Luxury market in China

Luxury market in China
Huge growth potential ahead
Fung Business Intelligence Centre
April 2013
Table of Contents
2
Executive Summary
4
The Market
6
The Consumers
18
Competitive landscape and strategies of luxury players in China
23
Luxury market in China 2013
Despite the weakened global economy and its subsequent impact on the luxury market, China’s
consumer market continues to demonstrate huge growth potential. The demand for luxury
goods in China continues to soar, driven by a number of positive factors such as the growing
number of affluent and middle class, rising household disposable income and higher luxury
spending, and increasing number of travelling Chinese.
The lucrative China market has presented abundant opportunities for global luxury players
to further establish their presence across the country. In this report, we will provide a general
overview of China’s luxury market and take a look at the preferences and behavior of Chinese
consumers. We will then assess the competitive landscape and operating strategies adopted by
luxury players in China.
3
Executive Summary
The Market:
–
Global luxury sales were estimated to reach 212 billion Euro in 2012, up by 10%
year-on-year (yoy), of which, luxury goods sales in China were projected to reach 15
billion Euro in 2012. Bain & Company expected a 7% luxury consumption growth in
China in 2012, down from 30% in 2011 and 27% in 2010.
–
The slowdown was partly attributable to a weaker economic growth in China, as
well as the growing trend of shopping luxury goods abroad. The recent ban on
spending public funds on luxury items for gifting might also have a negative impact
on luxury sales in China.
–
Acceleration of Chinese consumers buying luxury products overseas is a trend to
watch. It is estimated that overseas consumption of luxury goods accounted for
around 60% of the total Chinese luxury spending in 2012, with watches, jewelry and
leather goods winning the top spots.
–
Online luxury retailing is still testing the waters. Luxury brands that embrace online
sales in China will have to contend with several challenges including online fraud,
counterfeit products, and transaction security.
–
China’s increasingly rich and luxury loving consumers continue to drive the
development of the luxury market. The growing number of affluent and middle class,
rising household disposable income, ongoing urbanization and rising luxury demand
in small cities, and a surge in the number of credit card users are major growth
drivers.
The Consumers:
–
Chinese luxury consumers are relatively younger than their overseas peers. Chinese
women and the “post-80s and 90s” generation are the major groups driving luxury
consumption in China.
–
There are some signs of shifting preferences: with rising level of sophistication,
consumers in tier 1 and tier 2 cities now prefer low-key but unique luxury products.
However, some consumers in lower-tier cities may still prefer brands with
conspicuous logos.
4
Luxury market in China 2013
–
Brand recognition continues to rise as Chinese consumers become more
sophisticated. Many luxury consumers in China are beginning to appreciate the
brand’s heritage and their purchasing decisions are often based on the rich cultural
heritage associated with the brand.
Competitive landscape and strategies of luxury players in China
–
Foreign players continue to dominate China’s luxury goods market, while domestic
brands are yet to establish a strong foothold in the global luxury arena. It is expected
that further fragmentation of consumer demand and behavior will open new doors
for domestic brands in the near future.
–
Many luxury retailers that have successfully set up retail stores in tier 1 and tier 2
cities have started to make their entry into the lower tier cities in China.
–
After many years of successful operations in China, many luxury brands gradually
shift from joint venture and franchising model to self-operated model; at the same
time, some successful local brand distributors evolve themselves to become brand
owners.
–
Recently, some global luxury retailers are scaling down their expansion in China
due to slower growth in the luxury sector. Some of them are shifting from scale
expansion to improving existing store productivity.
–
Social media has become an increasingly important marketing tool for luxury players
in China. Many of them are making huge digital marketing efforts to increase brand
equity.
–
Luxury brands rely a lot on repeat purchase, thus maintaining customer loyalty is
crucial. It is common for luxury brands to offer special discounts or exclusive perks
for their VIPs. Meanwhile, the trend of launching “made-for-China” luxury goods
continues.
5
The Market
6
Luxury market in China 2013
Luxury market in China recorded lackluster sales growth in
2012, but Chinese consumers remained the major driving force
Global luxury goods market has continued to soar in 2012. According to Bain &
Company1, global luxury sales were estimated to reach 212 billion Euro in 2012, up
by 10% year-on-year (yoy) (see Exhibit 1), of which, luxury goods sales in China were
projected to reach 15 billion Euro in 2012. If taking Greater China area as a whole, which
includes Hong Kong, Macau and Taiwan, the total size of the luxury market in China was
expected to reach 27.3 billion Euro, surpassing Japan and becoming the world’s second
largest luxury goods market in 2012.
Exhibit 1: Worldwide personal luxury goods market trend, 2009-2012E
Source: Bain & Company – 2012 World Luxury Good Market Study
Having said that, the growth of luxury sales has started to decelerate since the fourth
quarter of 2011. Bain & Company expected a 7% luxury consumption growth in China in
2012, down from 30% in 2011 and 27% in 2010. The slowdown was partly attributable
to a weaker economic growth in China, as well as the growing trend of shopping luxury
goods abroad. Moreover, the recent ban on spending public funds on luxury items for
gifting that took effect on 1 October 20122 might also have a negative impact on luxury
sales in China.
1 Bain & Company - 2012 Luxury Goods Worldwide Market Study, October 2012
2 http://www.gov.cn/zwgk/2012-07/09/content_2179100.html
7
Anti-gifting regulations in China
Social gifting is an essential part of Chinese culture. Bain & Company estimated that
personal and corporate gifts accounted for 25% of luxury goods sales in China in 2012.
However, many people believe that lavish spending on gifting is always associated with
corruptions. Indeed, the Chinese top leaders have identified fighting corruption as their
top priority. As part of the anti-corruption campaign, in July 2012, the State Council
promulgated the Regulations on the Affairs and Administration of the Government
Agencies effective 1 October 2012. According to the regulations, government agencies
are prohibited from purchasing luxury goods.
As the new leadership in China pledged to increase efforts to curb corruption, it is
generally expected that the anti-corruption drive will slowdown corporate gift-gifting,
thereby weakening the demand for luxury goods. Having said that, some people believe
that this would only be a temporary phenomenon as gift-giving is deeply rooted in
Chinese culture.
Cosmetics and personal care products, womenswear and
menswear witnessed resilient growth
Among the major product categories, the yoy growth rates of cosmetics and personal
care products, womenswear and menswear were more resilient in 2012, up by 15%,
15%, and 12%, yoy respectively. Watches and jewelry, on the other hand, saw a notable
growth deceleration in 2012; the former recorded -5% yoy growth, and the latter
registered 5% yoy growth in 2012 (see Exhibit 2).
8
Luxury market in China 2013
Exhibit 2: Market share and growth rates of luxury sales in China by selected
category, 2009-2012E
YoY growth rate
by category
2009-2010
2010-2011
2011-2012E
Accessories
15%
20%
10%
Womenswear
27%
35%
15%
Footwear
20%
20%
10%
Jewelry
22%
20%
5%
Menswear
24%
30%
12%
Leather goods
30%
30%
10%
Cosmetics, perfume, and
personal care products
22%
22%
15%
Watches
45%
40%
-5%
Total
27%
30%
7%
Source: Bain & Company – 2012 China Luxury Good Market Study
9
The travelling Chinese consumers spend more on luxury
overseas
Chinese consumers have strong preference for shopping luxury goods overseas. Bain &
Company estimated that overseas consumption of luxury goods (including Hong Kong
and Macau) accounted for around 60% of the total Chinese luxury spending in 2012, with
watches, jewelry and leather goods winning the top spots.
According to World Luxury Association3, during the Chinese New Year period from 20
January 2013 to 20 February 2013, Chinese consumers spent as much as US$8.5 billion
on luxury goods abroad, up by 18% yoy. Chinese consumers spent the most on luxury
watches, followed by leather goods, apparel, and cosmetics and perfume.
The rising tendency for Chinese consumers to buy luxury goods overseas is due in part
to the growing ease of travelling abroad4, as well as the price difference of luxury goods
sold in China and abroad.
–
The easing of visa requirements for Chinese tourists travelling abroad has led to a
huge jump in the number of Chinese outbound tourists in recent years (see Exhibit 3).
China National Tourism Administration indicated that the total number of Chinese
outbound tourists exceeded 80 million in 2012, increased by 15% yoy. According
to a report by KPMG5, a majority (72%) of travelling Chinese consumers would
purchase luxury items during their overseas trips.
3 World Luxuary Association - Chinese overseas luxuary goods consumption during the Spring Festival,
January 2013
4 Several countries have simplified their visa procedure for Chinese tourists, for example, Japan has not
only relaxed the financial requirements for Chinese individual tourist visa applicants, but also extended the
number of days that Chinese tourists can stay in the country from 15 to 30 days. South Korea has increased
the maximum length of stay for Chinese multiple-entry visas holders from three years to five years. Canada
has extended the validity period for multiple-entry visas up to 10 years since July 2011.
5 KPMG - Global Reach of China Luxuary, January 2013
10
Luxury market in China 2013
Exhibit 3: Number of Chinese outbound tourists, 2008-2012
Source: China National Tourism Administration
–
The huge price gap between luxury goods sold in China and abroad has also led
to massive luxury consumption outflow. High import duties and consumption tax
levied on luxury goods imports have pushed up the prices of luxury goods in China
(see Exhibit 4); and a weak Euro against RMB has further deepened the price gap.
Further, increasing rental and labor costs and a relatively inefficient distribution and
logistics systems are some of the other factors that are attributable to the high
prices of luxury goods in China.
Exhibit 4: Consumption tax and import tariff on selected luxury products in
China
Category
Consumption tax
Import tariff
Cosmetics
30%
6.5%-150%
5%-10%
0%-130%
20%
11%-100%
1%-40%
25%-270%
Yachts
10%
8%-30%
Golf equipment
10%
12%-50%
Jewelry and precious stones
Luxury watches
Automobile
Source: China Customs, compiled by the Fung Business Intelligence Centre
11
Price savings is the main reason that Chinese consumers prefer shopping overseas. The
Fung Business Intelligence Centre has compared the prices of selected luxury goods
sold in Shenzhen and Hong Kong, we found that there is a substantial price difference
between luxury products sold in the two places; the price difference varies across
different brands and types of products, ranging from 11% to 40% (see Exhibit 5).
Exhibit 5: Price comparison of selected luxury products sold in Hong Kong and
Shenzhen*
Price in Price in
Brand
Product
Hong Kong Shenzhen
(RMB)
(RMB)
Burberry
100% cashmere scarf, 3,205
4,500
Price
difference
(% change
in RMB)
40.4%
size 30cm x 168cm
Dior
Lady Dior handbag, median 24,439
29,000
18.7%
Dior
Lady Dior handbag, large
27,243
32,500
19.3%
Hermès
100% silk scarf,
3,045
3,750
23.2%
90cm x 90cm
Cartier
Tank watch, median
26,763
36,400
36.0%
Cartier
Love bracelet
34,855
47,300
35.7%
Louis Vuitton
Wallet, Sarah Monogram
4,127
4,850
17.5%
Louis Vuitton
Wallet, Alexandra 4,808
5,350
11.3%
Monogram
Bottega Veneta Handbag, Maxi Veneta Hobo
20,392
25,480
24.9%
Chanel
32,211
41,000
27.3%
Handbag, classic, median
Source: Fung Business Intelligence Centre
*Note: (1) as of 14 March 2013 (2) Exchange rate: 1 HKD = 0.801273 RMB
12
Luxury market in China 2013
Online luxury retailing is still testing the waters
As China’s online retail market is getting more mature, Chinese consumers have more
confidence and greater interests to purchase luxury goods online. According to the
aforesaid KPMG report, 40% of the survey respondents showed interests in online
shopping for luxury goods, compared with 22% in 2011. McKinsey & Company’s study6
also indicated that a small but growing number of Chinese shoppers are purchasing
luxury goods online. The survey indicated that among the surveyed respondents who
made purchases of luxury items at least once online in the past year rose from 2% in
2010 to 8% in 2012, and the amount they spent online increased from 1% to 3% of the
total expenditure.
Selling online: self-operated platforms vs. third-party B2C
platforms
Currently, there are two major ways for luxury retailers to sell online:
–
Self-operated online platforms. Under this model, luxury brand owners sell their
own merchandise online through self-operated online platforms or websites. Brand
owners own the title to the goods. They manage the websites themselves and
responsible for marketing activities, logistics, after-sales services, etc. The online
platform of Coach7 is one such example.
–
Third-parties B2C online luxury platforms. Many of these online luxury platforms
hire their own buyers to purchase luxury products overseas and resell them on
the online platforms; website operators generate profits from the price difference
between Mainland China and overseas. Some products sold on these platforms
are authorized by luxury brands. Ferragamo, for instance, has partnered with xiu.
com8 to sell selected authorized products online. However, not all online platforms
in China are authorized by the brands. Unauthorized products may not be able to
have the official warranty or enjoy the after-sales services provided by the brands.
There are risks that consumers may buy counterfeit products online.
6 McKinsey & Company - Luxury Without Borders: China’s New Class of Shoppers Take on the World. The
McKinsey Chinese Luxury Consumer Survey, December 2012
7 http://china.coach.com/index.htm
8 http://ferragamo.xiu.com/?s_id=xiu-shopinshop-1-1
13
Eyeing the enormous potential of China’s online luxury market, a growing number of
foreign luxury online platform operators such as yoox.com and Neiman Marcus have
started to tap the China market, some of them offer free international shipping to China.
Despite the huge growth potential of the online luxury market, selling luxury products
online is not easy. China’s online retailing market is still not very well-regulated. Problems
such as online fraud, counterfeited luxury products, and transaction security remain some
major concerns. Supportive government policies to establish a fair and secure business
environment for online retailing are crucial. Meanwhile, brands and online luxury retailers
have to put more effort into building the reputation of their online platforms. For example,
secoo.com, a B2C platform selling luxury products, not only provides luxury products
appraisal and evaluation services to ensure the products sold via its online platform are
authentic, but also provides other value-added services such as handbag cleaning and
product repair services for their customers.
Positive drivers of China’s luxury market
Rapid increase in household disposable income
Household disposable income in China has grown consistently over the years. According
to the National Bureau of Statistics of China (NBS), growth of household disposable
income has been most prominent in the highest income segment, followed by the high
income and upper middle income segment, all registering double-digit compound annual
growth rates of 14.5%, 12.8% and 12.1%, respectively (see Exhibit 6). These groups of
individuals often have a voracious appetite for luxury goods and are the biggest spender
on luxury goods.
14
Luxury market in China 2013
Exhibit 6: Compound annual growth rates of household disposable income by
income group, 2000-2011
Source: National Bureau of Statistics of China
It is expected that household income will continue to rise as the Chinese government
strives to double the per capita household income by 2020 to stimulate domestic
consumption.
Number of wealthy individuals grows at a rapid pace; the fast growing
affluent and middle class drives luxury sales
According to Hurun Wealthy Report 2012, there were 1,020,000 wealthy individuals in
China with personal wealth of 10 million yuan or over by the end of 2011, up by 6.25%
yoy. The number of individuals with personal wealth more than 100 million yuan reached
63,500 in 2011, increased by 5.8% yoy. In 2011, Beijing has the highest number of
wealthy individuals in China, followed by Guangdong, Shanghai, Zhejiang, Jiangsu and
Fujian. 84% of the wealthy individuals live in the coastal areas in China, while less than
20% of the wealthy individuals live in the Northeast, Southwest, Central and Northwest
China.
15
A joint report published by Knight Frank and CITI9 indicated that the world’s high net
worth individuals (HNWIs)10 have been gradually shifting towards the east. In 2011, there
were 18,000 HNWIs in Southeast Asia, while the number of HNWIs in America and
Western Europe were 17,000 and 14,000, respectively. The report also predicted that, by
2016, the number of HNWIs in China will double from its current level to 14,000.
On the other hand, the burgeoning middle class is one of the major forces driving luxury
consumption in China. The middle class, which is more sophisticated and westernized,
has higher income to support their international and sophisticated life style. They are
willing to pay a premium for convenience and high quality goods. McKinsey & Company 11
projected that the number of middle- and high-income urban households in China will
increase from 181 million in 2012 to 366 million in 2030.
Ongoing urbanization and rising luxury demand in smaller cities
According to the NBS, at the end of 2012, China’s urban population stood at 712 million,
with urbanization rate reaching 52.6%. The government is making efforts to further push
forward urbanization. It is expected that the urbanization rate will be above 60% by 2020.
The Chinese government has been focusing on promoting the development of smalland medium-sized cities and towns in recent years. McKinsey & Company predicted that
smaller cities with population less than 1.5 million will be the major force driving China’s
economy growth in the next two decades and they can form strong clusters with huge
economic potential. The rising consumption in these cities will create huge demand for
luxury goods. In fact, many luxury companies have already stepped into those cities. For
example, fashion luxury companies, Gucci, Burberry, Ermenegildo Zegna and Prada have
opened stores in Taiyuan; Gucci and Burberry have stepped into Zhengzhou in Central
China.
9 Knight Frank and CITI - The Wealthy Report 2012, March 2012
10According to a joint report published by Knight Frank and CITI, The Wealthy Report 2012, HNWIs are
defined as someone having over US$25 million of investable assets.
11McKinsey & Company - What’s Next For China?, November 2012
16
Luxury market in China 2013
A surge in the number of credit card users is likely to stimulate immediate
consumption of luxury goods
China is witnessing a surge in the number of credit card users. According to China
Banking Association12, in 2011, China's credit card transactions totaled 7.75 trillion
yuan, up 48% yoy; the number of credit cards issued was 285 million, up by 24.3%
yoy. MasterCard forecasted the number of credit cards in China to reach 900 million by
202013. The rapid expansion of the credit card market will help drive luxury sales in the
country.
12http://www.china-cba.net/bencandy.php?fid=67&id=9350
13MasterCard 2010 Forum - Seizing Vast Business Opportunities from China's Rapid Urbanization
http://www.bloomberg.com/news/2010-09-10/china-to-pass-u-s-as-largest-credit-card-market-by-2020mastercard-says.html
17
The Consumers
18
Luxury market in China 2013
Wealthy individuals in China are relatively younger than their
foreign counterparts
In general, Chinese luxury consumers are younger than their overseas peers. According to
Roland Berger14, 60% of the Chinese luxury consumers are aged between 20 and 39, while
only 38% of the western European consumers belong to that age group (see Exhibit 7).
In western European countries, 21% of the luxury consumers are 60 years of age or
above, while only 7% of the Chinese luxury goods buyers are over 60 years of age. Hurun
Wealthy Report 2012 also showed that the average age of individuals who possess
assets of more than 10 million yuan in China is 39, and the average age of individuals
with assets more than 100 million yuan is 41.
Exhibit 7: Age distribution of Chinese luxury consumers, 2011
Source: Roland Berger - Chinese Consumer Report - Luxury
14Roland Berger - Chinese consumers report – Luxury; A brand awareness upgrade. Welcoming a new era in
the Chinese luxury market, October 2012
19
Increase luxury spending by women and the youth
Nowadays, women in China are more independent and have higher spending power
than before. Many of them have a strong appetite for luxury and are keen to reward
themselves with luxury products. They represent a core segment of the luxury market.
According to Hurun, in 2011, among the 1.02 million people with personal wealth above
10 million yuan, 40% of them were women. The Boston Consulting Group’s report15 also
pointed out that affluent women’s spending on personal luxury goods has increased from
25% in 2010 to 46% in 2012.
Apart from the rise of female consumerism, the youth population, particularly the “post80s and 90s” generation and the second generation of the country's wealthy elite, is
another major population driving luxury consumption in China. This group possesses
a distinctive set of values and buying preferences. They are ready to splurge on luxury
products. Although they may not be able to afford luxury goods themselves, they receive
substantial financial support from their parents and grandparents.
15The Boston Consulting - The Age of the Affluent Group, November 2012
20
Luxury market in China 2013
Signs of shifting preferences: consumers in tier 1 and tier 2 cities
now prefer low-key but unique luxury products
With rising level of sophistication, wealthy Chinese consumers in tier 1 and 2 cities are
becoming more discerning. They concern more about the history and culture of the
brands, and are generally less logo-oriented. Many of them prefer unique designs to
reflect their individual tastes. According to the aforementioned study by McKinsey &
Company, 51% of the respondents agreed or strongly agreed that “showing off luxury
goods is in bad taste”, the percentage was the same as that in Japan.
However, some consumers in lower-tier cities may still prefer brands with conspicuous
and easily recognized logos. These consumers may have just reached the income level
where they can afford luxury goods and would like show off their newly found social
status (see Exhibit 8).
Exhibit 8: Chinese consumers’ attitude toward purchasing luxury goods with
conspicuous logo
Are you going to buy luxury goods with conspicuous logo in the future?"
Source: McKinsey & Company - Chinese Luxury Consumer Survey, December 2012
21
Brand recognition continues to rise as consumers become more
sophisticated; brands with heritage have clear advantage
With increasing exposure to luxury brands, Chinese consumers have started to develop a
good knowledge of brands. The previously mentioned KPMG survey indicated that their
respondents recognized 59 luxury brands in 2012, up from 57 in 2010 and 43 in 2008,
and more than half of the respondents preferred to purchase well-known luxury brands,
and almost 70% of the respondents would pay a premium for well-known brands.
Moreover, many luxury consumers in China are beginning to appreciate the brand’s
heritage and their purchasing decisions are often based on the rich cultural heritage
associated with the brand. For instance, Gieves & Hawkes, a British menswear brand
owned by Trinity Group, is popular with Chinese consumers due to its history of being the
supplier of ceremonial uniforms to the British Royal family, British Army, and Royal Navy.
Chinese consumers greatly appreciate the royal association and are more inclined to view
the brand as being high class and high quality.
22
Luxury market in China 2013
Competitive landscape and strategies
of luxury players in China
23
Foreign players continue to dominate China’s luxury goods
market
China’s luxury goods market is largely dominated by foreign players. Most Chinese luxury
consumers tend to favor foreign brands that have long history and unique brand heritage.
They also like to choose foreign luxury goods for social gifting. According to Hurun’s list
of Preferred Brands for Gifting by Men and Preferred Brands for Gifting by Women16,
Maotai is the only Chinese brand that is able to make a spot on the list.
Currently, only a few homegrown luxury brands
such as the menswear brand, Trands, the luxury
fashion brands, NE-TIGER and Shanghai Tang,
as well as the fine jewelry brand, Qeelin have
gained international recognition. While domestic
brands are yet to establish a strong foothold
in the global luxury arena, it is expected that
further fragmentation of consumer demand
and behavior will open new doors for domestic
brands in the near future.
Some foreign luxury retailers are eyeing the emerging local
luxury brands
To further expand their brand portfolio and increase their presence in the China market,
some foreign luxury retailers are looking for opportunities to invest in local luxury
companies that have strong identity and growth potential. For instance, in December
2012, French luxury group, PPR acquired a majority stake in Qeelin, a Chinese fine
jewelry brand. And earlier in February 2012, L Capital Asia, a private equity fund financed
by the French luxury giant LVMH, acquired a 10% stake in Ochirly, one of the top fashion
brands in China. L Capital Asia also co-invested with the Chinese apparel company
Xin Hee Co., Ltd. in a mid-priced apparel brand QDA, and its first store was opened in
Beijing in March 201317.
16Hurun - http://img.hurun.net/hmec/2013-01-15/201301151541117114.doc
17http://www.morningwhistle.com/html/2013/Company_Industry_0307/217439.html
24
Luxury market in China 2013
The retail footprints: Luxury retailers have started to make
inroads into lower-tier cities
Exhibit 9 shows the sales locations of selected luxury retailers in China. The cities are
ranked in the order of their respective competitiveness in the Annual Report on Urban
Competitiveness. Cities higher on the list are often perceived as those with greater
development potential and stronger economics influence. Indeed, the top four cities on
the list are the prominent tier 1 cities in China, namely Shanghai, Beijing, Shenzhen, and
Guangzhou.
Most luxury retailers have set up retail stores in tier 1 and tier 2 cities. However, the
ongoing urbanization, increasing income level and the rapid development of new
transportation network in China have made lower tier cities more competitive and
appealing to luxury retailers. Many luxury retailers have made their entry into the lower-tier
cities. It is expected that tier 3 and tier 4 cities will be important growth drivers in coming
years.
Among the selected luxury brands, menswear brands have the widest footprints. Most of
them have already expanded their presence in lower-tier cities. Cities such as Huizhou,
Ordos, Taizhou, Shanyu, and Yantian are popular destinations for luxury menswear
brands.
25
Exhibit 9: The retail footprints: sales locations of selected luxury retailers in China (As of March 2013)
Louis Tiffany Ermenegildo Vuitton Hermès Chanel Gucci & Co Dior Burberry Armani Prada
Zegna
1
Shanghai
3
3
5
8
5
5
6
11
3
8
2
Beijing
4
2
2
7
3
4
7
8
3
12
3
Shenzhen
1
1
1
1
2
2
1
1
2
4
Guangzhou
2
2
1
2
1
1
2
3
1
2
5
Tianjin
1
2
2
3
1
1
1
3
6
Dalian
1
1
1
1
2
2
1
1
2
7
Changsha
1
1
2
2
8
Hangzhou
2
2
1
2
1
1
3
2
2
5
9
Qingdao
1
1
1
1
1
2
1
1
10 Foshan
11 Dongguan
12 Suzhou
1
1
2
3
1
1
13 Shenyang
3
1
1
3
2
2
2
2
2
5
14 Wuxi
1
1
1
1
1
1
15 Nanjing
1
1
1
1
1
2
2
1
2
16 Wuhan
1
1
1
1
2
1
3
17 Ningbo
1
1
2
1
1
1
18 Xiamen
1
1
1
2
19 Jinan
1
2
1
1
2
20 Chengdu
1
1
2
1
2
3
4
1
5
21 Hefei
1
1
1
1
2
22 Dongying
23 Baotou
24 Ordos
25 Changzhou
1
1
26 Huhhot
1
1
1
1
27 Yantai
28 Zhongshan
29 Fuzhou
1
1
1
2
30 Chongqing
1
2
1
1
1
1
31 Xi'an
1
2
1
1
1
4
32 Changchun
1
1
1
1
3
33 Zhuhai
34 Harbin
1
1
2
1
2
3
1
1
2
35 Daqing
36 Zhengzhou
1
1
1
1
37 Yangzhou
38 Nantong
39 Shijiazhuang
1
1
1
1
40 Wenzhou
1
1
2
1
1
1
41 Xuzhou
42 Nanning
1
1
1
1
1
2
43 Zibo
44 Nanchang
45 Zhenjiang
46 Tangshan
47 Quanzhou
48 Taizhou
49 Kunming
2
1
2
1
2
1
2
50 Wuhu
51 Zhoushan
52 Huizhou
53 Maanshan
54 Weihai
55 Shaoxing
26
Luxury market in China 2013
Hugo Kent & Cerruti Gieves &
Fendi Ferragamo Boss
Dunhill
Curwen
1881
Hawkes
1
5
9
11
5
9
9
1
Shanghai
3
7
13
14
8
11
10
2
Beijing
1
1
5
2
7
5
3
3
Shenzhen
2
4
4
3
4
4
3
4
Guangzhou
1
3
3
4
4
5
5
Tianjin
1
2
2
1
1
1
2
6
Dalian
3
1
2
7
Changsha
2
5
3
3
2
2
8
Hangzhou
1
1
1
9
Qingdao
1
1
1
10 Foshan
11 Dongguan
1
3
1
3
3
2
12 Suzhou
2
6
4
6
7
7
13 Shenyang
1
1
1
1
1
1
14 Wuxi
1
2
2
3
1
1
15 Nanjing
2
3
4
3
2
16 Wuhan
1
3
2
2
1
1
17 Ningbo
2
2
2
2
2
18 Xiamen
3
1
2
3
1
19 Jinan
1
3
6
6
7
5
4
20 Chengdu
2
3
1
1
1
21 Hefei
22 Dongying
1
1
1
1
1
23 Baotou
1
1
1
1
1
24 Ordos
1
1
1
1
1
25 Changzhou
1
1
1
1
1
26 Huhhot
1
1
1
1
27 Yantai
1
28 Zhongshan
1
1
2
2
2
2
29 Fuzhou
2
3
3
2
3
2
30 Chongqing
1
3
2
8
4
6
31 Xi'an
1
1
1
1
2
1
32 Changchun
33 Zhuhai
4
2
2
3
2
34 Harbin
35 Daqing
2
3
1
1
1
36 Zhengzhou
1
1
1
37 Yangzhou
1
1
1
38 Nantong
2
2
1
1
1
39 Shijiazhuang
3
1
1
40 Wenzhou
1
1
41 Xuzhou
1
2
1
2
2
1
42 Nanning
43 Zibo
1
1
1
1
1
44 Nanchang
1
45 Zhenjiang
1
1
1
1
1
46 Tangshan
47 Quanzhou
1
1
1
48 Taizhou
2
3
3
1
1
1
49 Kunming
50 Wuhu
1
1
1
1
51 Zhoushan
1
1
1
1
52 Huizhou
53 Maanshan
1
54 Weihai
1
1
55 Shaoxing
D’URBAN
6
4
2
2
1
1
1
2
1
2
1
2
1
3
1
1
1
2
2
1
2
1
1
1
2
1
1
27
Louis Tiffany Ermenegildo Vuitton Hermès Chanel Gucci & Co Dior Burberry Armani Prada
Zegna
56 Taizhou 57 Taiyuan
1
1
1
1
3
…
69 Urumqi
1
1
1
1
…
73 Huzhou
…
76 Haikou
…
87 Jinhua
88 Yancheng
89 Yingkou
90 Jilin
…
92 Guiyang
1
1
1
93 Lanzhou
1
1
1
…
99 Handan
100 Panjin
Baoding
Bengbu
Dandong
Haining
Huainan
Inner Mogolia
Jinjiang
Kunshan
Ninghai
Leqing
Sanya
1
1
1
1
Shangyu
Xining
Yichang
Yiwu
Zhangjiagang
Source: Respective company websites, compiled by the Fung Business Intelligence Centre
Note: Only self-operated stores are included.
Luxury brands gradually shift to self-operated model, and some
distributors strive to become brand owners
For many luxury retailers, when they first entered the China market, they either sold their
brand licenses to local distributors, or set up joint ventures with local partners. Many
of them also engaged in brand franchising. After many years of successful operations
in China, some of the early starters began to take back their brand licenses and run
their own self-operated stores. By running their own operation, luxury retailers can
better control their business and brand image, and enjoy better profits. Take Salvatore
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Luxury market in China 2013
Hugo Kent & Cerruti Gieves &
Fendi Ferragamo Boss
Dunhill
Curwen
1881
Hawkes
56 Taizhou
3
2
2
2
2
57 Taiyuan
…
1
1
1
1
1
69 Urumqi
…
1
1
1
73 Huzhou
…
1
1
1
1
1
76 Haikou
…
1
1
1
87 Jinhua
1
1
1
1
88 Yancheng
89 Yingkou
1
1
1
90 Jilin
…
2
2
2
2
1
92 Guiyang
1
1
2
2
1
93 Lanzhou
…
2
1
1
1
1
99 Handan
1
1
100 Panjin
1
1
1
Baoding
1
Bengbu
1
1
1
1
1
Dandong
1
Haining
1
Huainan
1
1
1
Inner Mogolia
1
Jinjiang
1
1
Kunshan
1
Ninghai
1
Leqing
2
1
Sanya
1
1
1
1
Shangyu
1
1
1
Xining
1
1
1
Yichang
1
Yiwu
1
1
Zhangjiagang
D’URBAN
1
1
1
1
1
1
1
1
1
1
Ferragamo as an example; it is reported that the company has been working on a plan to
take back some sub-franchisees in China to maintain their image18.
Meanwhile, some successful domestic brand distributors have tried hard to evolve
themselves and become brand owners. Trinity Limited, a high-end to luxury menswear
retailer in China, is a good example of how a brand licensee evolves itself and turn into
a brand owner. The company has subsequently in 2008, 2010, and 2012 acquired
the brand ownership rights of Kent & Curwen, Cerruti 1881, and Gieves & Hawkes,
converting the three licensed brands into self-owned brands.
18http://www.ft.com/intl/cms/s/0/52e412b2-5593-11e2-bdd2-00144feab49a.html#axzz2NImzrLvw
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From aggressive stores expansion to improving store
productivity
Recently, some global luxury retailers are scaling down their expansion in China due to
slower growth in the luxury sector. Some of them are shifting from scale expansion to
improving existing store productivity. For instance, Louis Vuitton recently announced that
it would slow down new store opening in China and focus on revamping and upgrading
existing stores. PPR Group also announced that it would cease Gucci’s new store
expansion in China in 2013. Burberry and Richemont also indicated plans to slow down
their expansion in the country.
Striking the right balance between store numbers and store productivity is not easy; many
luxury brands are working hard towards achieving it.
Social media becomes an increasingly important marketing tool
Riding the boom of the e-commerce sector in China, many luxury retailers in China
are making huge digital marketing efforts to increase brand equity. Social media has
become an increasingly common marketing tool. Chinese consumers are becoming more
technology savvy and are increasingly getting used to using social media to interact with
brands, provide comments on products, and find new brands. According to a report by
PricewaterhouseCoopers19, consumers in China are more actively engaged with social
media: 57% of Chinese shoppers followed the brands on social media, while the global
figure was 38%.
Indeed, some local social networking platforms such as the Twitter-like microblogging
service Sina Weibo and Renren, the Chinese equivalent of Facebook are very popular
in China. For instance, the total number of registered Sino Weibo users totaled 368
million as of June 2012. Given the large number of Sina Weibo users in China and a
strong engagement of Chinese consumers with social media, many luxury retailers have
been actively using it as a tool to promote their latest products and interact with their
consumers. Exhibit 10 shows the number of followers of selected brands on Sina Weibo
as of 18 March 2013.
19PricewaterhouseCoopers - Demystifying the shopper: 10 myths of multichannel retailing, January 2013
30
Luxury market in China 2013
Exhibit 10:Number of Sina Weibo followers for selected luxury brands
(As of 18 March 2013)*
Note: Only brands with active corporate Sina Weibo accounts are included
Source: Sina Weibo, compiled by the Fung Business Intelligence Centre
Maintaining customer loyalty is the key to success
Luxury brands rely a lot on repeat purchase, thus maintaining customer loyalty is crucial. It
is common for luxury brands to offer special discounts or exclusive perks for their VIPs. For
instance, Louis Vuitton reportedly treated 10 of its most valuable Chinese customers to a
helicopter tour to Mongolia to watch a camel polo match; while Burberry has also conducted
special events for its VIPs, it is reported that the company had invited its top Chinese
spender from Shanghai to attend a famous fashion photography exhibition held in Beijing20.
To strengthen the brand’s appeal and highlight the skill of its craftsmen, Hermès had invited
some of its Italian professional handbag makers to their stores in China to show customers
the process of making leather handbags and shoes, from choosing leather to sewing, to the
final joining of the pieces of leather together.
Meanwhile, to win the hearts of China’s increasingly rich and luxury-loving consumers,
many brands have launched specific products tailored for the China market. For instance,
2013 is the Year of the Snake in China, several luxury brands have launched specially
designed products bearing the image of the snake. Exhibit 11 shows some of the snakethemed products of selected luxury brands.
20http://online.wsj.com/article/SB10000872396390444772804577618682194946736.html
31
Exhibit 11:Selected luxury brands and their snake-themed products or services
Brand
Products or service
Dunhill
Snake-themed cufflinks
Louis Vuitton
Help customers to monogram a snake imprint on their luggage
or baggage
Burberry
Chinese New Year handbag collection with snakeskin pattern
Vacheron Constantin
Year of the Snake watch
Piaget
Altiplano Chinese zodiac snake watch Bulgari
Snake-shaped necklace; light-up snake is installed across the
facades of the flagships in New York, Rome and Tokyo
Cross
Year of the Snake Collection pen
Davidoff
Year of the Snake edition cigars
Mercedes-Benz
Year of the Snake-Inspired Mercedes-Benz G-Class
Source: Various news reports; Fung Business Intelligence Centre
© Copyright 2013 The Fung Business Intelligence Centre. All rights reserved.
Though the Fung Business Intelligence Centre endeavours to ensure the information provided in
this publication is accurate and updated, no legal liability can be attached as to the contents hereof.
Reproduction or redistribution of this material without prior written consent of the Fung Business Intelligence
Centre is prohibited.
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