Changes in luxury shopping behavior among Chinese consumers

Nov.19. 2012

Key Findings • Connoisseurship and self-reward growing while status declining

• Luxury consumers have started to develop a good knowledge of brands

• Consumers are becoming "more sophisticated" in their tastes

• China itself has become the go-to destination for buying luxury goods in 2012 replacing Hong Kong and Europe

• Popular luxury brands see a slowdown in their China sales as new and chic brands sales rise

• However, one aspect of the luxury market that has not changed was the status of established luxury brands in the Chinese mindset.

Connoisseurship and self-reward growing while status declining

There has been a continued rise in experiential and connoisseurship based behaviors. Connoisseurship and self-reward are becoming stronger motivators and when compared to the findings from KPMG’ 2008 study, this is largely at the expense of status seeking.

The strongest single motivation cited by consumers remains self reward, which over 40 percent also stating that consumed luxury “to pamper themselves” or “too enjoy the luxury experience”.

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Source: Luxury Experience in China, KPMG,2011

Source: How Consumers Perceive Luxury Brands in ChinaGrail Research, March 2012

They are beginning to appreciate the brands heritage and are making more sophisticated purchase decisions. For example, the British luxury menswear brand Gieves & Hawkes is particularly appealing to Chinese customers as they come to know its long history of offering the British Royal family, British Army and Royal Navy with tailoring and ceremonial uniforms.

This understanding has actually triggered sales for the brand as Chinese consumers greatly appreciate the royal association and are more inclined to view the brand as high-class and high-quality.

Luxury consumers have started to develop a good knowledge of brands 2

Source: Luxury Experience in China, KPMG,2011

“A few years ago, it was common for Chinese men to leave the label sewn to the sleeve of their suits so that people knew what brands they were wearing, now, he says, these same buyers are moving into more subtle, albeit high quality, designs”

---according to a report by HSBC's head of consumer brands, Erwan Rambourg.

Consumers are becoming "more sophisticated" in their tastes

http://money.cnn.com/2012/10/03/news/world/china-luxury/index.html

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Patricia PaoCEO of the Pao Principle, which consults with luxury brands in China.

Luxury shoppers in China want to flaunt their wealth but in more subtle ways, Pao said China's one-child policy has also contributed to this shift, since it has led to a generation of "little emperors" among the rich who want to look unique. “ "The luxury market is still moving very quickly, there's still a lot of money for people to spend, and they're going to be taking a more sophisticated approach. They don't want to just walk around with big LVs anymore.” ----CNN Money

http://money.cnn.com/2012/10/03/news/world/china-luxury/index.html

Davy YeA 45-year-old managing director of a foreign communications company

“Louis Vuitton, Gucci, Omega, Versace and Hugo Boss? No! Although these luxury brands have been admired by some Chinese people, to others, like me, they are somewhat synonymous with parvenu - a rich second-generation, or of graft-taking and bribery bureaucrats in China."

On that day, Ye wore a suit custom-made in a specific tailor's shop, a Swiss-made and limited-edition Jean Richard watch, and custom-made shoes, made in an independent shoe studio in Milan. Concerning bags, he said he likes the Punch series from Bree, a German bag-and-case brand established in 1970.

http://www.chinadaily.com.cn/business/2012-10/04/content_15796508.htm

"More and more rich Chinese are seeking top luxury brands that have long history, top prices and a low-key manner, I met a newly rich Chinese recently who said the most favorable wine brand is La Tache. I consider myself as having a great deal of knowledge of luxury products, but had no idea about La Tache and found out it is a superpremium brand that originated in Bourgogne, France, only after researching it on Google.”

Rupert Hoogewerf Chairman and chief researcher of Hurun Research Institute

http://www.chinadaily.com.cn/business/2012-10/04/content_15796508.htm

China itself has become the go-to destination for buying luxury goods in 2012 replacing Hong Kong and Europe

As retailers and marketers have rushed into China, shoppers there are responding, triggering a shift particularly among consumers living in China’s so-called Tier 2 and Tier 3 cities outside the metropolises of Beijing and Shanghai. Survey respondents said that China will be their first stop when it comes to all luxury categories, a shift from last year, when the same survey found that Hong Kong was the first destination for their purchases of watches, jewelry, cosmetics, shoes and handbags, and that Europe was their first destination for luxury wines, spirits and cigars.

The Ruder Finn/Ipsos China Luxury Forecast, June 2012

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Second-tier cities

Chinese Consumer Report- Luxury, ROLAND BERGER, Oct. 2012

Popular luxury brands see a slowdown in their China sales as new and chic brands sales rise5Burberry Group,Richemont and LV released data showing the decreasing Asian demand, especially the China market. But not all retailers are hurting, Paris-based Hermes International SCA reported on Aug. 30,2012 a 28 percent rise in profits in the first half of its fiscal year compared to last year and raised its earnings estimate for the year. PPR that owns Gucci and Bottega Veneta, posted a sales increase of 24.4 percent in Mainland China. Belgian Fashion house Maison Martin Margiela is also doing well in China. It planed its newest and biggest boutique in Beijing last year and see huge increase in sales.

Some brands that are getting popular among Chinese consumers

Goyard Maison Martin Margiela

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However, one aspect of the luxury market that has not changed was the status of established luxury brands in the Chinese mindset.

6According to the Ruder Finn/Ipsos China Luxury Forecast, Louis Vuitton was ranked No. 1 with a Top of Mind (TOM) awareness of 39 percent (without prompting) and a spontaneous recall (Spon) of 65 percent. The French fashion icon was followed by nine other European big-name brands.

Chinese Consumer Report- Luxury, ROLAND BERGER, Oct. 2012