less on handbags, jewellery and watches. Whereas 40-43% of respondents plan to spend more on footwear, beauty and wine.

Wine, spirits and tobacco remain gifts of choice in business, but at home, women are swapping watches and jewellery for husbands and family, to lower priced apparel and cosmetics. Similarly men are expected to switch jewellery for cosmetics for their wives, and footwear for apparel for their families.

 48-53% of Chinese consumers plan to spend less on handbags, jewellery & watches in the next year 

To Remember

China is beyond digitally connected, with specific preferences toward mobile and tablet technology. They are happy to be contacted on these devices in ways that western consumers often deem ‘intrusive’.

There are ‘Many China’s’ within China, even the Tier-One, Tier-Two approach is somewhat dated. Understand the cultural differences between regions and tap into emerging wealth centres.

eCommerce is not as simple as setting up a web shop. Chinese consumers search and shop in very different ways to the West. They are concerned about authenticity of product and they demand much higher levels of service.

The future Chinese consumer will become more individualistic and more discerning, but they are still buying luxury as a confirmation of social success.

Where they are changing is in their need for knowledge, they want to know why a luxury brand is deserving of a purchase.

To further investigate the Chinese luxury market on Luxury Society, we invite your to explore the related materials as follows:

- Western Luxury Brands Celebrate Chinese New Year, Year of the Snake
- Why Men Are So Important to China’s Luxury Market
- China’s Luxury Watch Market Not Nearly As Grim As It May Seem