China is already the second largest market for luxury goods and it is only a matter of time before it overtakes Japan. Rong Jiaojiao of China Features reports.
China has become the most promising market for various luxury brands. Zhang Heping
Jane Shi strides into Beijing's Lane Crawford Seasons Place shopping mall, dashes to one of the up-market shops, snatches a bag, glances at the price tag and pulls out her purse, as if she was in a supermarket.
However, the purchase today is a Balenciaga motorcycle bag costing more than $2,000. The owner of one Balenciaga, two Fendi, a Louis Vuitton, a Gucci, and two Vivian Westwood bags, Shi, 32, simply says, "I need them."
"It's not all about the vintage crafted lambskin, the platinum-plated metal, but the feelings and image the luxury bags give me. I feel pampered, and different from common people," says Shi, a manager at a multinational advertising company, earning an annual income of more than $150,000.
Shi is one of a growing army of luxury shoppers in China. The China Brand Association estimates consumers of top-tier brands account for 13 percent of the total population, or 170 million people.
Whether it is yachts, limousines, haute couture fashion or handcrafted watches, China's appetite for luxury goods has surged despite the global economic downturn.
A report by consulting firm Bain & Company in November showed consumption of luxury goods in China is expected to stand at $9.6 billion at year's end representing a 12 percent growth this year, compared with a 16 percent slump in the US market, a drop of 10 percent in Japan and 8 percent in Europe.
Earlier this year, China's consumption reached $8.6 billion, accounting for 25 percent of the world total, surpassing the United States to become the second largest market for luxury goods, according to the World Luxury Association report.
Goldman Sachs has predicted that China will continue the spending spree and consume about 29 percent of the world's total luxury goods in 2015, leapfrogging Japan as the world's biggest luxury buyer.
"China's consumption has changed from increasing quantity to the upgrading of quality. The consumption of refinement and taste is pursued, which is an important invisible value of luxury goods," says professor Li Fei, director of the Department of Marketing at Tsinghua University.
"Luxury goods are products beyond necessary basic living and development needs. They should have a history of more than 100 years, and be made of rare materials and with delicate craftsmanship."
More than 300,000 Chinese already have a net worth of more than $1 million. A study by McKinsey in July indicated China will be home to the world's fourth-largest population of wealthy households by 2015, an estimated 4.4 million.
British carmaker Bentley sells more Mulliner 728 limousines, the world's most expensive car at $1.2 million each, in Beijing than in any other city in the world.
A surge in Chinese travelers abroad has facilitated access to Western brands. By 2008, mainland tourists had spent $30.5 billion on luxury items, thanks to the lower prices and taxes in overseas stores.
The world's leading luxury brands are expanding their China operations. Some are moving out of smaller stand-alone outlets and hotels to set up megastores to educate consumers about the brand and pump up luxury spending. Many brands are accelerating the opening of new boutiques in China's second and third tier cities.
Li suggests that status and self-reward are particularly strong buying motivations for Chinese consumers.
"Luxury in China today is primarily a social statement. The function of luxury counts more for Chinese than the emotional factor," says Li.
A KPMG survey in 2007 echoes his findings. More than 70 percent of more than 800 respondents saw luxury brands as a way to demonstrate status and success. More than 60 percent bought luxury goods to reward themselves for hard work and success.
Diana Gu, 37, a freelance writer in Shanghai, admits luxury goods have the benefit of brand recognition and exclusivity.
"The sparkling diamond ring on your finger sends a message that your husband is rich. Sipping cognac indicates you belong to the elite. The designer watch means you are sophisticated," says Gu.
Profiling China's luxury consumers, surveys have shown the majority are aged between 20 and 40 - considerably younger than those in the US and Europe, aged from 40 upwards.
China's super-wealthy, with incomes of $10 million or more, are leading the trend to snatch up high-end items.
A JWT (J Walter Thompson) study in 2007 shows this segment enjoys personalized services and visits luxury shops without concerning itself about prices. To them, buying luxury goods is a demonstration of power, the reflection of knowledge and an understanding of the finest in all things.
The second group of luxury consumers are the new rich, composed mainly of upper-middle management and white-collar workers making $200,000 to 300,000 annually.
The JWT study showed they are often the first generation in their family who can afford luxury products. Their consumption reassures them that new money does not have to be uncouth.
"Although individually they consume less than the super-rich, they contribute most to the hike in China's luxury consumption due to the large size of this group," Li says.
The JWT report suggested super-wealthy and new rich are most likely to indulge their wives or mistresses, and buy business gifts.
Yet the most brand-savvy consumers are the "little emperors" - the generation of only-children born after 1980.
They have a taste for luxury, and money to spend. They are willing to indulge themselves, supported by six sources of disposable income - parents and grandparents - to meet one child's every need.
"The design, the delicate patterns, the distinctive hallmarks of a luxury bag give me pleasure. If I cannot become a celebrity overnight, at least I can buy the bag they use," says 22-year-old Vivian Chen, who wears a pair of Gucci shoes and carries a Chanel bag.
"I hope I can find a good job after graduation, so I can buy luxury gear with my own money," says Chen, whose parents sent her to study in London.
Li Fei is confident that China will become the world's largest luxury market, driven by the continuing pursuit of a better life and the expansion of the middle class as a result of the booming economy.
"It is important to learn how to savor luxury instead of only showing off. Otherwise, consuming luxury is a waste," he says.
In a letter to subscribers this month, Access Asia, a United Kingdom-based independent market research company, said the "secretive market, where hard numbers are problematic and boosterish hoopla PR is the driving force", made forecasting trends difficult.
However, the increasing sophistication of Chinese consumers augured poorly for the "more showy brands such as, notably, Louis Vuitton".
The brand would start to lose sales when consumers mature, Access Asia predicted.
"LV follows boom economies and the new rich. A generation on, a bit of sophistication, and LV becomes a brand people move on from," said the Access Asia newsletter.
Jane Shi spent more than $600 buying a Louis Vuitton wallet, because she "adores its craftsmanship and durability". But in public, she feels a little embarrassed. "I am afraid others might think it a fake," she says.
Meanwhile, China's own luxury brands are still a long way off, says Li.
"Although China enjoys a long history and rich culture with world famous craftsmanship such as embroidery and scented-wood furniture, creative and fashionable brand design, marketing and brand management skills still lag behind."
The Advanced Management Program in Fashion and Luxury at Tsinghua University was launched in 2006 and has since trained 200 people, mainly executives from domestic and overseas fashion firms, in brand management, business models, product strategy, creative design and fashion culture.
"Hopefully, in years to come, the fashion in Paris and Milan will be to wear Chinese silk embroidery, feature ancient Chinese furniture at home and sip Chinese Moutai (liquor)," the professor says.
