Cultural Diplomatist Andrew Williams Jr 2010-2020 Humanitarian Commitments an...
Luxury Goods Capstone
1. Foreward
This research project was conducted as a part of a Georgetown University Executive MBA program. We would like to dedicate this
work to our extraordinary learning journey and our fearless leader, Professor Dong. He has provided remarkable guidance, and more
importantly, inspired us to think differently.
Sincerely,
Alison Elk, Robert Goodman, Dan Meyers, Nathan Ruiz, Damola St.Daniels, Deanna Siller, and Oneza Sohel
OUR FEARLESS ADVISOR
ARTHUR
DONG
PROFESSOR
2. OUR TEAM
DEANNA SILLER
ONEZA SOHEL
DAN MEYERS
NATHAN RUIZ
DAMOLA ST.DANIELS
ROBERT GOODMAN
ALISON ELK
3. Alison Elk, International Program Manager, United States Navy
Ms. Elk successfully manages a portfolio of Standard Missile Navy programs in excess of $50M. She has built a strong reputation
for consistently delivering outstanding results in which she most recently was instrumental in securing $640M for a new program
for Japan.
A goal-driven leader with a proven work ethic, Ms. Elk has completed over 20 trips to Asia in the past four years while earning her
graduate degrees. It was her global business acumen, team leadership, and executive stakeholder management that secured the
Department of Defense approval for the first international ballistic missile interceptor maintenance facility.
Ms. Elk is highly equipped to resolve problems with great efficiency across multiple domains. She attributes her professional
success to making smart, empathetic decisions while resolving conflict, and evolving her emotional agility. Ms. Elk believes that
success in any market can be achieved through leadership, skill alignment, and teamwork.
In addition to her professional accomplishments, Ms. Elk is a board member advisor on the Tewaaraton Foundation. This non-
profit organization annually recognizes the most outstanding men’s and women’s NCAA lacrosse players; honors the Native
American historical and contemporary contributions to the game; and provides scholarships to Native American students who play
lacrosse.
4. Robert Goodman, Director of Business Intelligence & Analytics, Georgetown University
Mr. Goodman leads service delivery of Business Intelligence & Analytics solutions across Georgetown University’s enterprise.
His team contributed to technology modernization efforts which were awarded CIO 100 by CIO Magazine in 2014 and Elite 100
Winners by InformationWeek in 2015. Working across multiple campuses and thousands of end-users, his team supports projects
related to data governance, data quality, enterprise application integration, analytics, and reporting capabilities. At present, he is
working on a finance/HR-centric BI project using the Workday ERP system and IBM Cognos.
Mr. Goodman consults regularly with KPMG and Bain & Co. on matters of business intelligence and enterprise application
integration. He is also a frequent speaker at industry-related events. Most recently, he led a conference workshop in Austin, TX,
where he discussed the “People Dilemma of Analytics.” Prior to Georgetown, Mr. Goodman worked as a Microsoft® Gold
Certified partner and led a large global delivery practice.
Mr. Goodman is known for his unflappable demeanor and ability to relate to his team, both of which allow him to effectively lead
his teams through the many challenges of change management and find creative solutions to complex issues.
Mr. Goodman holds an advanced degree in business administration, is an experienced IT and Project Management Professional
(PMP)®, and has been formally trained as a computer and data scientist.
5. Dan Meyers, Vice President, DCI Group LLC
Dan Meyers is a communications, crisis, and public affairs consultant with experience managing local, federal, and global public
affairs challenges. Dan consults for clients ranging from small and mid-cap enterprises to Fortune 100 companies. His strengths are
strategy and integrated management. Dan’s experiences include overseeing every aspect of large- scale projects and campaigns from
strategy, polling, and message development to day-to-day execution.
Dan has experience in developing winning solutions that involve grassroots outreach, national coalition building, third party
engagement, and government relations strategies. He has managed federal and state legislative, regulatory, and ballot efforts
including one of the largest statewide gaming ballot initiatives in 2012 and a successful local ballot initiative in 2009. Recently, Dan
led the brand redevelopment of his public affairs firm’s online presence in 2015.
Dan’s political expertise hails from the most local levels to presidential politics. He was one of NYC Mayor Rudy Giuliani’s
presidential campaign’s first employees, serving in various capacities including special assistant to campaign manager,
Mike DuHaime and a personal aide to the Mayor and his wife. Dan worked at the Republican National Committee during the 2006
midterms and served President George W. Bush in foreign and domestic venues as a communications advance representative.
He is a member of the Board of Trustees for the Miss America Organization and President of the Board of Directors of Project
Right Side.
6. Nathan Ruiz, Senior Consultant, Intelliware
Mr. Ruiz is a strategic ambassador with a wide range of work experience, including industrial and physical security, inter-agency
cooperation, counterintelligence, counterterrorism, and foreign liaison. Mr. Ruiz is at his finest when bringing leaders together to
collaborate and work through highly complex, sensitive issues.
In his transition to the private sector, Mr. Ruiz built a relationship management program as part of a strategic relaunch of the FBI’s
partnership with Fortune 500 companies. He helped grow the current membership from 297 to 387 companies, and he regularly
interfaces with chief security officers from Fortune 100 companies such as Boeing, Disney, United, and Microsoft. Mr. Ruiz planned
and facilitated four strategic off-site meetings with key leaders, laying the foundation for the new program’s governance and
implementation. His ongoing relationship cultivation with executive leadership in business provides critical voice of the customer
data, driving government decisions.
A 10-year veteran of the U.S. Air Force, he served as a Federal Agent with the Air Force Office of Special Investigations (AFOSI),
leading the high-profile office at the U.S. Embassy in Paris, where he increased national-level liaison efforts with French law
enforcement, intelligence, and military forces. Mr. Ruiz was hand-selected as head of the elite security protection detail assigned
to the Chief of Staff, USAF and has deployment experience in the Middle East, Southwest Asia and Africa. He lived and worked
abroad for 10 years and has deep expertise forming and leading teams on all seven continents.
7. Damola St.Daniels, Managing Director, DBS
Mr. St.Daniels currently heads several departments within the bureau of consular affairs, consular systems and technology on
behalf of Vistronix, Inc. at the U.S. Department of State. As a leader in the federal government space, he oversees diverse
technology projects and advises federal government agencies on IT security practices. His broad and deep knowledge of IT
coupled with his prowess in problem solving ensures that critical applications, systems, and infrastructure are constantly maintained
at optimum levels. Federal government agencies and private companies alike rely on Mr. St.Daniels for his leadership and expertise
concerning all things IT from application development, testing, vendor management, IT strategy, disaster planning and recovery,
penetration testing, and database management to independent verification and validation (IV&V).
Mr. St.Daniels cultivates key partnerships that help drive current development and implementation agendas. His entrepreneurial
spirit and direct attention to detail deliver impressive results such as 99% application and product defect free rate and 100%
performance to SLA standards. Mr. St.Daniels was privileged to serve active duty in the U.S. Navy as a project manager for a
sea-deployed strike fighter attack squadron (VFA-146). He was responsible for ensuring 12 FA-18C fighter aircraft were mission
ready alone with the avionics and maintenance divisions. His strategic planning and tactical execution directly contributed to his
squadron’s receipt of multiple LTJG Bruce Carrier awards for maintenance excellence as well as many campaign medals.
8. Deanna Siller, Partner, Gensler
Ms. Siller is a partner at Gensler, one of the world’s leading architecture and interior design firms. One of Gensler’s top global
brand design leaders, Ms. Siller brings strategic insights that result in innovative and unique user experiences that foster the human
connection. She immerses herself in her clients’ business in order to unleash the hidden potential of a place, an idea, or an
experience. As an expert storyteller, she helps companies develop differentiated, compelling, and cohesive brand strategies.
As a member of the management committee, she works closely with Gensler’s board in the development of hospitality, retail,
sports, and brand practice areas.
Ms. Siller is a sought after speaker. Whether speaking at L’Oreal’s Inspiration Day, SATE conference for Themed Entertainment
Association, as guest lecture at the University of Pennsylvania, or a panelist at ULI’s Washington Real Estate Trends Conference,
she brings a unique point of view that challenges the status quo.
Her work has earned numerous awards from the American Institute of Graphic Arts, International Interior Design Association,
American Institute of Architects, Society of Environmental Graphic Design, and Washington Building Congress.
Ms. Siller served as chairman of the board at Dance Place and believes in using her expertise to impact her local community. She is
a USGBC LEED Accredited Professional and a member of the Society of Environmental Graphic Design.
9. Oneza Sohel, RAN Optimization Manager, AT&T
Ms. Sohel is a proven leader domestically and internationally, across different verticals, and impacting different business processes.
She is known for her problem solving skills and vision that demonstrate her ability to lead strategy from concept to implementation.
She brings 13 years of experience in global business development, operational excellence, delivering strategic solutions, and team
building.
She is highly skilled in leading global organizations through the optimization of business operations to take full advantage of
technology innovation, streamlining procedures to provide cost efficient processes and technological innovations.
Currently, in her role with AT&T Mobility, Ms. Sohel handles the day-to-day pressures of keeping the network running, with key
partners and collaborators. Her ability to keep calm under high-profile events like the presidential inauguration and Pope’s visit and
her ability to influence people from senior levels to a new hire has made her a success.
From supporting mobile world congress in Barcelona to designing the China mobile network, Ms. Sohel has been collaborating
with telecom experts across the world and leveraging the best practices in order to enhance productivity, identify opportunities, and
provide recommended solutions for continuous improvement.
10. TABLE OF CONTENTS
TEAM
HYPOTHESIS
WHAT IS LUXURY
THE POWER OF LUXURY
US COMPARISON AND ANALYSIS
FINDINGS AND KEY ANALYSIS
INDUSTRY EXPERT INSIGHTS
CHINESE CULTURE
GLOBAL LUXURY MARKET
CHINESE LUXURY MARKET
EVOLUTION OF THE ASIAN
LUXURY CONSUMER
MARKET SEGMENT OVERVIEWS
WINE & SPIRITS
LUXURY AUTOS
HOSPITALITY
COSEMETICS
FINAL THOUGHTS
PRESENTATION
EXECUTIVE SUMMARY
HYPOTHESIS
OVERVIEW
WHY STUDY THE CHINESE
LUXURY MARKET?
GLOBAL LUXURY MARKET
EVOLUTION OF THE ASIAN
LUXURY CONSUMER
MARKET SEGMENT OVERVIEWS
WINE & SPIRITS
LUXURY AUTOS
HOSPITALITY
COSEMETICS
SUMMARY OF FIELD RESEARCH
FINDINGS AND KEY ANALYSIS
US COMPARISON AND ANALYSIS
CONCLUSIONS
ADDENDA
PAPER
11. OUR HYPOTHESIS
The continued growth of the Chinese economy
and China’s voracious appetite for luxury goods
will provide the impetus for further growth
in luxury good consumption.
15. POWER & INFLUENCE
The luxury industry surpassed €1
trillion in retail sales value in 2015
and delivered healthy growth of
5% year over year (at constant
exchange rates), driven primarily
by luxury cars (8%), luxury
hospitality (7%) and Þne arts (6%).
MARKET GROWTH
Global currency fluctuations and
continued purchases by “borderless
consumers,” the personal luxury
goods market—the “core of the core”
of luxury – grew more than €250
billion in 2015. That represents 13%
growth over 2014 at current exchange
rates, while real growth (at constant
exchange rates) has eased to only 1%
to 2%. The slowdown conÞrms a shift
to a “new normal” of lower sales
growth in the personal luxury goods
market.
NEW NORMAL
16. CURRENCY SWINGS
REGIONAL PERFORMANCE
Europe posted sound growth,
primarily fueled by Chinese and US
tourists attracted by a weak euro.
The old continent has become “the
world’s largest in-season outlet.”
EURO MARKET
Boosted by a strong US dollar, the
Americas emerged as the biggest
global region for personal luxury goods
purchases. However, in real terms, the
US market did not deliver. The “super-
dollar” was too expensive for many
global tourists and, although local
consumption grew, it was barely
sufÞcient to offset the decline in
tourism revenue.
OLD GLORY
Chinese tax-free purchases in
Europe increased by 64% while
tax-free purchases by American
tourists in Europe grew by 67%,
primarily in the high end of the
luxury spectrum.
FIGURES
17. • Mainland Chinese tourists
buying power impacted.
• Luxury goods market is less
impacted by currency
fluctuations.
• Lower-end luxury consumers
consider other destinations
with more favorable currency
exchange rates.
CURRENCY
DEPRECIATION
ANTI-CORRUPTION
MOVEMENT
LUXURY ONLINE
SALES
GLOBE-TROTTERS
• The government’s anti-
corruption drive has greatly
affected gift giving in China
• A survey by Hurun shows
that gift giving among China’s
wealthiest individuals fell by
5% yoy in 2014*
• According to Bain’s report,
cross-border and overseas
websites are taking about
12% of all Chinese luxury
goods spending
• Luxury globe-trotters have
fueled the performance of
airport retail, which posted a
29% growth rate in current
exchange rates (18% in
constant exchange rates) and
now accounts for 6% of the
global luxury market.
0102 03 04
SHIFTS IN THE CHINESE LUXURY MARKET
18. NEW GEOGRAPHIC
MARKETS
With rapidly rising
incomes, widely available
luxury products, and
shifting attitudes toward
the display of wealth, more
Chinese consumers than
ever feel comfortable
buying luxury goods.
Rapid urbanization and
growing wealth beyond
China’s largest cities are
creating a number of
geographic markets with
sizable pools of luxury-
goods consumers who are
able to afford luxury goods
in less expensive areas of
the world.
SHIFTING
ATTITUDES
GREATER
SOPHISTICATION
Instead of buying luxury goods
at department stores,
shopping malls, or arranging a
deal with a daigou merchant,
Chinese shoppers are making
purchases through websites
like JD, Tmall, Net-A
Porter.com, ShopBop, and
Harrods.
With the surge in the
number of luxury stores,
fashion magazines, and
websites and the use of
social media, Chinese
consumers are now
familiar with nearly twice
as many brands as they
were in 2008.
ONLINE
SHOPPING
RESULT OF LUXURY SHIFTS
Source:McKinsey
22. ASIA
UNITED
STATES
mature
luxury
market
$2,400
avg. spend
per shopping
trip
24%
global
luxury
share
CHINA AND UNITED STATES: LUXURY COMPARISON
emerging
luxury
market
$7,200
avg. spend
per shopping
trip
31%
global
luxury
share
frequent
ritual
occasional
indulgence
80%
luxury
shopping
abroad
30%
luxury
shopping
abroad
23. AMERICAS EMERGED AS THE BIGGEST GLOBAL
REGION FOR PERSONAL LUXURY GOODS PURCHASES
23.1
7.9
4.8
4.1
3.8 3.8
2.7
2.0
1.0 0.7 0.1
US
China
UK
South Korea
France
Hong Kong
Germany
Middle East
Italy
Japan
Russia
Personal luxury goods: growth contribution, by market, in absolute value, 2009-2-14E (€billions)
3X
€15.0B
CHINA LUXURY
GOODS SALES
2014
€64.9B
US LUXURY
GOODS SALES
2014
Sources: Euromonitor International and Bain & Co.
24. CHINESE
LUXURY
MARKET
SHIFTS
1. THE NEW NORMAL
2. SLOWING GROWTH
YET CHINA REMAINS
A STRATEGIC
GROWTHTARGET
3. NEW COMPETITION:
LOCAL BRANDS
4. LARGERST GROWTH
FROM MATURE
MARKETS
5. SHOPPINGTOURISM
KEY INSIGHTS AND CONCLUSIONS
25. • Global luxury market
• Global trends in luxury shopping
• Luxury consumer: buying behaviors
• Chinese and US comparison
RESEARCH
HOW WE GOT THERE: OUR APPROACH
• Chinese luxury market:
Hong Kong and Macau
IMMERSE
• 5 luxury segments
• 9 industry experts
DISCOVER
• Key Findings
• Conclusions
STRATEGIZE
27. “Only 7% of Chinese
have passports.
Imagine the spending
power as this grows.”
Bill Weidner
Chairman and CEO
Global Gaming Asset Management
28. “The luxury
consumer is still
buying; however,
they are buying
differently.”
Chris Exline
CEO, Asia PaciÞc
Home Essentials
29. “The world is the
luxury consumers
shopping
experience.”
Kevin Roche
Senior Vice President, Global Design
DFS Group Ltd.
30. “Think about it in
terms of desire.
Never compete on
price. Compete
on desire.”
Mark del Rosso
Executive Vice President
Audi
31. “Economic downturn,
price competition from
e-commerce, and
oversea purchase are
the main challenges for
luxury market.”
Mr. JianHua Qian
CEO
JZ motors
32. “While there is normal
fluctuation in the
luxury market, the
recent market growth is
not sustainable. There
is a new normal.”
Edward Cheung
CEO Greater China
Cushman & WakeÞeld
33. “We offer the
highest view. This is
luxury too… not just
goods.”
Pierre Perusset
General Manager
Ritz Carlton, Hong Kong
34. “Asia-Pacific region is
projected to contain
60% of the world’s 4.3
billion middle class. 1.4
of the 4.3 billion are
contributed to China.”
Fabrice Weber
President APAC
Estée Lauder
35. “Once the only portal
for foreign businesses
in China, Hong Kong
must now evolve and
adapt to political and
economic reforms.”
Andrew Shaw
Chief Economic/Political Section
Consulate General of the United States
37. CULTURAL
CONTEXT
In the 18th Century China
had the richest land and
was the most urbanized
country in the world.
Political reforms closed
boarders and isolationism
took hold.
SHEER SIZE
Given history, Chinese are
skeptical of the future
compared to the US.
They save a staggering
40%-50% compared to
3%-5% in the US.
CULTURE OF SAVING
1978 Chinese Economic
Reforms introduced market
principles. This decentralized
agriculture, opened up FDI,
loosened price controls and
brought 600 million out
of poverty.
ECONOMIC REFORMS
42. 7%
2013
NEW
NORMAL
SLOWER STEADY GROWTH
5%
2014
Source: Bain & Company
218 223
250-265
2013
2014 E
2017 F at constant rate of
exchange
Market forecast for personal luxury goods ( € billions)
+2%
(+5% at constant
exchange rates)
+4%-6%
at constant
exchange rates
CAGR,
204E-2017F
(%)
43. CHINA
UNITED
STATES
By 2031
$33.66 trillion
GDP
By 2031
$35.26 trillion
GDP
ROLE REVERSAL: CHINA AS THE LARGEST ECONOMY
Source: Bain & Co.
44. Deanna to design
TOP TEN LUXURY GOODS COMPANIES
Luxury
goods sales
rank FY13 Company Name Country of Origin
FY13 luxury
goods sales
(US $mil)
FY13 total
revenue
(US $mil)
FY13 luxury
goods sales
growth*
FY13 net
profit margin**
FY13 return
on assets*
FY11-13 luxury
goods sales
CAGR* ***
1
LVMH Moët Hennessy - Louis Vuitton SA
France
21,761
387,171
0.0%
13.5%
7.1%
8.7%
2
Compagnie Financlere Richemont SA
Switzerland
13,429
14,275
4.2%
19.4%
13.0%
8.9%
3
The Estée Lauder Companies Inc.
United States
10,969
10,969
7.7%
11.0%
15.4%
6.3%
4
Chow Tai Fook Jewellery Group Limited
Hong Kong
9,979
9,979
34.8%
9.6%
12.1%
17.0%
5
Luxottica Group SpA
Italy
9,713
9,713
3.2%
7.5%
6.8%
8.4%
6
The Swatch Group Ltd.
Switzerland
8,822
9,128
8.8%
22.8%
16.6%
9.9%
7
Kerling SA
France
8,594
12,948
4.2%
0.4%
0.2%
14.7%
8
L'Oréal Luxe
France
7,791
7,791
5.3%
14.7%
19.6%
10.5%
9
Ralph Lauren Corporation
United States
7,459
7,450
7.3%
10.4%
12.7%
4.2%
10
PVH Corp.
United States
6,200
8,186
42.0%
1.8%
1.2%
22.7%
Top 10
104,707 129,157 8.4% 11.7% 8.0% 10.2%
Top 100
214,231 247,624 8.2% 10.3% 8.6% 9.8%
Economic Concentration of Top 10
48.9% 29.5%
45. 29%
OF LUXURY
PURCHASES
17%
20%
25%
29%
2011
2012
2013
2014
30%
to 2%
THE EMPTY SUITCASE
WORLD’S LARGEST SIPPERS
OF BORDEAUX AND COGNAC
LANCOME
GUCCI
AUDI
ROLEX
TIFFANY
FAVORITE
BRANDS
2/3
WORLD’S BIGGEST SHOPPERS OVERSEAS
EXPENSIVE TASTES
DOUBLE
TOURISTS
TRIPLE
SPENDING
BY2020
30%
7%
2%
2011
2012
2013
OF CHINESE
LUXURY
SPENDING
OUTSIDE OF
MAINLAND
CHINA’S LUXURY SPENDING SUPER POWERS
46. CHINA’S GROWTH SLOWS
.
01
BRANDS SLOW EXPANSION
02
FROM HONG KONG TO JAPAN
03
TOP GIVE GROWTH MARKETS
04
LUXURY MARKET: 2016 FORECAST
Source: Euromonitor International
Shift in Asian consumption power
from Hong Kong to Japan, as
growing numbers of Chinese
shoppers head to Japan.
US will be the biggest market,
followed by Japan, South Korea,
France and the UK.
Economic growth slows, consumers
cautious about spending
Leading global brands such as
LVMH, Gucci and Prada have
expanded rapidly but will slow their
expansion plans..
47. BUYING ABROAD
WHY ARE TWO-THIRDS OF THE LUXURY PRODUCTS BOUGHT ABROAD?
PRICE DISCREPANCY
INCREASE OF PERSONAL WEALTH
LIMITED PRODUCT SELECTION
IMPORTANCE OF THE COUNTRY OF ORIGIN
GIFT TRADITION
AUTHENTICITY OF THE PRODUCTS
GREATER EASE OF OBTAINING A VISA
50. ATTITUDES, LIFESTYLES AND BRAND PREFERENCE DIFFER
SEGMENT THE AFICIONADO THE EPICUREAN THE BLING KING THE BRAND SKEPTIC THE ASPIRANT
GENDER M:52% F:48% M: 54% F:40% M: 54% F:40% M: 51% F:49% M: 61% F:39%
DEMOGRAPHY
AVG Age : 32.3
MMI: ¥23,367
LUXURY SPEND: ¥32,981
SINGLE: 22%
MARRIED: 78%
AVG Age : 32.6
MMI: ¥193,891
LUXURY SPEND: ¥28,631
SINGLE: 20%
MARRIED: 80%
AVG Age : 32.4
MMI: ¥181,855
LUXURY SPEND: ¥23,367
SINGLE: 20%
MARRIED: 80%
AVG Age : 33
MMI: ¥161,127
LUXURY SPEND: ¥19,066
SINGLE: 20%
MARRIED: 80%
AVG Age : 31.9
MMI: ¥155,288
LUXURY SPEND: ¥16,525
SINGLE: 23%
MARRIED: 77%
SOCIAL #1
99% POST ON
WECHAT
#2
98% POST ON
WECHAT
#3
96% POST ON
WECHAT
#5
94% POST ON
WECHAT
#4
95% POST ON
WECHAT
LUXURY ECOMMERCE #1
18% HAVE
BOUGHT
LUXURY ONLINE
#3
15% HAVE
BOUGHT
LUXURY ONLINE
#2
17% HAVE
BOUGHT
LUXURY ONLINE
#2
17% HAVE
BOUGHT
LUXURY ONLINE
#3
15% HAVE
BOUGHT
LUXURY ONLINE
OS TRAVEL LOCAL #3
55% HAVE
BOUGHT LUXURY
IN HK, M, OR TW
#4
53% HAVE
BOUGHT LUXURY
IN HK, M, OR TW
#1
66% HAVE
BOUGHT LUXURY
IN HK, M, OR TW
#2
56% HAVE
BOUGHT LUXURY
IN HK, M, OR TW
#5
17% HAVE
BOUGHT LUXURY
IN HK, M, OR TW
OS TRAVEL LOCAL #1
40% HAVE
BOUGHT LUXURY
OS OTHERS
#2
31% HAVE
BOUGHT LUXURY
OS OTHERS
#3
26% HAVE
BOUGHT LUXURY
OS OTHERS
#4
23% HAVE
BOUGHT LUXURY
OS OTHERS
#5
6% HAVE
BOUGHT LUXURY
OS OTHERS
SCREEN MEDIA TIME #3
70% SCREEN-TIME
CONSUMPTION
#2
73% SCREEN-TIME
CONSUMPTION
#1
76% SCREEN-TIME
CONSUMPTION
#3
70% SCREEN-TIME
CONSUMPTION
#4
65% SCREEN-TIME
CONSUMPTION
DIGITAL MEDIA TIME #1
50%DIGITAL0MEDIA
CONSUMPTION TIME
#1
50%DIGITAL0MEDIA
CONSUMPTION TIME
#2
48%DIGITAL0MEDIA
CONSUMPTION TIME
#3
47%DIGITAL0MEDIA
CONSUMPTION TIME
#4
45%DIGITAL0MEDIA
CONSUMPTION TIME
FASHION ACUMEN #1
FASHION
ACUMEN, INTEREST
#2
FASHION
ACUMEN, INTEREST
#3
FASHION
ACUMEN, INTEREST
#5
FASHION
ACUMEN, INTEREST
#4
FASHION
ACUMEN, INTEREST
LUXURY ATTITUDE
• HIGH KNOWLEDGE & SOPHISTICATION
• HAVE DEVELOPED OWN STYLE &TASTE
• ARE TREND-SETTERS & OPIN ION SHAPERS
• OBSESSED WITH LUXURY
• NOT BRAND-LOYAL
• FAD-LED & WANT TO TRY SOMETHING
• ARE SOCIAL SHARERS
• LOW KNOWLEDGE BUT STRONG
DESIRE TO IMPRESS
• PERCEIVE LUXURY AS A SYMBOL
OF STATUS & ARE CONSPICUOUS
• PERCEIVED LUXURY AS OVERRATED
• WHEN THEY DO PURCHASE
LUXURY, IT IS BECAUSE IT IS
A REFLECTION OF QUALITY &
CRAFTMANSHIP
• THE EMERGING SEGMENT
• LOVE LUXURY BUT HAVE
VERY LITTLE KNOWLEDGE
• ARE STRONGLY INFLUENCED
BY ADS, KOHL'S, & WOM
Source: Jing Daily | The Business of Luxury in China
51. TOP SPENDERS IN LUXURY AND
FASHION-FORWARD IN OUTLOOK
THE AFICIONADO
60. The Occupy movement in 2014 and
2015 led to signiÞcant unrest in the
Central district of Hong Kong.
Anti-corruption practices impacted wine
and spirits due to lavish gift giving which
was common throughout upper tiers of
Chinese society.
TWO PRIMARYVARIABLES
1
2
SLOWDOWN
61. PREFERENCES & PALATES
WINE & SPIRITS
Red wine dominates the market
at a staggering 37% of sales.
Popular due to its appealing
taste to Asian consumers palate.
Also, popular choice for gifting.
RED WINE
White wine accounts for about 7%
of sales. Acidic taste does not
pair well with Asian cuisine.
White wine has seen more growth
than red in 2015 due to increased
consumer sophistication.
WHITE WINE
Champagne is the fastest growing,
rising 5% in 2015. Considered
“aspirational” and associated with
luxury and living “the high life.”
Opened only at special occasions,
it has not experienced the same
slowdown as red and white wines.
CHAMPAGNE
Source:
Euromonitor
InternaOonal
62. WINE & SPIRITS
Led Þne wines, champagne and
spirits in 2014 with Dom Perignon,
Veuve Clicquot, Hennessy XO,
and Glenmorangie.
LOUIS VUITTON MOET
HENNESSY LEADS
Developing consumer tastes and
education have led to exploration
and looking beyond brands and
bottle labels.
EDUCATED CONSUMERS
Cognac is enjoyed at business
dinners. Cognac makers have been
hit hard by the stock market
instability and luxury crackdown.
LUXURY COGNAC
HIT HARD
Brands advertise in luxury lifestyle
magazines and department stores/
wine retailers. Travel retail plays key
role especially duty free.
MAGAZINES, DEPT STORES
STILL ADVERTISING KEY
COMPETITIVE LANDSCAPE
Source: Euromonitor International
66. WINE & SPIRITS GROWTH WINNERS
FINE WINE
12.4%
SPIRITS
3.2%
CHAMPAGNE
18.9%
WHITE
WINE
8.9%
WHISKIES
7.8%
2015-2020
Source: Euromonitor International
67. THREATS
TOTHE
FUTURE
Consumer education and sophistication changes preferences.
As their wine and spirit knowledge grows, they seek more unique choices,
diverse selections, and variable flavors. This is especially true for young
consumers in Hong Kong.
WINE & SPIRITS FUTURE
68. TASTE
INTERACTIVE
EXPERIENCE
LIFESTYLE
Leading brands are expected to
market their products by promoting
a luxurious lifestyle including
events and platforms to expand
knowledge and aid discovery of
new wines and spirits.
WHAT’S NEXT
69. Demand for luxury cars in Hong Kong.
Market Overview.
LUXURY AUTOS
Disruptors.
71. DEMAND FOR
LUXURY AUTOS
PASSENGER VEHICLES
PREMIUM CARS
26%
Market growth per
year for 10 years
1.25
million
2012 PREMIUM
CAR SALES
2nd LAREGEST IN
THE WORLD
36%
72. Expected grow at a compound
annual rate of 16 percent between
now and 2020.
80% of Chinese premium car owners
have annual disposable household
income of more than RMB 200,0004.
NEW GENERATION OF LUXURY
CAR CONSUMERS
1
2
LUXURY CARS
McKinsey’s consumer research
73. 300 cities in China will have consumers
with sufÞcient household income to
buy premium vehicles by 2020.
By 2020, there will be 23 million affluent
urban households in China Ð 7% of the
population.
3
4
LUXURY CARS NEW GENERATION OF LUXURY
CAR CONSUMERS
McKinsey’s consumer research
74. STRONG GROWTH WILL BE DRIVEN BY AN EXTRAORDINARY BOOM IN
AFFLUENT AND NEW MAINSTREAM MIDDLE CLASS FAMILIES IN CHINA
Number of urban households by annual disposable income bracket, million households
Affluent
(more than USD 34,000)
New Mainstream
(USD 16,000-34,000)
7
37
23
171
82
33
14
19
13
10
9
10
12
12
7
14
25
24
2012 2020 Other premium car markets
76. SHARE OF MAJOR BRANDS IN CHINA 2013
China
31%
Germany
10%United
States
10%
Other
43%
China
20%
Germany
10%
United
States
10%
Other
52%
China
15%
Germany
10%
United
States
10%
Other
45%
492k
units
391k
units
218k
units
GLOBAL
SALES
1.57M
units
1.96M
units
1.46M
units
77. LUXURY AUTOS DISRUPTOR: TESLA
0
200
400
600
800
1000
1200
1400
1600
1800
2009 2010 2011 2012 2013 2014 2015
Electric vehicle registrations in Hong Kong
TESLA’S HONG KONG BOOM MIGHT BE SHORT-LIVED
3%
New vehicle
registrations
2,279
Evs on
the road
70%
TESLAS
79. HOSPITALITY
Luxury hospitality is the history, reputation,
location, views, brand value, star employees,
infrastructure, furnishings, crystal ware, silverware,
and the Þnest Þttings. In reality, the luxury world
of hospitality is all this and more.
80. HOSPITALITY
Luxury hotels typically have a
lower guest-to-staff ratio which
leads to personalized service.
SERVICE
Spas, swimming pools, gyms with
trainers, golf courses, poolside
drink service, dry-cleaning
services, and shoe shines are
major distinguishing factors.
AMENITIES
Guests are pampered, from plush
lobbies, furniture, bedding to higher
quality F&B and concierge service.
INDULGENCE
Award-winning and high-quality
meals showcasing local cultures and
ingredients giving guests an
opportunity to pamper their palate.
RESTAURANTS
82. Hotel brands would need to focus
their efforts on affluent and
independent Chinese travelers
especially Chinese female travelers.
One of the trends in hospitality is
“more bang for your buck”. Chinese
expect to get good service included
due to the premium price.
1
2
LUXURY LIVING SAVY CHINESE
CONSUMER
83. Attract AÞcionados to
Aspirants with location,
ecommerce Ð social media
reviews, and specialized
services for each
consumer segment.
MAINTAINING APPEAL
Its eminent for Chinese
consumer to maintain their
socioeconomic stature and
the only differentiating
factor is the purchase of
luxury brands.
LUXURY DEMANDS
Perception is everything for
Chinese consumer.
PERCEPTION
SOURCE: PIERRE PERUSSET, GM, RITZ CARLTON HONG KONG
HOSPITALITY INSIGHT
84. DESIGN
AROUND
THE
LUXURY
BRANDS Godiva high tea
BlancPain watches
Caviar bar
Luxury towels and sheets
Rolls Royce for airport transfer
Chateau Petrus wine
THE POWER OF LUXURY COBRANDING
85. 15%
10%
10%
9%
7%
4%
4%
3%
3%
2%
33%
Holiday
Inn
Sangri-‐La
Sheraton
Hilton
MarrioV
HyaV
InternaOonal
Sofitel
Kempinski
Macro
Polo
HOTELS ARE PROVIDING UNIQUE EXPERIENCES
Percentage of Chinese travelers staying at top 4 and 5 star hotel
86. Chinese hotel industry competes with travel
destinations like Venice, Hawaii and Cambodia.
These top 3 travel destination have unparalleled
history, culture and views. China travel has a
probability of being over crowded. Luxury hotels
risk a less than 70% occupancy rate.
SUSTAINABLITY
87. Once A New Market.
Evolving Opportunity.
COSMETICS
BEAUTY.
88. Multinational companies turned their
focus to China with the rise in income
and developed two-part strategies.
For decades, Chinese viewed cosmetics
as “counter-revolutionary.” The void in
the segment after economic reforms
meant an open playing Þeld.
A SORTED HISTORY
1
2
COSMETICS
89. SEGMENT SNAPSHOT
• Global beauty industry worth over US$55 billion
• Luxury beauty and personal care grew 4% to HK$2.6B in 2015
• Growth is slowing
• Distribution channels disruption
91. THE MEANSTOTHE CONSUMER
DISTRIBUTION
Tier one Chinese cities, like
others worldwide, rent space
to premium brands to, in
essence, create stores
within stores.
DEPARTMENT STORES
In smaller cities in China,
mid-sized beauty product
chain stores have brand-
speciÞc beauty assistants
to assist customers in
their experience.
BEAUTY CHAINS
Throughout rural China and
smaller cities, brand
assistants are non-existent
and local retailers typically
sell lesser-known, Asian
product lines.
LOCAL RETAIL
92. TRAVEL CHANGES
43
72
3
5
2
6
60
51
20
19
7
7
Hong Kong/Taiwan/Macao
Mainland China
Europe
Japan/Korea
South East Asia
Other overseas countries
PURCHASE LOCATIONS
2012
2009
93. TOP COSMETIC BRANDS
CHANEL.
• French
• 9.5% Share
• Diverse Product Line
• Entered China in 1998
ESTEE LAUDER
• American
• 3.7% Share
• Focused on co-Branding
• Entered China in 2002
L ‘OREAL PARIS
• French
• 3.5% Share
• Refocused on skincare
• Entered China in 1997
95. COSMETICS AND SKINCARETOMORROW
TRENDS
Reduced tariffs on luxury
imports will boost Mainland
domestic consumption. A
40% discrepancy is
disappearing.
LOWER TARIFFS
Shopping destinations other
than Hong Kong are
becoming more attractive to
the Chinese consumer due
to the strength of the Hong
Kong dollar.
HKD AND TRAVEL
Internet retailing
(ecommerce) and
mcommerce have changed
the landscape of distribution.
International platforms are
on the rise.
INTERNET RETAIL
98. IMAGINE LUXURY IN 2030
TODAY ONLY 7% OF CHINESE HAVE PASSPORTS. IMAGINE LUXURY TOURISM WITH
20%, 50% OR 70% TRAVELERS.
AS APPETITES INCREASE FOR LUXURY, CONSUMERS DEMAND LUXURY
EVERYTHING.
HIGH-TOUCH AND HIGH-TECH: FROM MOBIL TO PERSONAL SHOPPERS.
ONLINE SALES WILL OUT-PACE IN-STORE SALES.
LESS SEGMENTATION; MORE CO-CREATION, CO-BRANDING, CO-HABITATION,
CO-EVERYTHING
LUXURY RENTAL AND SHARING
LUXURY AUTO: MOTORING DRIVERLESS FOR MAINSTREAM
101. Executive Summary
Our team embarked on a journey of exploring and comparing the luxury
markets in Asia and the United States. We specifically focused our attention
on Hong Kong and Macau. Our research involved testing a hypothesis that
examined the dip in consumption abroad and if this was a new normal for the
industry or if it would rebound.
Throughout the process we explored the history and political evolution of
opening up China and attempted to understand the mindset of these new con-
sumers. Once we soundly understood the lens in which we felt Chinese luxury
consumers approached the market we analyzed the evolution of these consum-
ers. What is their varying desires, wants, and needs? We posed questions of
how were leading industry players are adapting to meet them in the areas of
wine and spirits, cosmetics, hospitality, and automotive sectors.
After spending nearly a week in Hong Kong and Macau, meeting with execu-
tives and comparing academic research we reached the conclusion that there is,
in fact, a new normal in China. The slowdown is likely permanent compared
to the staggering, explosive growth in the last decade. Business is responding
well to this reality but also looking forward to the growth of China’s middle
class – an ongoing phenomenon.
We conclude our research with several themes we heard form nearly every
interview in one form or another. These themes help tell the story and explain
why this “new normal” has come to be. They include significant currency
fluctuation, which is causing Mainland Chinese to both travel elsewhere and
view Hong Kong as too expensive for luxury travel and expense. What was
once the premier destination for Chinese upper class is now being replaced by
direct travel to places like Paris or London. Another theme is a shift in culture
away from corrupt practices that were once commonplace. With a keener eye
on gift giving and overspending, there are now reins in place on lavish spending
causing all four of our segments to react accordingly. Lastly, there is a boon in
the future of vacation travelers. As the middle class grows and more Mainland
Chinese obtain passports, they will travel outside of China, far beyond Hong
Kong and Macau. While abroad they will make their luxury purchases else-
where and enjoy this new, shopping
experience.
Throughout our journey we discovered and
developed insights previously unknown, shared
and laughed in the company of each other
and amazing business leaders, and our advisor,
Professor Arthur Dong. We hope you enjoy our
findings as much as we did discovering them.
102. Hypothesis
The continued growth of the Chinese economy and China’s voracious appetite for luxury goods will provide the impetus for further
growth in luxury good consumption both in China and other parts of Asia.
Our research explores the following questions:
• What is the market size of luxury goods in Hong Kong, China?
• What trends and drivers are shaping the Asian luxury goods market?
• What business factors are transforming the luxury goods shopping experience?
• What are luxury good consumer preferences, motivators and demands?
• Which brands are exploring alternative sales channels and innovative partnerships?
• How dynamic is the growth of luxury goods Internet sales?
• What is driving growth? What is slowing growth?
Throughout our journey we discovered and developed insights previously unknown, shared and laughed in the company of each
other and amazing business leaders, and our advisor, Professor Arthur Dong. We hope you enjoy our findings as much as we did
discovering them.
103. Overview
According to Bain & Company, Inc.’s Luxury Goods Worldwide Market Study, the overall luxury industry comprises nine segments:
luxury cars, private jets, yachts, luxury hospitality, luxury cruises, luxury wines and spirits, fine food, designer furniture, and personal
luxury goods. Factoring all segments, the overall luxury market exceeded €850 billion in 2014, showing healthy growth of 7% overall,
driven primarily by luxury cars (10%) and luxury hospitality (9%).
Bain’s research found that international travel and tourism is fueling an appetite for 360-degree luxury experiences, such as high-end
transportation, that includes highly customized “super cars” and yachts, as well as luxury hotels and cruises.
Personal luxury goods, the “core of the core” of luxury, continue to buoy the market. The overall global market is on target to reach
€223 billion in 2014, triple its size 20 years ago. Yet that growth is slowing: in 2013, luxury goods grew 7%, and in 2014, growth
slowed to 5% at constant exchange rates (2% at current rates). That slower pace is, however, more sustainable, and it reflects the
“new normal” for luxury goods, particularly as the global economy continues its sluggish recovery from the financial crisis of 2008.
Demand from Chinese consumers, mature consumers in the US, and Japanese shoppers returning to luxury goods have all helped
shore up growth.
Luxury spending doesn’t always take place at home. Touristic spending now drives the luxury-goods industry in most markets, which
means that who the buyers are matters more than where they buy. Chinese consumers, for the last three to five years, represent the
top and fastest-growing nationality for luxury, spending abroad more than three times what they spend locally.
Wealth creation within Asia has led to a super-cycle of demand for luxury goods. However in 2014, luxury goods recorded the
smallest growth in five years. The softening growth was largely attributed to the strong growth rates occurring in previous years, the
anti-graft campaign and flagging economic growth in Mainland China. Consequently, Mainland Chinese tourist flows in Hong Kong,
were significantly reduced in 2014 and 2015, after having registered a record high in tourist numbers in 2013.
With the present slow down in the China economy as well as other parts of Asia, will the growth in luxury goods sales in Asia likely
to persist? Is the slower growth pace more sustainable and reflective of a new normal for luxury goods? What impact does this
slowdown have on other markets, business, people, and generations? And how does the luxury market in Hong Kong and Macau
compare to the United States?
104. History & Background
In order to better understand how the luxury market evolved in China and specifically Hong Kong and Macau, we discovered the
importance of understanding the Chinese cultural history. This involved studying the past and opening up of China from a strangle-
hold communist government’s grip.
Interview with Mr. Bill Weidner
On January 29, 2016 we interviewed Mr. William (Bill) Weidner. Bill Weidner is the Chairman and CEO of Global Gaming Asset
Management, LLC and Principal of Weidner Holdings and its subsidiaries Weidner Resorts China and Taiwan. GGAM, which is a
joint venture between Cantor Fitzgerald and former members of the Las Vegas Sands management team, was formed to advise, in-
vest in, acquire and manage hospitality and gaming assets globally. GGAM recently built one of four integrated resorts in the Philip-
pines Entertainment City Manila project with Bloomberry Resort called Solaire. Weidner Resorts specializes in developing boutique
hotels and integrated 5-star residential resorts around the world in cooperation with Discovery Land Co. of Scottsdale, Arizona.
Mr. Weidner served as the President and Chief Operating Officer of Las Vegas Sands (LVS) from 1995 to 2009. While at LVS, Mr.
Weidner lead the LVS team in developing and managing the 64-acre Sands Hotel site into the world’s largest integrated resort. He
led the LVS team in opening the 4,000 room Venetian Las Vegas in 1999 and the 3,000 room Palazzo in 2007. He spearheaded LVS’
international expansion in Macau by opening the Sands Macau in 2004, winning the right to develop the first western-style casino in
China. Following the opening of the Sands Macau, Mr. Weidner led the LVS team to open the 3,000 suite Venetian Macau in 2007
and the Four Seasons Macau in 2008 and also won the right to open Singapore’s first integrated casino resort (opened in April 2010)
which is now generating over $1.7 billion of EBITDA annually.
Mr. Weidner started by encouraging us to “step out of the US mindset” and really try and understand how the Chinese got to the
point where luxury goods and the market was even attainable. He talked about the perspective of what the size of the Chinese
economy was in the 16th century, the evolution of the rest of the world surpassing them, the consequential isolationism and resent-
ment, and the resurgence.
Prior to the nineteenth century, China had one of the worlds most advanced and largest economies. Adam Smith, in the eighteenth
century wrote of China having had one the richest (meaning fertile), best cultivated, industrious, prosperous, and urbanized countries
in the world. Unfortunately, for China, the economy stagnated and declines in absolute terms for much of the nineteenth and twenti-
eth centuries – with a brief recovery in 1930.
The primary economic reforms began after Deng Xiaoping and his reformist allies managed to displace the Gang of Four Maoist
faction in China. By the time Deng took power, there was widespread support among the elite for economic reforms. As the de facto
leader, Deng’s policies faced opposition from party conservatives but were extremely successful in increasing the country’s wealth.
The economic reforms in 1978, known as “The Chinese Economic Reform” began to introduce market principles into China in two
105. phases. The first included the decentralization or decollectivization of agriculture, the opening up of China to foreign direct invest-
ment (FDI), and permission for Chinese entrepreneur’s to start their won companies and businesses. Large industries like manufac-
turing still remained state-owned and operated. The second phase, in the late 1980’s and 1990’s involved relinquishing some of that
state-owned industry through privatization or contract outsourcing. The Chinese government also lifted price controls and loosened
protectionist policies and regulations.
As a result of these reforms, the private sector in China began to boom, accounting for as much of 70% of China’s GDP by 2005.
As a whole, from when these reforms started to take place in the late 1970’s to date, China experienced unprecedented growth and an
economy that was growing at nearly 10% annually. In actual terms, the reforms in the 1980’s and 1990’s brought nearly 600 million
people out of poverty and into a growing middle class. This new group of consumers shook industries of all sorts around the globe.
But how do these consumers think and act?
A Culture of Savings
Suddenly exposed to nominal wealth and a better life, given their past, the Chinese consumers are still skeptical of the future. They
come to the table with a mindset of the government being able to change the environment very rapidly and much of their life will be
out of their control. This top-down controlled environment is very different that that of what consumers in the United States are
accustom to. The United States middle class worries less about the future and thinks about social security, for example, as a safety net.
As a result, the Chinese typically save a staggering 40-50% of their earnings compared to 3-5% in the United States.
No one can say for sure how much the Chinese people save. Data based on national income is incomplete and does not accord with
international standards. The most credible estimate places China’s household saving rate for 2007 at nearly 26%. This is extraordi-
narily high, although in line with rates in Japan, South Korea and Italy in previous decades.
Common explanations of why Chinese save have been less than satisfying. Most popular are invocations of “culture” — just as
we’ve seen elsewhere in Asia. More often than not, Chinese leaders trace the nation’s thriftiness back to Confucian values. Com-
pared to Americans who became accustomed to overspending, observed the official China Daily, the Chinese people have developed
a “tradition of savings since ancient times.” Zhou Xiaochuan, governor of China’s central bank, recently defended his country’s high
saving rate as in large part the product of Confucianism, which values thrift, self-discipline, moderation, and an aversion to extrava-
gance.
There is something rather forced about these claims. In the 1960s, Chairman Mao Zedong denounced Confucius as a “stinking
corpse.” Only in the last 20 years has the Chinese Community Party conveniently rediscovered the sage’s age-old influence on popular
behavior. Ironically, the inspiration came primarily from abroad, from Confucian revivalists in Singapore and Taiwan and from West-
erners who write about the development of “Confucian capitalism” in Japan and the rest of East Asia.
Cultural explanations are all the more dubious when we consider the following: Not so long ago, the Chinese people were terrible
savers. Under Maoism from 1952 to 1978, household saving rates did not exceed 2% or 3% and often sunk to less than 1%. If Chi-
nese saved at impressive rates thereafter, surely other factors rank higher than Confucianism.
106. Another explanation favored by American economists and journalists is that Chinese save excessively in the absence of adequate
welfare programs. It is an argument sustained by constant repetition, and little evidence. This analysis comes complete with its own
policy recommendation. In the words of the influential economist Stephen Roach, China should build an institutionalized safety net
necessary to temper the “fear-driven precautionary saving that inhibits the development of a more dynamic consumer culture.”
Uncertainty, it is true, may motivate people to save, but so do many other factors. Globally, the correlation between high saving
and inadequate social benefits is a weak one. Scores of poor nations provide little in the way of social welfare, yet their saving rates
are minuscule. Among advanced economies, high-saving nations in continental Europe all provide comprehensive welfare benefits.
Americans, who aside from the elderly lack sturdy safety nets, conversely saved little in recent decades.
There are, however, better explanations. In China, household saving rates have risen in tandem with rapid economic growth. We
have observed this pattern in Asia’s other success stories, as well as in Western Europe after World War II. Following Mao’s death
and the advent of Deng Xiaoping in 1978, the party-state fundamentally transformed the Communist economy into one based on
global trade, foreign investment, and the partial embrace of market principles. The Chinese economy leaped into high growth, the
GDP surging 10% annually from 1980 to the present. As elsewhere, household savings rose as consumption lagged behind increases
in incomes.
Second, Chinese save more because of poor access to credit. Saving tends to be inversely related to borrowing. American journal-
ists glory in the story of Chinese conspicuous consumption and the spread of credit cards. Most of these “credit cards” are, in fact,
debit cards tied to bank accounts. A small fraction of the cards offer revolving credit. The heavily regulated banks have been miserly
in extending consumer credit, and they generally require stiff down payments before lending money to homebuyers.
This is in sharp contrast to the United States, but not so different from several Asian and European countries where consumer and
housing credit is subject to significant regulation. In a fast growing economy like China’s, people want to buy cars and other durables,
but in lieu of easy credit they need to save in order to consume.
Curiously, few observers consider the possibility that the Chinese party-state might have had a hand in directly encouraging popular
saving. Indeed, China represents one of the most compelling cases of the efficacy of aggressive savings promotion.
Under Maoist rule, Chinese households saved almost nothing. They had little money, it is true, but they also lacked safe, convenient
banking facilities. In the three years following the Communist Revolution of 1949, the regime eliminated all public and private banks,
transferring their assets to the central People’s Bank of China. The dissolved banks included the Republic of China’s fledgling postal
savings bank, established in 1919. Although families under Maoism may have saved by hoarding goods and a little cash, they had
little incentive to save in lieu of accessible institutions for small savings.
All this changed in the wake of the regime’s decision to reform and open the Chinese economy in 1978. Leaders recognized the
pressing need to mobilize domestic savings to remedy capital shortages. One year later the state established the Agricultural Bank
107. of China, the Bank of China, and the People’s Construction Bank of China. The creation of the Industrial and Commercial Bank of
China in 1983 completed the formation of what today constitute the four big state-owned commercial banks.
The year 1986 ushered in the next phase, the relentless pursuit of small savers nationwide. The Agricultural Bank and the Industrial
and Commercial Bank set up nearly 30,000 new branches that year. The Agricultural Bank alone doubled the number of its branches,
reaching villagers who likely had never before had a savings account.
Institutions bear heavily on savings behavior. In 1986, savings deposits increased at a faster clip than at any time since the founding
of the People’s Republic of China. It was not simply that branches opened and customers streamed in. Bank employees ran nation-
ally coordinated campaigns to persuade the locals to entrust their savings to the new institutions. Including its joint savings projects
with the authorities, associations, and cooperatives, in 1991 the Industrial and Commercial Bank claimed one million staff members
engaged in “savings mobilization.”
Joining the big banks in 1986 was the new—or rather improved—Chinese postal savings system. For all the recent insistence on Chi-
nese exceptionalism, officials methodically emulated the savings-promotion policies of Japan and other thriving Asian economies.
Once the regime committed itself to reviving postal savings, Chinese bureaucrats visited Japan’s Postal Savings Bureau and Central
Council for Savings Promotion. Cooperative relationships between savings officials of the two nations developed. During the 1990s,
Japan’s Ministry of Posts and Telecommunications assisted the Chinese in computerizing the postal savings system. Officials from
the People’s Bank of China, moreover, actively participated in the Bank of Japan’s meetings for Asian central bankers, reporting on
Chinese programs to boost savings deposits.
Postal savings became immensely popular among Chinese for much the same reasons we have seen elsewhere. In many rural and
remote areas of China, it is one of the few institutions that serve small savers. The number of branches mushroomed from less than
2,500 in 1986 to 37,000 in 2009. Its popularity also rested on more than two decades of promotional campaigns by postal employees
and the local authorities.
As a share of total deposits, postal savings appears small compared to deposits the four big state-owned commercial banks—only
8.1% in 2002. But of course we’re talking about the world’s largest country. The number of households with postal accounts that year
came to a mind-boggling 104 million.
Chinese leaders today speak less openly about their efforts to promote saving. Instead, officials increasingly pledge to stimulate con-
sumption as a vital prop of the Chinese economy. As in Singapore, the party-state recognizes that its continued legitimacy depends
on improvements in the people’s material lives. In view of decreased demand from sluggish Western economies, the planners are
also aware that domestic consumers may need to buy more if the Chinese economy is to continue high growth.
However, the Communist Party’s pronouncements on consumption have their tactical side. They aim to reassure American observers,
many of whom take any pledge as evidence that China will soon embrace an American-style consumer society.
108. Unquestionably consumption is rising in China, yet the Asian giant will likely remain a high-saving society for many years to come.
The consumption levels enjoyed by Westerners, Japanese, Koreans, and Singaporeans are well beyond the reach of hundreds of mil-
lions of Chinese. Consumption as a share of GDP stands at 35–36%, half that of the United States. Contrary to many media stories,
China’s high growth relies overwhelmingly on investment, exports, and government consumption — and relatively little on domestic
consumption.
Finally, the regime has a powerful stake in promoting household saving for the foreseeable future. Chinese authorities learned a great
deal from the Japanese and Singaporean models, in which the state manages and invests large pools of small savings. The Chinese
government similarly captures the people’s savings at low cost from the state-owned banks and postal savings system. This capital
finances companies and infrastructure at home. It also flows into the Singaporean-style sovereign wealth fund that China invests stra-
tegically in such things as U.S. Treasury securities and the exploitation of African minerals.
China, the newest savings superpower, now enjoys influence in international relations it could scarcely imagine three decades ago.
When then-Treasury Secretary Henry Paulson blamed the China’s “superabundant savings” for causing a global credit bubble, the
Chinese turned the tables just as the Japanese had done 20 years earlier. The United States, declared Premier Wen Jiabao, should be
held most accountable for the global economic crisis. America had pursued an “unsustainable model of development characterized
by prolonged low savings and high consumption,” the “blind pursuit of profit,” and “the failure of financial supervision.”
Make no mistake about it. Chinese leaders have few plans to jettison the policies of savings promotion that have served them so well.
Why Study the Chinese Luxury Market?
Much of luxury’s allure comes from the opportunity to share in the rich cultural heritage associated with a brand. This concept is rapidly catching on with
Chinese luxury consumers, and many leading brands are promoting their history and craftsmanship. But the picture isn’t totally straightforward: one-third of
luxury consumers in China said they would prefer to buy products that were designed specifically for the country and incorporated Chinese imagery.
- McKinsey and Co
Chinese consumers now represent about one-third of the global market, up from only 1% in 2000; Japanese consumers, who ac-
counted for a quarter of the market in 2000, now make up 10% of global purchases.
According to The Guardian the global luxury goods market exceeds €1tn. The Guardian attributed strong sales of luxury cars and
fine art as luxury segments that have helped push the global luxury goods market higher than €1tn (£700bn) for the first time, ac-
cording to a new report, despite slowing demand for personal luxuries such as jewelry and handbags.
The Guardian further notes that the personal luxury market has been hit by weaker demand in China and Hong Kong, said the an-
nual report from consultancy Bain & Co. Chinese consumers account for 31% of global luxury sales, followed by US consumers at
24% and Europeans at 18%.
109. Chinese consumers are still spending, but they are now heading to Europe and Japan – attracted by the weak euro and yen – rather
than their traditional shopping destinations of Hong Kong and Macau. About 80% of Chinese luxury goods shopping is done
abroad. The findings echo recent comments from British luxury fashion house Burberry, which has blamed a sharp sales slowdown
on weaker demand among shoppers in China.
The fastest growth was for sales of luxury cars, up 8% year on year, and fine art, up 6% - with postwar and contemporary work par-
ticularly strong.
In China, household disposable income has been growing consistently over recent years, and is expected to continue in coming years.
McKinsey & Company predicts the number of “upper middle-class” Chinese (those with an annual income between 106,000 and
229,000 yuan) will increase tremendously in the coming decade - 54% of China’s urban consumers will be regarded as “upper middle-
class” by 2022, up from 14% in 2012. According to Hurun Wealthy Report 2014, there were 1.09 million millionaires and 67,000
super-rich individuals in China in 2013, an increase of 3.8% yoy and 3.7% yoy, respectively from 2012. The growth rates were much
slower than that in 2010 and 2011, due largely to the relatively slow recovery of the world economy and slower economic growth in
China.
Shifts in Attitudes
The luxury market in China seemed to be recession proof, as the luxury goods markets defied the global recession in 2009 as sales of
luxury goods in the mainland rose by 16 percent, to about 64 billion renminbi—down from the 20% growth of previous years but
far better than the performance of many other major luxury markets. To get a better idea of the dynamics, McKinsey surveyed more
than 1,500 luxury consumers in 17 Chinese cities in spring 2010. According to Yuval Atsmon and Cathy Wu of McKinsey, three
factors in particular, accounted for the Chinese demand for luxury goods, namely shifting attitudes, greater sophistication, and new
geographic markets.
McKinsey research notes that given rapidly rising incomes, widely available luxury products (and information about them), and shift-
ing attitudes toward the display of wealth, more Chinese consumers than ever feel comfortable buying luxury goods. As a result,
China’s love for them is moving down the economic ladder, creating opportunities and challenges for marketers accustomed to serv-
ing only the very rich. While wealthy consumers (with incomes above 300,000 renminbi, or about $46,000) will continue to account
for a majority of luxury consumption, McKinsey research shows that the 13 million households in China’s upper middle class (in-
comes between 100,000 and 200,000 renminbi) offer the biggest new growth opportunity. They already account for about 12 percent
of the market, and their numbers are growing rapidly: McKinsey expects to see 76 million households in this income range by 2015,
accounting for 22 percent of luxury-goods purchases.
According to McKinsey, interest in luxury goods is moving beyond handbags, jewelry, fashion, and the like. A growing number of
Chinese luxury consumers are also splurging on spas and other wellness activities. Consumption is growing faster for such luxury
services than for luxury goods: 20% of these consumers said they were spending more on experiences, only 13% on products.
110. Greater Sophistication
McKinsey’s research further elucidates the Chinese are increasingly exposed to luxury goods through the Internet, overseas travel,
and first-hand experience. As a result, they have become more discerning.
With the surge in the number of luxury stores, fashion magazines, and websites and the use of social media, Chinese consumers are
now familiar with nearly twice as many brands as they were in 2008. Half of the consumers McKinsey surveyed in 2010, for instance,
could name more than three ready-to-wear brands, compared with only 23% two years before. As Chinese consumers become more
familiar with luxury goods, they are becoming savvier about the relationship between quality and price. In 2010, only about half of
consumers equated the most expensive products with the best ones, down from 66% in 2008.
Price transparency contributes to this dynamic. More than half of luxury consumers check product details and prices online, com-
pared with 13% of all urban dwellers. Since two out of three luxury consumers have made at least one trip overseas, they have access
to external benchmarks for comparing prices back home. In 2008, only two of five people in China realized that in the mainland,
prices were at least 20% higher than they were in places such as Hong Kong. By 2010, 66% did.
Luxury-goods companies have long waged a battle against counterfeit goods in China. However: McKinsey’s research shows that
consumers increasingly want the real thing. The percentage of those who said they would buy fake jewelry, for example, dropped to
12%, from 31%, in 2008. Some luxury buyers told us they felt sure that their friends would spot a counterfeit. A woman who used
her first salary check to reward herself with a luxury handbag said, “it would be meaningless if it was fake.” What’s more, an interna-
tionally well-known brand has become one of the most important factors in making a purchase.
New Geographic Markets
McKinsey states that rapid urbanization and growing wealth beyond China’s largest cities are creating a number of geographic mar-
kets with sizable pools of luxury-goods consumers. More small cities will become large enough to justify the presence of stores cater-
ing to them; McKinsey expects luxury sales in urban areas such as Qingdao and Wuxi, for instance, to triple over the next five years.
By 2015, consumption in such cities will approach today’s levels in Hangzhou and Nanjing—now two of China’s most developed
luxury-goods markets—and luxury consumption could pass 500 million renminbi in more than 60 cities, compared with 30 today. But
the luxury-goods market will remain concentrated in the top 36, which will account for 74% of the market’s growth and 76% of total
luxury sales by 2015.
McKinsey observes - most of the world’s luxury-goods companies are already in China or contemplating increased investment there.
They must tackle several big issues before making their next moves. First, delivering exceptional service in stores is critical; two out of
three consumers are disappointed with the indifferent attitudes of salespeople.
111. Overseas Shopping
According to Bain, daigou, or overseas personal shoppers who buy and send luxury goods to customers in China, has grown to an es-
timated market value of RMB 55-75 billion in 2014, concentrated in cosmetics, followed by leather goods, watches and jewelry. This
is nearly 50% of the store sales in China.
Seventy pecent of luxury brands bought by Chinese is now bought abroad or through daigou agencies; in terms of travel destina-
tions, Korea and Japan have been the big winners in 2014.
According to technode, Japan was a particularly popular destination, as sales of luxury items are up an estimated 251% since 2014.
South Korea was second with an increase of 33%, followed by Europe with an increase of 31%. In contrast, sales in Hong Kong and
Macau decreased by about 25%. The sharp increase in luxury items purchased by Chinese shoppers in Japan is attributed to a more
open visa policy, which also explains the increasing number of Chinese tourists who visit Japan.
Chinese consumers have strong preferences for shopping luxury goods overseas. China’s outbound tourists amounted to 116 million
yuan in 2014, up 18.2% yoy according to the Chinese Tourism Academy. Touristic spending has become a strong driver of luxury
spending Bain & Company estimates that Chinese visitors spent as much as 209 million yuan on luxury goods overseas in 2014.
E-Commerce / Web Strategies
According to Bain’s report, cross-border and overseas websites are taking about 12% of all Chinese luxury goods spending. Tech-
node reveals that Instead of buying luxury goods at department stores, shopping malls, or arranging a deal with a daigou merchant,
Chinese shoppers are making purchases through websites like JD, Tmall, Net-A-Porter.com, ShopBop (acquired by Amazon in 2006),
and Harrods.
The Chinese government has also been helping to move luxury brand purchases online. For example, in January 2015, limits on
cross-country online payments increased from $10,000 USD to $50,000 USD. The expansion of free trade zones in China also offers
tax benefits to companies that conduct cross-border e-commerce.
Furthermore, McKinsey discloses that while the in-store experience is by far the most important factor driving purchasing decisions,
the Internet has rapidly become the second-most-important consumer touch point for luxury categories such as fashion. Market-
ers will need increasingly sophisticated Web strategies; for example, they can work with social-media agencies to monitor and shape
online conversations among consumers or to identify influential bloggers and help educate them about brands.
112. Global Luxury Market
In the 1950s and 1960s, the world economy was transformed by the emergence of the American consumer. Now China is poised to
become the next consumption superpower, having overtaken Japan as the second-biggest consumer economy. With roughly $3.3 tril-
lion in private consumption, China has about 8% of the world total, and it has only just begun.
According to Global Powers of Luxury Goods 2015, a report by Deloitte, a UK consulting firm, the economic climate for makers of
luxury goods is positive, but there are risks. On the positive side, the economies of the U.S., Europe, and Japan appear to be recover-
ing. On the negative side, economic growth in three of the four BRIC economies has stalled, the exception being India which the
IMF predicts will grow at 7.3% in 2016. Although currency market volatility also contributes to the challenges, luxury goods compa-
nies should be pleased that, after years of stagnation, the global economy is generally on the rise.
Luxury Goods Industry
The global luxury goods industry, which includes drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage and handbags, has
been growing for several years. Luxury goods are considered to be goods at the highest end of the market in terms of quality and
price, and meet consumer demand by delivering on design, quality materials, superior craftsmanship and pricing. Luxury goods trans-
form everyday objects into status symbols. As a rule, the industry rises and falls with the gross domestic product (GDP), climbing
in times of economic stability and falling in unfavorable economic climates. The United States has long been the largest market for
luxury goods.
Over the past 20 years the number of luxury-goods consumers worldwide has more than trebled to 330m, according to Bain &
Company, a global management consultancy based in Toronto. Spending on luxury consumer goods has risen by double the rate of
growth in global GDP. Most new buyers are not the super-rich, or even the very rich, but the prosperous, with incomes of up to
€150,000 ($188,000).
In 2014, the 13th edition of the Bain Luxury Study, a global market report, analyzed recent developments in the global luxury-goods
industry. It sees slower, steadier growth for luxury goods for the immediate future. The overall luxury industry comprises nine seg-
ments in total, one of which is personal luxury goods.
For 2015, the overall luxury market exceeded €850 billion, showed healthy growth of 5% overall, and was driven primarily by luxury
cars (8%) and luxury hospitality (7%).
Bain research found that international travel and tourism was fueling an appetite for 360-degree luxury experiences, such as high-
end transportation that includes highly customized “super cars” and yachts, as well as luxury hotels and cruises. Not to be outdone,
personal luxury goods — luxury’s “core of the core” — continue to sustain the market, which in 2014 was three times the size it was
20 years ago.
113. Yet growth is slowing. In 2013, luxury goods grew by 7% and in 2014 by 5% at constant exchange rates (2% at current rates). The
slower pace is more sustainable, reflecting a “new normal” for luxury goods. Helping to bolster growth is demand from Chinese
consumers, mature consumers in the US, and Japanese shoppers returning to luxury goods.
Not all luxury spending takes place at home. Tourist spending drives the luxury-goods industry in most markets. Chinese shoppers
are the fastest-growing luxury consumer, spending more than three times abroad than they spend locally. With such cross-pollination
of luxury spending, it makes little sense to think only in terms of location. This new mindset has considerable consequences for
luxury brands, requiring new thinking from a global perspective.
Bain’s study predicts the following trends:
• Americas — The Americas were the undisputed growth engine in 2014, delivering a 6% increase at constant exchange rates.
Brazil posted disappointing results due to local currency devaluation, but Mexico and Canada maintained positive performance.
• Europe — Growth across the continent was up 2%, despite persistent economic challenges, socio-political tensions in Eastern
Europe, and less dynamic tourism.
• Japan — Japan regained a growth leadership position in 2014, increasing by 10% at constant exchange rates that made it the best-
performing market in real terms.
• China — Luxury spending in China fell for the first time: –1% growth this year at constant exchange rates (–2% at current rates),
due to greater controls on luxury spending and changing consumption patterns. Concurrently, less established and younger
brands have commended themselves to the growing upper-middle-class “wannabe” consumer segment, which is expected to
double by 2017.
LVMH (Louis Vuitton Moet Hennessy), the most valuable luxury brand in the world, is valued at about US$25.87 billion. For the
2014 fiscal year, LVMH Group’s total revenue was about €30.64 billion. Three of the top 10 companies are luxury companies with
in multiple luxury brands; two are cosmetics and fragrance companies; two are jewelry and watch companies; two are apparel compa-
nies; and one, Luxottica, is an accessories company. LVMH, Richemont and Estée Lauder maintained their positions as the top three
luxury companies. Of the top ten companies, six have headquarters in the United States and France (three each), Switzerland has two,
and Italy and Hong Kong each have one.
How will 2016 shape up for the global luxury goods industry? According to Euromonitor International (EMI), rising instabil-
ity in emerging market economies poses the biggest threat. However, the prospect of slightly stronger growth in Western Europe
and North America could offer some respite for global brands. Even so, 2016 is set to be another challenging year. Over the past
decade, LVMH, Gucci and Prada have expanded rapidly into China, but as the country’s economic growth slows, consumers will
114. be cautious about spending, forcing leading global brands to slow their expansion plans. EMI predicts there will be a further shift in
Asian consumption power from Hong Kong to Japan, as growing numbers of Chinese shoppers will head to Japan.
EMI also believes developed countries will comprise the top five growth markets in 2016. For luxury goods, the US will be the big-
gest market, followed by Japan, South Korea, France and the UK. China will be visibly absent from the top five, highlighting a change
in revenue influence from emerging to developed economies.
According to EMI, India will be the ‘star of Asia’’ and the only major market in the world to register double-digit year-on-year
growth in US dollar terms. It predicts that US sales of luxury goods in India will grow by around 15% in 2016, powered by a con-
tracting market. Lastly EMI predicts, Russia and Hong Kong will be the weakest of the leading global markets. Both have a strong
luxury goods tradition but face the strongest economic headwinds.
Chinese Luxury Market
Expensive Taste
How much China spends is one thing, how it spends it is another. As one of the
world’s most sophisticated consumer markets, China’s market is heavily skewed to-
wards expensive goods. Sanford C. Bernstein, an investment research firm, calls the
Chinese “increasingly aspirational and conspicuous consumers” who consistently
trade up to swankier labels, even when buying staples.
Nowhere is this more obvious than in the market for luxury goods. Globally, the
Chinese are the biggest buyers of expensive items, accounting for 29% of luxury
purchases in 2013. Tellingly, two-thirds of Chinese spending on luxury goods takes
place outside the mainland, a fifth of it in Europe. In London, Harrods has seen
sales to Chinese shoppers — its largest foreign contingent — increase by 50% a
year since 2011. Favorite brands for Chinese shoppers include Lancôme, Gucci,
Audi, Rolex and Tiffany.
The Chinese are also the world’s largest sippers of Bordeaux wine and co-
gnac, though sales have fallen in the wake of government campaigns against gift
giving. At Berry Bros & Rudd’s bonded wine warehouse in Basingstoke, in southern England, where four-and-a half million bottles
of expensive wine are stored, more than one million of them are owned by oenophiles from greater China.
Although a government crackdown on corruption has affected mainland sales (some luxury firms have delayed or reduced opening
new boutiques in China last year), Coach, Prada and Bottega Veneta have continued to expand. Apple has too, boasting more stores
in Shanghai now than in San Francisco, and launches new iPhones in Beijing and California simultaneously.
115. Urbanization
In China, a massive push to urbanize is under way, which will produce millions of
wealthier consumers eager for retail therapy. McKinsey, a consultancy, forecasts
that consumption by urban Chinese households will increase from ¥10 trillion in
2012 to nearly ¥27 trillion in 2022.
The new middle-class living in cities in the interior are keen to try new products,
especially those they have seen on foreign television shows.
Golden Decade
According to a CBRE report entitled “The Changing Retail Landscape,” Hong
Kong’s implementation of the “individual visit scheme” in 2003 led to a “Golden
Decade” for retail sales. Taking advantage of lower taxes, a favorable currency
situation, wider selection, a good market reputation, ease of access, and language
convenience, Mainland Chinese tourists flocked to Hong Kong, many to buy luxu-
ry goods. During this “Golden Decade,” tourist arrivals soared by 292%, prompt-
ing retail sales growth of 185% and overall retail rent increases of 213%.
Thanks to several factors, including China’s anti-corruption campaign, slowing
economic growth, anti-mainland hostility, and travel and tax policy changes, this
“Golden Decade” has come to an end, with sales of jewelry and watches down
14% in 2014 and 15% in the first seven months of 2015.What’s more, a host of other retail destinations including Japan, South Ko-
rea, and Europe compete vigorously with Hong Kong thanks to currency fluctuations, easier access through direct flights, and strong
marketing efforts to attract Chinese tourists.
The Empty Suitcase
Unlike the growing middle-class of previous generations, Chinese shoppers have a global outlook. When middle classes rose to
prominence in America and Japan, the Internet did not exist. People could not search online for European fashions or check dis-
counts on Amazon. The arrival of cheap air travel has also made the Chinese more discerning shoppers. Mr. Stocker argues that these
factors have “compressed the discovery process”, which in Japan took 30 years, to less than ten.
Even though the Chinese are already the world’s biggest shoppers overseas, a report released on January 20th by CLSA predicts a
doubling of Chinese tourists by 2020 (to 200 million) and that their spending will treble over that time. For many Chinese, buying
overseas saves money, since mark-ups and taxes keep prices high in China. Many ordinary Chinese travel not just to Hong Kong, the
most convenient spot, but to Jeju Island in South Korea, where they can visit without a visa and shop duty-free, stocking up on cos-
metics and other items that are more expensive at home. While every shopper likes a good deal, counterfeiting is not a serious
116. concern for consumers in the west, but it is in Mainland China. The variety and freshness of the products available overseas also
appeals to Chinese shoppers.
The “New Normal”
After years of robust growth, the market for Asia’s luxury goods is slowing, no doubt to a more sustainable rate — although the
growth in China’s middle class and super-rich offers significant long-term opportunities for luxury-goods manufacturers. Faced with
slowing economic growth, evolving consumer tastes, high import tariffs, President Xi’s aggressive anti-corruption campaign, China’s
luxury market has entered a “new normal.” For luxury brands, the days of “low-hanging fruit” are gone, but companies will sound
strategies will continue to win over shoppers in a competitive market that offers consumers no shortage of choice.
China’s significance in dictating the fortunes of luxury firms is undeniable. Some retailers who have expanded aggressively in recent
years to capture this market are now looking increasingly fragile as it cools. Over the last ten years China has grown into one of the
world’s largest markets for luxury goods but the recent slowdown has been a reality check for many of those same companies. Global
consultancy Bain estimates that growth in personal luxury sales in greater China (including Hong Kong, Taiwan and Macau) fell from
30% in 2011 to 7% in 2012 and to around 2% in 2013.
Nevertheless, despite its slowing economy, China’s appetite for luxury remains strong. The Fortune Character Institute put luxury
spending by Chinese shoppers at US$102 billion in 2013, accounting for nearly one-half of its global market estimates. Even as
growth declines for Chinese luxury, demand remains extremely high when compared to European, North American or Japanese lux-
ury markets. While some firms report market weakness, others are seeing the Chinese market continue to deliver double-digit growth.
Weiming Cao, Herme’s president for Greater China, estimates that the economy will continue to grow at 5-6% per year and that the
development of domestic consumption has just begun while the income growth of the middle class will become even stronger.
Retail sales were also battered in Hong Kong as a result of lower consumer spending, mostly from Mainland Chinese tourists. In
December, sales were down 8.5% in value over the year to HK$43.7 billion ($5.62 billion), the biggest percentage drop since January
2015. By volume, sales fell by 6.1%. As luxury shopping in the Hong Kong market loses its appeal to wealthy Chinese mainlanders
due to more accessible travel elsewhere, local hostility toward the mainland tourist influx, and higher prices than in other destinations,
companies need to rethink their investments in the former British colony. The speed of the Hong Kong market’s decline has luxury
brands looking for more global, far-reaching opportunities.
Also affecting the Chinese luxury market is the cross-border pricing discrepancies. On average, prices in Mainland China are 37%
higher compared to euro zone prices. Data compiled by HSBC show that, in France and Italy, a Hermes plain silk twill tie costs €160
($177.69) but ¥1600 in China ($243.37), a 36.9% premium. The same item costs $180 in the United States, ¥25,920 ($219.74) in
Japan, and HK$1,650 ($211.79) in Hong Kong.
117. New Markets for Chinese Consumers
With the increasing demand for luxury products by Chinese shoppers,
more than half of the luxury products purchased by them are bought
abroad for the following reasons:
1. The price discrepancy
2. The increase of personal wealth
3. The limited product selection
4. The importance of the country of origin
5. The gift tradition
6. The authenticity of the products
7. The greater ease of obtaining a visa
Europe, Japan, and the UK continue to attract Chinese shoppers for
luxury goods, particularly as Chinese tourists are venturing further afield
than Hong Kong. Although the traditional European and Asian luxury
markets are seeing rising numbers, they have experienced growing pains,
too, as they have had to adjust, often rapidly, to a new consumer base.
Evolution of the Asian Luxury Consumer
Globally, the Chinese are the biggest buyers of expensive items, accounting for 29% of luxury purchases in 2013.
For many Chinese luxury consumers, purchasing luxury goods is not an occasional indulgence but a frequent ritual. According to
a recent global survey, 68% of Hong Kong consumers have ‘luxury logo lust’ (they prefer ‘logo-ed’ luxury items) in contrast to the
global average of 47%. Traditionally, for Hong Kongers, buying and owning something from a luxury brand was a symbol of sta-
tus and wealth, but this is beginning to change as more consumers, both residents and visitors from mainland China, have increased
exposure to the concept of luxury. Increasingly, what entices Hong Kongers is the extra boost to self-confidence that comes with
owning a widely admired and appreciated luxury item that represents their identity. For such consumers, instead of being a tool to
broadcast wealth and status, luxury is becoming a vehicle for personal enjoyment and validation.
As China’s luxury market matures, Chinese consumers are becoming increasingly diverse in tastes, attitudes, lifestyles, spending habits,
brand preferences, and consumption of media. Generally, Chinese luxury consumers can be categorized into three groups. First are
the nouveau riche (ultra-rich), who acquired their wealth over the past decades. These consumers and their families are purchasing
luxury goods within Mainland China and are not sensitive to price differences. A majority of this group resides in first to third-tier
cities. Second is the gifting group, consumers who generally buy luxury goods in Mainland China for gifting (mainly for business or
government-related purposes). They are not sensitive to price differences because their corporations will cover costs. The third group,
118. and by far the biggest, consists of Chinese middle-class consumers who are brand-conscious. These consumers are price sensitive.
They often work and reside in first or second-tier cities.
In “China’s New Luxury Consumers: A Frontier Worth Planning For,” a recent report by Carat and Jing Daily, five key Chinese
luxury consumer segments. All respondents are in the top 15th percentile income range.
1. The Aficionado
2. The Epicurean
3. The Bling King
4. The Brand Skeptic
5. The Aspirant
Annual Spending on Luxury by Segment
The rise of the middle class from lower tiers will see one key segment emerge. It is estimated that by 2020, Aspirants will account for
19% of luxury consumers. The Chinese luxury consumer is by no means a homogenous cohort. Each segment has unique prefer-
ences and behaviors.
The Aficionado
AFICIONADOS ARE TOP SPENDERS IN LUXURY AND FASHION-FORWARD IN OUT-
LOOK
With high knowledge of luxury brands and an individual sense of taste and style, this segment rep-
resents China’s trendsetters. This is the wealthiest segment and enjoys not only luxury shopping but
lifestyle activities as well. Aficionados are the most sophisticated luxury fashion consumers. Well-
versed in the cultural heritage of brands, they shape rather than rely on advertising and trends. This
segment is known for an ability to curate “looks” according to unique personal styles. They are active
as authorities and opinion shapers on social media channels. In leather goods, their preferred brands
are Prada, Burberry, and Chanel; in apparel, they like Escada, YSL, and Hermès. Aficionados are the
wealthiest segment: 65% are under 35, 70% earn over ¥120k per annum, and 33% earn above ¥240k
each year. Not surprisingly, aficionados are the most e-savvy and long haul jet-setting consumers.
119. The Epicurean
SECOND HIGHEST PURCHASING POWER AND FASHION-CENTRIC LIFESTYLE
Obsessed with luxury, the Epicurean segment is led by fads and searches for the latest trends on so-
cial media. As a segment, the epicureans value luxury and are willing to spend to own them. Although
they are responsive to advertising and celebrity endorsement, they lack brand loyalty. Epicureans love
to switch between brands and try new things. They opt for products that have a standout factor and
want to have impact amongst their peers. With a love for publicizing their purchases on social media,
they flaunt their penchant for conspicuous consumption. In leather goods, their preferred brands are
Furla, Gucci, and Dunhill, and in clothing, you’ll find them wearing the latest threads from Burberry,
Givenchy, and Loewe. Like Aficionados, they are a young set, 65% under 35 years old, but not quite
as wealthy; 70% earn above ¥120K and 30% earn above ¥240K each year.
Epicureans lead an eclectic lifestyle. They like to keep up-to-date with the latest trends and they
engage online, where they will share their latest finds. Epicureans are social creatures and are just as
likely to be found in a private room at KTV or making sure that they keep fit, look great, and build
connections at the same time by fitting a game of tennis into their busy schedules.
The Bling King
LIVING A FLAMBOYANT AND CONSUMPTION-DRIVEN LIFESTYLE
With low knowledge of luxury goods yet a high desire to impress, this segment is all about
conspicuous consumption and sees luxury as a status symbol. As indicated by their segment
title, Bling Kings are the show-offs of the luxury world. They purchase luxury to demonstrate
status and prefer fashion to utility. They value big brand names and rarely care about quality or
heritage. Often with limited luxury knowledge, Bling Kings believe that price is a reflection of
quality. Their preferred brands in clothing and accessories are Versace, Miu Miu, Tory Burch,
Max Mara, and Hugo Boss. With a 52% to 47% gender split and 64% under 35, this is the third
wealthiest segment: 72% earn above ¥120k and 28% earn above ¥240k each year.
Bling Kings are as showy in their lifestyle choices and leisure time as they are in their shopping.
They love showing off the latest gadgets, whether diving or racing cars. This group loves a live
experience and you can be certain to find them with the best seats and boxes.
120. The Brand Skeptic
SKEPTICS ARE LOWER-LEVEL LUXURY SPENDERS THAT PLACE LITTLE VALUE ON BRANDS
Unlike the Bling King, the Brand Skeptic sees luxury as overrated, yet values quality and craftsmanship. This segment is much less
susceptible to advertising and strongly considers price when making a purchase. The Skeptics are an older and more detached de-
mographic. With an ambivalent attitude to luxury, they believe that luxury is overrated but can be a guarantee of quality. Pragmatic
in their views, they are both quality-and price-conscious. With a preference for craftsmanship over flashy design features, this is an
audience that is much harder to influence through advertising. Purchasing decisions are considered and based on the level of quality,
craftsmanship, and price. Favored brands include Loewe, Longchamp and Hugo Boss, with Jil Sander and Tod’s featuring heavily in
their wardrobes. With only 40% of this audience under 35, they are the second least wealthy segment, 55% earning above ¥120k and
only 25% earning over ¥240k each year. The gender ratio amongst Skeptics is an almost equally balanced 51/49 split.
Brand Skeptics live a more conservative and relaxed lifestyle. Where our audience of Bling Kings lead lives on the go, dominated by
sports and live events, the Skeptics are more likely to be found at home. Living a relaxed lifestyle, they enjoy reading the latest fiction
or non-fiction or spending time in their gardens. For Skeptics, a fitness routine is walking the dog.
The Aspirant
LOWEST PURCHASING POWER BUT HIGH FASHION FOCUS & DESIRE
The emerging segment of the group, aspirants love luxury and, although they have
little knowledge of brands, they are eager for information. This group is willing to
explore and is highly influenced by word-of-mouth, social media, and key opinion
leaders (KOLs) such as fashion bloggers. Aspirants are the next wave of China’s
luxury consumer. Still forming their preferences, the segment currently has very
little knowledge about luxury. They are influenced by rather than influence others,
seeking information from ads, celebrities, and key opinion leaders (KOLs). Brands
are a symbol of social status in their peer groups. Predominantly young, aged be-
tween 18 and 29, aspirants have relatively low incomes. Price is an important driver,
especially in the lower tiered cities. Big brand names dominate in choices with Louis
Vuitton, Ralph Lauren, Tory Burch, and Hugo Boss having the highest recognition
factor. Among Aspirates, men dominate with a 61% weighting to women’s 39%.
However, only 58% earn above ¥120k and just 18% earn above ¥240k each year.
There is little difference in demographics and age, but significant differences in at-
titudes, lifestyles, and brand preferences.
121. The Chinese luxury consumer, a rising cohort, these tech-savvy, urban travelers are emerging from increasingly diverse and disparate
demographics and regions. Despite the government’s anti-austerity measures, increased consumer purchases abroad due to price dis-
parity, a global downturn contributing to China’s slowing local luxury market (down 2% last year), and recent volatility driving an ebb
in consumer confidence as recently plummeting Chinese stock saw the market move from bull to bear, the long-term outlook is far
from bleak.
At the upper end of the consumer spectrum, Chinese millionaires topped the world’s fastest growth rate, increasing from three to
four million in 2014. And, at the lower end, the growth phenomenon is echoed, with the emergence of the middle class expected
to drive future category growth. By 2022, it is expected that more than 75% of China’s urban consumers will fall within this group,
earning between 60,000 to 229,000 RMB. Building future-proof luxury brands presents a complex challenge. To succeed, luxury
brands will need to be equipped to leverage convergence and create compelling experiences that foster meaningful relationships with
consumer segments throughout their lifecycle while delivering tailored strategies that cement loyalty and smooth the dialogue critical
to ongoing relationships.
MARKET SEGMENT OVERVIEWS
Wine & Spirits
Background
Ever since the Hong Kong government’s decision to abolish the import duty on wine in 2008, the city has cemented a repu-
tation as Asia’s wine cellar. Fine wine, champagne, and spirits have grown in current value terms to reach HK$832 million in 2015.
Retail sales of wine and spirits in Hong Kong grew by 3% in 2015, which was a continuation of the slowdown that started in 2012.
Growth in 2014 reached 4%, which was slower than the 6% rate in 2013. Despite the overall slowdown, Chinese consumers are
growing increasingly educated in fine alcohol and seek unusual flavors to satisfy their increasingly adventurous palates. Many are even
taking classes to receive certifications as “wine connoisseurs.”
Within wine and spirits, still red wine dominates the market at a staggering 37% of retail value. The popularity of red wine is
largely attributed to its appealing taste to the Asian consumers palate. In addition to taste, the dark, red color is considered auspicious
in East Asia and makes a popular choice for gifting and special occasions. White wine only accounts for about 7% of retail value
sales, largely because of its acidic taste. Champagne has recorded the fastest recorded retail growth in the market, rising 5% in 2015.
Sparkling wines like champagne are considered “aspirational” drinks in Hong Kong and are associated with luxury and living “the
high life.” Given that champagne is typically opened only at special occasions or in entertainment venues like nightclubs, it has not
experienced the same slowdown that still red wine and white wine or other spirits have.
Competitive Landscape
Before examining the dip in what was massive growth, it is insightful to assess the competitive landscape and key players. In
Hong Kong and Macau, LVMH Moët Hennessy Louis Vuitton SA led fine wines, champagne and spirits in 2014 with a 14% market
share. These companies maintain prominent and popular brands in their respective portfolio, such as Dom Pérignon, Veuve Clicquot,
