When the world’s largest luxury group comes to town, it’s a pretty good bet they’ve done their homework and know a good thing when they see it.
On November 18, Bernard Amault, Chairman of the LVMH Group, attended the opening ceremony of Louis Vuitton’s new flagship store in Beijing.
Confident about its current 12 Louis Vuitton stores in China and the entire Chinese market, he said the LVMH name, which entered China 13 years ago, carries not only products, but also French culture.
Louis Vuitton, a French luxury goods maker, is a brand under the LVMH Group. The new flagship store in Beijing’s Guomao Shopping Mall is a carbon copy of the Louis Vuitton flagship store on the Champs Elysees in Paris and has all the exotic fashion buzz that brand buyers just can’t resist.
Besides the complete range of luxury products, including trunks and suitcases, LV’s clothes and accessories are also on offer in the nearly 800-square-meter Beijing store.
Rush to China
Louis Vuitton is not alone in seizing the emerging market, and most of the world’s leading luxury goods suppliers are expanding their operations on China’s mainland.
The world’s top piano producer, Steinway & Sons has established its fully funded subsidiary in Shanghai. Kenzo is preparing for four new stores in China. Italy’s largest fashion group Gucci will soon open shops in Chengdu, capital of Sichuan Province, and Hangzhou, capital of Zhejiang Province. The Italian men’s wear brand Zegna has opened 52 branch stores in China, and Armani announced it would open 30 stores in China before the 2008 Olympic Games.
International auto giants are also amazed by the consumption power of the Chinese. At the Shanghai Auto Show in 2003, Bentley’s Mulliner 728 was sold at a staggering price of 11.88 million yuan ($1.46 million). The following year, the same car went for 9.88 million yuan ($1.22 million) at the Beijing Auto Show.
The 2004 financial statistics of Richemont, the largest Swiss watch group, showed that its sales volume in China accounted for 20 percent of its worldwide total, and if taking into account the total purchases of Chinese tourists in the rest of the world, the figure rose to 40 percent. In China, the high-end customers of Richemont products amount to about 3-5 million.
French perfume, Italian fashion, German cars and Swiss watches―luxury items in Europe―have all found their way into China. When luxury producers are disappointed at the sliding sales in current anti-luxury Europe, they are pleasantly surprised and feel hopeful about China.
According to statistics, the annual sales volume of luxury items on China’s mainland now averages about $2 billion, accounting for 3 percent of the global total.
Rosy outlook
SPENDING SPREE: Rolls Royce cars are now on Chinese shopping lists
China is expected to surpass the United States to become the world’s second largest consumer of luxury goods in the coming decade, said a market research report in September 2005 made by Ernst & Young, one of the world’s four leading CPA (certified public accountant) firms.
The report predicted that the sales of luxury goods in China will grow by 20 percent annually between 2005-08, and that the rate will cool down to 10 percent in the 2009-15 period. Sales are expected to exceed $11.5 billion in 2015, or 29 percent of the world’s total, second only to Japan.
“Chinese consumers have started to mature and demand a wider range of luxury goods,” the report said.
In June 2005, right after China and Europe closed their trade talks on textile products, a French textile and fashion inspection team arrived in Shanghai, aiming to promote the International Underwear Fair to be held in autumn in Shanghai. Marie-Laure Bellon-Homps, president of the fair sponsor Eurovet, said it was the first time the fair had moved from Europe to Shanghai, hoping to dig into the luxury market on China’s mainland.
It’s obvious that the enormous Chinese market is a lucrative one for French fashion houses. Benoitde Valicourt, public relations manager of French deluxe men’s fashion brand Zilli, said the company is considering opening an authorized store in Beijing or Shanghai, and a store in Hong Kong is also planned.
Claude Tetard, Chairman of the Association of the French Fashion Industry, said that French companies should seize the opportunities after textile quotas were cancelled, and export more top-grade clothes to the Chinese market, where French products are very competitive.
He said he was glad to see the successful talks between Europe and China, which leave more time for the French fashion industry to adjust its orientation. In the past, he said, the main destinations of French clothing products were the United States and European countries. He believed that more luxury items would come into the Chinese market after the adjustment. According to him, textile and fashion products to China made by the 8,000 companies under the association accounted for 30 percent of their total exports.
Spending spree
Conway Lee of Ernst & Young explained that China’s luxury consumers are mainly the rich and the young white-collars, especially employees of foreign companies.
According to estimations of the China Association of Brand Strategy, luxury consumers account for 13 percent of China’s total population, or about 160 million. Most of them are white-collar workers, private company bosses and other upwardly mobile aged between 25-50. Of them, about 10-13 million are regular buyers of such products as watches, suitcases and bags, cosmetics, clothes and jewelry. Some scholars say at least 300,000 consumers are rich people worth more than 10 million yuan ($1.23 million).
According to the official Xinhua News Agency, China’s luxury consumers are quite different from those in Western developed countries in terms of age and consumption patterns.
While Chinese luxury consumers are young and middle-aged people, the elderly and middle-aged are the luxury consumers in developed countries.
In China the consumption of luxury goods is very much item-driven, meaning consumers search for the latest collection or products, such as clothes, perfume and watches. In more developed markets consumers tend to seek experiences that pamper them, such as a luxury holiday.
Sales staff of many China-based luxury stores said that most of their customers work in foreign companies. Besides accessories and wallets, some also buy clothes worth several thousand yuan, but they seldom buy something worth more than 10,000 yuan ($1,233), and their consumption usually stands below 5,000 yuan ($616), according to sales staff.
“In our company, Chanel perfume and Dunhill bags are very common. Clothes worth several thousand yuan are more ordinary for a senior manager. Usually we don’t consider Ports clothes as luxury items. If you dress casually in our company, people feel weird about you,” said Wen Ning, who works in a foreign company in the Kerry Center, one of the deluxe office buildings in Beijing.
She also said that everybody in her company is conscious about brands, and if somebody is found to be using a fake brand, it would be shameful.
Gimmo Etro, President of the top Italian luxury brand ETRO, said he believed consumers who can afford luxury items should earn a monthly salary of at least 20,000-30,000 yuan ($2,466-3,699). “They should be consumers who can really afford clothes worth more than 10,000 yuan ($1,233), instead of those who spend all their money to buy a small luxury item. They do so perhaps because they are seeking for a touch of class and taste, but for myself, I don’t like consumers buying out of vanity. Consumption should be planned according to one’s purchasing power.”
Luxury goods consumption will continue to be driven up by Chinese traveling abroad, whose number is now on the rapid rise, said the Ernst & Young report.
According to statistics provided by the Chinese Academy of Social Sciences, along with a continuous growth in wealth and a loosened restriction on visa provision, Chinese people going abroad for sightseeing numbered 28 million in 2004.
The figure is expected to increase to 49 million in 2008, 60 million in 2010 and 100 million in 2015, the Britain-based Economist Intelligence Unit predicted.
In 2004, Chinese traveling abroad consumed $25 billion worth of goods, and the value will rise to $30.5 billion in 2008, according to the Unit forecast.
Melanie Flouquet, head of the luxury industry department of JP Morgan, said travelers abroad make up an important part of luxury consumers. Their surveys show that 38 percent of global top brand consumers are Japanese, and 15 percent of them are overseas travelers. Currently, the growth of Japanese market shares is declining, and that of emerging markets, such as China, India and Russia, is on the rise.
China’s own brands
Although there is still a long way to go, China’s own luxury brands have emerged along with the maturity of the luxury market. Moreover, Chinese consumers have begun selecting domestic brands.
In 1994, David Tang Wing-Cheung from Hong Kong established Chinese clothing brand Shanghai Tang. After being acquired by Richemont in 2000, Shanghai Tang has rapidly risen to being a global prestigious Chinese brand.
The designs of Shanghai Tang are full of a great deal of Chinese elements, such as Chinese characters, landscapes, Peking Opera and kungfu. Though without star designers, the brand has been favored by celebrities of both the East and the West. Its customers include Prince Charles, the late Princess Diana, Margoret. Thatcher, Senator Hillary Clinton and Hollywood film star Nicolas Cage.
Raphael Le Masne, Executive President of Shanghai Tang, is a Frenchman. His Western team has attracted global consumers with their Chinese-flavored designs. It sounds like a miracle. But Raphael Le Masne explained that his designers look on themselves as Chinese and they gather inspirations from Chinese culture. “It’s our characteristics and advantages,” he said.
Currently, Shanghai Tang has opened 17 authorized stores around the world, and it plans to open more in such cities as Milan and Tokyo. Le Masne said the figure will expand to 30 in two years.
The 29-year-old Chinese female designer Ji Cheng also created her own costume brand LaVie, which has started business in Shanghai’s Bund, an area where many of the world’s top luxury brands have gathered. Ji Cheng, who studied at Marrogonni, a fashion design school in Milan, said her design idea was “Eastern concept and Western cutting.” About 60 percent of her customers are foreigners fascinated by Eastern culture.
“My products are designed and created in China,” said Ji confidently.
Viewpoints on luxury items:
Zhang Dongsheng (company general manager): Buying luxury items is not to show off. Currently China faces two problems: one is money and the other is culture. To many Chinese, being wealthy is just a start and they need to learn how to use the wealth. Therefore, the culture of consumption is the most important. In wealthy Europe, people have taken luxury consumption as a habit, instead of something to show off. While in China, if people spend a lot of money on something, they usually take it as an investment. For those who can afford it, it’s a life of quality. But for those who can’t, it’s the yearning for a dream lifestyle.
Zhang Yuhua (parent of a student studying abroad): It’s immature for young people to buy out of vanity. My son told me that most young people in the country where he studies would consider their pockets before they decide to buy. My son used to be wasteful at home, but learned to be thrifty after going abroad. So first ask yourself if you can afford it before you spend on luxury goods.
Wang Jing (middle school teacher): It’s dangerous for young people to get used to luxury items when they don’t have enough money on them. In that case, it would turn out to be a social problem, instead of a personal trouble.
Hua Qing (foreign company employee): I still wear a pair of 4,000-yuan ($493) trousers that I bought more than three years ago. I earn nearly 10,000 yuan every month and usually buy a luxury item every two or three months. There’s no fear of me spending all my money on luxury brands.
Zhao Wenxin (private company boss): I have a hobby for “expensive toys.’’ I have seven limos and two small planes, besides a helicopter made in Russia. But I still want a Rolls Royce―do you know where I can buy one?