The latest release of "2009 China Luxury Forecast"shows that while the financial crisis is leading a general decline in demand for luxury brands in Europe, America and Japan, the global economic downturn has had limited impact on Chinese luxury consumption and that there is widespread confidence in the future among Chinese luxury consumers.
The 2009 China Luxury Forecast interviewed 1,000 luxury consumers with an average annual income of RMB 240,000, from a total of 21 cities including Beijing, Shanghai, Guangzhou, Hong Kong and 17 second tier cities in East, South, West and North China. The survey was conducted during April and May this year. By analyzing consumer confidence and purchasing power, purchasing behavior and intention as well as the information channels that influence decision making, the report aims to help marketers better understand the prevailing behaviors among Chinese consumers and foreseeable trends in luxury consumption over the next year.
"As the effects of the financial crisis continue to be felt around the globe, the luxury goods industry is seeing a decline in demand in European, American and Japanese markets," said Christophe Cais, executive director of Albatross. "However, this report makes us excited as it shows that the economic downturn has had a limited impact on the mainland, where the luxury goods market continues to develop."
In Greater China as a whole, more than half (50.3%) of respondents claimed they will not let the global economic downturn affect their purchases of luxury goods; nearly nine out of ten (89.3%) of respondents said they will not change their preferred categories during the crisis. First tier cities showcase their strong sense of consumer optimism, with 58.9% of respondents claiming that price has little impact on their purchasing plans, against 54.6% in second tier cities, which is only slightly behind.
Beijing expressed the highest optimism among all the surveyed cities, with 44.8% respondents feeling confident to very confident about their future purchasing power. However, in Hong Kong, luxury consumption and consumer confidence are most affected and consumers maintain a cautious approach compared to mainland cities. Some 77.7% of the respondents said that they will reduce spending on luxury goods during the downturn and nearly 40% of this group are likely to reduce their monthly spend by at least HKD 5,000. Hong Kong consumers are also more conservative about future purchasing power. Only one out of ten respondents was confident that his/her purchasing power would likely increase in the next year while nearly half said they would maintain a wait and see attitude. The remaining 40% are less confident about the future.
Whereas, Hong Kong still remains the main luxury hub in China, especially for mainland consumers, with 43.2% of respondents selecting the Special Administrative Region as their favorite destination to purchase luxury items, while Shanghai is becoming a luxury hub in its own right. This is especially true in East China, where the city is chosen by 33.3% of second tier cities respondents. Because of the strong purchasing power of consumers in this region, the forecast report anticipates that Shanghai's position as a hub for luxury consumption in Mainland China would only increase in the future.
Moreover, according to the report, international luxury brands such as LOUIS VUITTON, CARTIER that tapped into the Mainland Chinese market as early as the 90's, remain in the top positions today despite facing a more competitive market. They have benefited from their long-term, localized and mature marketing events and promotions.
Besides, there are some other highlights of the report:
Gap is Narrowing among the Mainland Luxury Markets
The gap between first tier and second tier luxury markets is smaller than anticipated. Consumers in second tier cities are becoming more mature in areas such as consumer perceptions, behaviors and the use of information channels.
Consumer confidence and purchasing power
Despite the current economic situation, consumers in second tier cities show a strong capacity for luxury consumption, with 54.6% saying that prices have little impact on their optimistic view that their purchasing power will increase. This is only 4.3% lower than the proportion in first tier cities. When asked how confident they were about purchasing power over the next year, 36.6% of the respondents in second tier cities expressed confidence compared to 38.9% in those first tier cities.
As referring to the purchasing power, in second tier cities, 74.9% of the respondents are likely to spend less than RMB 20,000 a year on luxury fashion and accessory items, which is slightly more than in first tier cities. Almost a quarter (23.5%) said they would spend between RMB 20,000 and RMB 100,000 a year on luxury fashion and accessory items, which is only 10% less than the number in first tier cities. The percentage of respondents spending between RMB 100,000 and RMB 200,000 a year is nearly the same in first tier and second tier cities.
When it comes to luxury watches and jewelry, 19.1% of respondents in second tier cities will spend between RMB 20,000 and RMB 100,000, only 3.7% less than those in first tier cities.
Purchasing triggers
Luxury goods as gifts for business: More than 80% of the respondents buy luxury goods for personal use. A small number or respondents purchase luxury goods as business gifts and this is three times more in second tier cities (7.6%) than in first tier cities (2.2%).
Brand comes first when considering a purchase: The level of luxury brand awareness is narrowing between first tier and second tier cities. Among all the measured factors, "Brand Reputation"was named as the most important factor by 75.3% of respondents in second tier cities, followed by "Brand Heritage". In addition, some 46.6% of respondents in second tier cities said that they are loyal to certain brands, which is close to the percentage in first tier cities (47.2%), while Eastern second tier cities top the national list with 51.7%. As there are fewer luxury brands in second tier cities than in first tier cities and Hong Kong, the faster brands tap into the markets in the second tier cities, the easier it will be for them to build brand loyalty.
Point of Sales
Luxury department stores are the main channel for getting information. 64.5% of respondents in second tier cities said they sourced their information on luxury goods from leading department stores, 15% more than in first tier cities. The highest incidence of this is in East China where 70% are more likely to obtain information from salespersons in stores. In addition, 61% of the respondents said that a salesperson's attitude would influence their purchasing decision while 54.6% said they would make a decision after carefully listening to the advice of sales staff.
Information Channels
The use of information channels is similar. The results show that whether in first tier or second tier cities, the majority of the respondents get brand information from print media articles. Nearly 82% of second tier cities' respondents prefer to learn about new trends among the brands by reading about them in print publications, while some 20% say they get their information from television. Figures are similar for first tier cities' respondents.
How Luxury Brands Reach Out To Consumers
Traditional media remains an essential communication tool for the Chinese luxury market but the increasing use of internet technology is changing the rules. How to leverage various internet applications to strengthen the "word-of-mouth" effect to enhance and maintain brand reputation has become one of the crucial considerations for decision makers in luxury brands.
Although three-quarters of the respondents said that print media articles are their first information channel for luxury products. Other traditional communication tools such as PR and marketing events were also selected by more than a quarter of the polled consumers.
Traditional face-to-face communication remains essential. Information distributed in department stores by salespersons is in third position. For 64.5% of the respondents in second tier cities, the importance of point of sale for gathering information is much higher than in first tier cities (48.9%). This can be partly attributed to the longer exposure of consumers in first tier cities to luxury brands, while consumers in second tier city are not as familiar and need more personal advice.
Online communication is on the rise
Although luxury brands do not currently use the Internet to sell their products, online communication is already proving to be more important than traditional media in some areas due to its instantaneity and interactivity.
When searching for information about luxury brands and products and depending on the luxury categories, between 84% and 90% of the respondents say they use the Internet to gain a better understanding of luxury brands and products. So brand visibility in search engines is crucial.
Online consumer campaign and consumer experience are most welcome
The report shows that nearly half the respondents are likely to participate in online interactive campaigns organized by luxury brands. With the unique characteristics of instantaneity and interactivity, the Internet offers a platform for direct and easy communication between the brand and consumers, and a range of innovative campaigns can attract new consumers to the market.
Social media, such as BBS, blogs and social networks e.g. Facebook, are also used by luxury consumers to obtain information about brands and products. Consumers often share their experiences and opinions and this word-of-mouth endorsement has a big impact on brand reputation. More than 20% of the respondents confirmed the influence of these three channels on luxury purchasing decisions.
Future trends
We do not expect luxury brands to develop online sales channels overnight as there is a reluctance to purchase luxury goods online, as the purchasing culture and behavior of Chinese consumers surveyed show.
However, the different options offered by the Internet are already hugely popular among Chinese luxury consumers as information channels. We therefore anticipate that the Internet will play an even more important role in the marketing efforts of luxury brands as they continue to reach out to new consumers in China.
Luxury brands might also wish to review their corporate websites in line with the phenomenon of social networking and take the opportunity to provide detailed information and integrate a community of fans. Corporate social websites are a natural evolution from traditional corporate websites.
Ruder Finn Asia, part of Ruder Finn's international network, one of the world's largest independent public relations firms, together with Albatross Global Solutions, one of the leading market research companies on the luxury industry segment throughout Asia, jointly released the 2009 China Luxury Forecast on July 26th. Jean-Michel Dumont, Chairman of Ruder Finn Asia, said: "after the trail of the financial crisis, the major luxury brands are now more aware of the importance of Chinese market. The first-line cities are the strategically significant to the establishment of their brands and the second-line cities are of great importance for them to take root in the Chinese market." "By researching Chinese consumers' consumption behaviors on non-essential items, we can get a better understanding of their consumption behaviors on necessary items from which the main force to fight against the global financial crisis is coming", he added.
