Lower prices and more choices
People's Daily; June 03, 2011
The newly released "2010- 2011 World Luxury Association Annual Report" showed by the end of 2010, the total consumption of the luxury market in mainland China increased from 9.4 billion U.S. dollars in 2009 to 10.7 billion U.S. dollars in 2010.
China's appetite for luxuries is growing faster than that of any other country, and it is expected to surpass the United States as the largest luxury consumer in 2012. For luxury goods manufacturers, the Chinese market represents a double-digit growth each year.
International securities dealers and various major research and consulting institutions have issued many reports on luxury goods one after another in 2011. They predicted that the luxury demand of Chinese consumers would greatly rise in the next 10 years. However, judging from the overall situation, China is still in the primary stage of luxury consumption and has shown many characteristics that are different from the traditional luxury consumption market in Europe and the United States.
In regards to the structure of consumer demand, Chinese luxury consumers showed a characteristic of being younger. The report shows that 73 percent of Chinese luxury consumers are under the age of 45 years old, and 45 percent of Chinese luxury consumers are between 18 to 34 years old. This ratio in Japan and Britain are 37 percent and 28 percent respectively.
Although various major global brands are trying to narrow the price gap between the Chinese market and other markets, overseas luxury consumption still accounts for 56 percent of total luxury consumption in China. Lower prices and more choices are still the two most important reasons for Chinese consumers purchasing luxury goods abroad.
In regards to the consumer attitude, a large number of Chinese consumers are still in the stage of "conspicuous consumption." Sun Shijin, director of the Psychology Research Center under Fudan University, said that as China has achieved new heights in its economy and its society recently entered an era of mass consumption, the purchasing power of Chinese citizens is rising along with the development of the commodities economy.
Therefore, it is inevitable that a blundering mentality will appear when people are pursuing the material life. The conspicuous consumption during the period of social transition is an inevitable process of social development. It needs social tolerance and guidance.
The rapid urbanization in China and growing wealth outside its first-tier cities have greatly boosted luxury spending in second and third-tier cities. Currently, 30 percent of the wealthy work and live in first-tier cities, such as Beijing and Shanghai, while the remaining 70 percent live in other parts of the country.
Second and third-tier cities have broad prospects and will play a major role in China's luxury goods market.
"In 2010, around 67 percent of luxury sales growth in Chinese mainland came from new customers. Second and third-tier cities are emerging as the new battlegrounds for expansion, where brand awareness and willingness-to-pay are already close to the levels seen in first-tier cities. Consumers in second and third-tier cities are spending as much or even more on luxury goods than their counterparts in first-tier cities," said Bruno Lannes, a partner in Bain & Company's Shanghai office.
More than 100 top global brands are busy adjusting their growth strategies in China. They have opened thousands of stores in the country's first-tier cities, such as Beijing, Shanghai, and Guangzhou, as well as lower-tier cities in the central and western regions.
French luxury brand Louis Vuitton has opened 27 stores in 22 Chinese cities, including Changsha, Xi'an, Qingdao, Xiamen, Wuxi, Wenzhou and other second and third-tier cities. Furthermore, almost all top international brands have opened stores in Ningbo and Hangzhou.
Roger Farah, president of Polo Ralph Lauren, a leading American luxury lifestyle company, recently said at a forum that there is a growing demand for luxury goods in China's second and third-tier cities, so it is necessary for foreign brands to increase investments in both first-tier and lower-tier cities.
Luxury goods consumers in today's China are increasingly mature and they have different expectations for brands than they did five to 10 years. The majority of luxury goods consumed in China are still clothes, perfume, jewelry and watches, but consumers have begun shifting their attention toward vacation homes, top-level furniture, investments in art collections and luxury yachts. This change shows that this consumer group has started transforming from luxury goods consumption to luxury lifestyle consumption.
Meanwhile, the expansion of the middle class has come to lead to a return of China's luxury goods consumption from the signs associated with power, wealth and social ties to the pursuit of a better, more dignified and high-quality life. It is just the kind of pursuit that is further moving forward the Chinese people's integration into the world in both life quality and fashionable taste and is even making China take the lead in some aspects around the world.
Yan Jun, director of the luxury goods management project of Peking University, believes that the growing middle class in China has become a major force in luxury goods consumption.
"They are from China's developed regions and are social elites with high spending power, economic strength and influence. They attach importance to brands, are open to new ideas, emphasize lifestyles and life quality as well as are highly loyal to brands, rational and mature," he said.