TIGERS,FLIES,ANDLONGINES:THECHINESECORRUPTIONCRACKDOWNANDITSEFFECTONCONSPICUOUSCONSUMPTION

©2016ByKaylaM.Smith

AthesispresentedinpartialfulfillmentoftherequirementsforcompletionOftheBachelorofArtsdegreeinInternationalStudies

CroftInstituteforInternationalStudiesSallyMcDonnellBarksdaleHonorsCollege

TheUniversityofMississippi

University,MississippiMay2016

Approved:

_____________________________Advisor:Dr.JoshuaHoward

_________________________________Reader:Dr.WilliamSchenck

__________________________________

Reader:Dr.GangGuo

08Fall

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Abstract:ThroughtheanalysisofElleChinamagazinearticlesandannualfinancial

reports,theresearchersoughttofindifthe2012XiJinpingcampaignagainst

corruption,extravaganceandgrafthadaneffectonluxurysales.Theresearcherhas

foundthatthecampaignhaslittletonoeffectontheluxuryconsumption

preferencesoftheupperandmiddleclassinChina,onlyeffectingofficialsand

luxurypurchasesmadeforgifting.Tooffsetlosesfromthecrackdownongifting,

luxurybrandshavebegunsellingmoreaffordablehigh-endliquorsandwatches.

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Introduction 4

Chapter1:LuxuryGoodsConsumptioninChina 9Whoisconsumingluxurygoods? 9DefiningLuxuryGoods 16Whatluxurygoodsarebeingconsumed? 18Howareluxurygoodsbeingconsumed? 24Summary 26

Chapter2:TheCrackdown 28AHistoryofAnti-CorruptionCampaignsinModernChina 28PresidentXi’sCampaign 29TheCampaign’sEffectonLuxuryConsumption 33EffectonGift-Giving 35EffectonLuxuryGoods 36Summary 37

Ch.3:TheGovernmentCrackdownanditsEffectontheMarketingofLuxuryGoods 39AdvertisingofLuxuryGoodsinChina 40The2013LuxuryAdvertisingBan 43ChineseLuxuryAdCampaigns:ElleChinaCaseStudy 45Summary 56

Chapter4:MarketLosses 57LuxuryRetailers 57LuxuryGoodsParentCompaniesandSubsidiaries 58

LuxuryAutomotiveIndustry 62Summary 63

Conclusion 65Limitationandfutureresearch 66

AppendixA 67

AppendixB:ElleChinaYearlyStatistics 70Bibliography 74

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IntroductionIn2016,ChinasurpassedtheUnitedStatestobethecountrywiththelargest

numberofbillionairesintheworld.1Thisgrowthinthenumberofbillionairesin

ChinesesocietypointstoageneralizedgrowthinwealthaccumulationinChina,

whichcanbeseenintheconsumptionofluxurygoods.Fromhandbagtocarsto

watches,Chinaconsumesluxurygoodsinbulk.Over170millionpeopleinChinacan

affordtopurchaseluxurygoods,andthepercentageofChinesepeoplewiththe

abilitytopurchaseluxurygoodsgrowsby12percentayear.2

WhilelivinginChinalastspring,Icameuponaninterestingphenomenon

concerningChinesepeopleandtheconsumptionofluxurygoods.OneofmyChinese

teacherswouldtellusofhowherfriendswouldlineupforhoursjusttogetacouple

thousand(CNY1000=US$154.27)offaLouisVuittonbagthatwassellingforover

sixteenthousandRMB(US$2468.74).ThelongerIstayedinChina,themoreI

becameintriguedbytheprevalenceofluxurygoodsinthecountry.Luxury

handbags,anautomaticdistinguisherofelevatedstatus,couldnotonlybefoundina

communistcountry,butseemedtobefoundeverywhere.Flagshipstoresforallthe

majorluxurybrandscouldbefoundineverycity,and,inmajorcitieslikeBeijingor

Shanghai,youcanfindmanystoresofthesamebrand.

TheideaofluxuryconsumptioninChinafascinatedmewellpastmyreturn

totheUnitedStates,butthenatureofmyquestiontookaninterestingtwistwhenI

1“HurunGlobalRichList2016,"HurunInstitute,February24,2016.Http://www.hurun.net/en/ArticleShow.aspx?nid=15703. 2KarlGerth,"LifestylesoftheRichandInfamous:TheCreationandImplicationsofChina'sNewAristocracy."ComparativeSociology10,no.4(November2011):490-491.

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onceagainhadunlimitedaccesstoknowledge.DespiteallthatIhadseeninChinain

regardstomassluxuryconsumption,Chinawascurrentlyinananti-corruption

campaignthat,inpart,targetedluxuryconsumption.SinceXiJinpingtookover

leadershipoftheCCPinlate2012,414,000officialshavebeen‘disciplined’bythe

partyforcorruption,andthenumbercontinuestogrowasthecampaigndigs

deeperintothevastcorruptioninChinesesocietyandpolitics.3Numerous

newspaperheadlinetoutedthatthisluxurybrandorthatluxurybrandhad

experiencelargedecreasesinsale.

Uponlearningthis,Ibegantowonderwhyluxuryconsumptionseemedtobe

soimportanttoChinesepeople,andwhethertheaveragepersonwasreallyaffected

bythecrackdownonextravaganceasthenewsproposed.WhywereChinesepeople

stillwillingtobuylargeamountsofluxurygoods,despitethewide-scaleand

extensivegovernmentcrackdownonitsconsumption?

Theanswertothesecondinquirywasuncoveredearlyinmyresearch.

Chinesepeopleengageinconspicuousconsumptionoutofatypeofnecessity.4

SocialclassesarestillmoderatelyfluidinChina,comparedtotheWestwheresocial

classesareentrenchedoverhundredofyearsofwealthaccumulationandloss.Asa3BarbaraDemick,“Chinatryingtopullbackongift-giving,”LosAngelesTimes,October6,2013.4ThestudyofthepracticeofconspicuousconsumptionintheWestbeganwithTheTheoryoftheLeisureClass:AnEconomicStudyofInstitutions(1899),byThorsteinVeblen.Veblensuggestedthataseconomiesgrowandasmorepeoplehaveextramoneytodevotetoleisureactivities,theywillstrivetoincreasetheirsocialstatus.Veblendescribesthisdeep-seatedmotivetoincreaseone’sstatusandmoveupthesocialhierarchyasemulation.Statuswasnotobtainedbyputtingone’swealthondisplaybutthrougheasilyrecognizabledisplaysofwealthandstatus.Conspicuousconsumption,atermcreatedbyVeblen,istheuseofeasilyrecognizablegoodspurchasedtodisplayone’sstatus.Recognitionofsomeone’sstatuswillhelptheindividualmoveupthesocialhierarchy.

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result,Chineseconsumers,onaverage,buyluxuriesfortwoprimaryreasons—

giftingandassertionofclassstatus.Chinesemetropolitanareasaresomeofthe

largestintheworld,creatingasocietythatisextremelyfluidintermsofsocial

interactionthatcrossclasslines.Asaresult,someupperclassChineseconsumers

feeltheneedtohaveaneasilyrecognizableindicatortostrangersoftheirstatus,

mostcommonlyaluxurybag,watch,orcar.Scholarsarguethatthoseinemerging

economiesare,insomeways,forcedtoengageinconspicuousconsumptionbecause

“theyfeeltheymustinordertomaintainstatureinthecommunity.”5Chinese

consumersarewillingtospend“largeproportionsofmonthlyincomeonapparel

itemsthatareroutinepurchasesinotherareasoftheworld.”6Chineseconsumers

donotviewthisexpenditureonluxuryaswasteful,butratheraqualityinvestment

intotheirsocialandbusinesssuccess.7Theresearcherseekstoprovethat,despite

thecrackdownoncorruption,Chineseconsumersarestillwillingtopurchaseluxury

goods;theonlydifferencenowisthatsignificantlylessisinvestedinluxurygoods

forgiftingasaresultoftherecentgovernmentcampaignoncorruption,

extravagance,andgraft.

Chinaisananomalyintheluxurymarketinthat,beforethecrackdown,it

hadalargerpercentofmaleluxuryconsumersthannationsinthewest.Primarily

5JeffreyS.Podoshen,LuLi,andJunfengZhang,“MaterialismandconspicuousconsumptioninChina:across-culturalexamination,”InternationalJournalofConsumerStudies35(2011):23.6EugeneH.Fram,LuLe,andDavidM.Reid,“”UnderstandingthebehaviorofupscaleChineseconsumers,”AsiaPacificJournalofEconomicsandBusiness6.2,December2002,44.7LingjingZhan,andYanqunHe,“UnderstandingluxuryconsumptioninChina,Consumerperceptionsofbest-knownbrands,”JournalofBusinessResearch65(2012):1458.

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purchasingluxurywatches,car,andspirits,Chinesemenalsobecamethemajor

industrymoverintheirconsumptionofluxuryskincareproducts.Withthe

restrictionsongifting,theindustryexpectedtoseedecreasedreturnsinsalesacross

theboard,butactuallyonlyexperiencedmajordecreasesinthesaleofcognacand

watches.Overthecourseofthispaper,theresearcherseekstoshowthatthe

decreaseinsalesforproductsprimarilyconsumedbymenforgiftingwasoffsetby

theemergenceofnewconsumersinthegrowingmiddleclass,ascanbeseenin

luxurybrandssellingmoremiddlerangeluxurygoods.

SurveydatainChinaisdifficulttocomeby,so,throughtheuseofprimary

sourcesthatincludeannualfinancialreports,andthecarefulevaluationoffashion

advertisements,IsoughttointerpretthecurrentluxurymarketinChina.Financial

reportsaretakenfrom2010to2015,butinsomecasesinformationonannualsales

for2015hadnotbeenreleasedyet.Inthecaseofluxuryfashion,dataforChina

individuallywasnotavailable,sodataistakenfromtheAsia-Pacificregion

(excludingJapan),asawhole.Theresearcheracknowledgesthiscouldcreatean

inaccuraterepresentationofChineseconsumption,butarguesthat,asChinaisthe

largestconsumerintheregion,andheavilyengagesinluxurypurchasesabroad,this

actuallycontributestotheaccuracyoftheresearch.

Previousresearchintothegovernmentcrackdownandluxuryconsumption

hasnarrowlyfocusedoneitherthegovernmentcrackdownorluxuryconsumption

individually,andhasnotfocusedonhowbothareinterrelated.Inaddition,itis

difficulttoprovea1to1correlationbetweentheanti-corruptioncampaignand

luxurysales,becausemacroeconomictrendsandotherfactorsmayhavedampened

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thesalesfiguresataroundthesametimeasthecampaignbegan.8Throughthe

courseofthispaper,theresearcherseekstoshowhowthetwoareinterrelated,and

that,thoughthecampaignhashadanegativeeffectongiftingandtheluxury

purchasinghabitsofofficials,overallthemarkethasseennonegativeeffectsfrom

thegovernmentcrackdownalone.9

8NancyQianandJayaWenarguein“TheImpactofXiJinping'sAnti-CorruptionCampaignonLuxuryImportsinChina(2015)”arguethatmacroeconomictrendsdidnotaffectthesaleofluxurygoodfrom2012topresentbylookingatimportdata.Theyfoundthatluxuryimportswerenotallsimilarlyexperienceadecreaseinsales,aswouldbethecaseifthesaleswereeffectedbythelargereconomicdownturn.9Forfurtherreadingontheanti-corruptioncampaignsee:Chen,Gang,"The“Tigers”inXiJinping'sAnti-corruptionCampaign,"EastAsianPolicy6,no.03(2014):30-40.Seealso,Yuen,Samson,"DiscipliningtheParty:XiJinping'santi-corruptioncampaignanditslimits,"ChinaPerspectives3(2014):41.

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Chapter1:LuxuryGoodsConsumptioninChinaThischapterexaminesluxuryconsumptioninChinasinceDengXiaoping

initiatedmarketreformsintheearly1980s.TheluxurymarketinChinahasseen

exponentialgrowthinthelasttenyears.In2000,luxurygoodssalesinChinawere

almostnon-existent.

Beforetheanti-corruptioncampaignin2012,theluxuryphenomenonin

Chinaappearedtohaveendlessgrowthforinvestors.China’sgrowingeconomy

ensuredthattherewouldbemoreconsumerswithaccesstocapitalandthedesire

toconsumeluxurygoods,andthepracticeofgiftingensuredthatluxurygoods

wouldmaintainanimportantroleinbusinessandpoliticalpractices.Distinctive

characteristicsofChineseluxuryconsumption,likehowthemarketismale-driven

andwestern-focused,alongwiththepracticeofgift-giving,resultedinluxurybrands

likeLouisVuitton,Gucci,andHermesestablishinghundredsofflagshipstoresall

overChina.

ThischaptertoseekstofullydescribetheChineseluxurymarketintermsof

whoisconsumingluxurygoods,whatluxurygoodsare,andhowluxurygoodsare

beingconsumed,toprovideinformationessentialtounderstandingtheeffectofthe

anti-corruptioncampaignonluxuryconsumption.

Whoisconsumingluxurygoods?China’seconomicsuccesssincethelate1970’shasprovidedacontinuously

growingmarketforluxurybrands.Highincomeisthemostimportantcharacteristic

ofluxurygoodconsumers,andthegrowthoftheChineseeconomyhascreated

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classesofindividualswhocannowaffordluxurygoods.10Marketreformsallowed

Chinesecitizenstoaccumulatewealthforthefirsttimein30years,atfirstcreating

anupperclass,andthenlatercontributingtothegrowthofthemiddleclassin

China.11Bothconspicuousconsumptionandwealthaccumulationaresignificant

factorsinthesuccessoftheluxurymarketinurbanChina.

Themassconsumptionofluxurygoodsinthelasttenyearscanbeattributed

tothecreationofthe“newaristocracy,”or“newrich,”inChinesesociety.12The

ReformEraandtheopeningofthemarketin1978byDengXiaopingledtothe

expansionoftheurbanprivatesector.13ChinacreatedSpecialEconomicZones(SEZ)

andbeganprivatizingstateownedindustries.Thecreationofthe“newrich”and

theirwealthaccumulationcanbeattributedtotheirconnectionstogovernment

officials,usuallytheirparents.14Thisconnectionaffordedtheseindividuals

significantleadsintakingadvantageoftheprivatizationofstate-ownedenterprises

andallowedthemtoaccumulatewealthbeforeanyoneelse,thuscreatinganupper

classforthefirsttimeincommunistChina.

Throughin-depthpersonalinterviews,PierreXiaoLuwasabletodivide

China’seliteintofourcategoriesinreferencetotheirconsumptionofluxurygoods.

Hisstudywasconductedin2008fromasampledataof315peopleinBeijing,10BernardDubois,GillesLaurent,andSandorCzellar,“Consumerrapporttoluxury:Analyzingcomplexandambivalentattitudes”2001.LesCahiersdeRecherche736,HECParis. 11Thereismassdiscrepancyaboutthepercentageofthepopulationinthemiddleclass,asdiscussedbyDavidS.G.Goodman,ClassinContemporaryChina,(JohnWiley&Sons,2014),102.Estimatesrangefrom5%to68%,dependingonone’sdefinitionofwhatistakestobeinthemiddleclass.12Gerth,“LifestylesoftheRichandInfamous.”13Ibid.14Ibid.

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Shanghai,Guangdong,andChengdu.15Thefirstgroup,“luxurylovers,”areknownfor

theiranalyticalpurchaseofconspicuousgoodsandareslightlycollectivist,meaning

theytaketheirstyletastesfromthosearoundthem.Thisgroupofluxuryconsumers

makeup15.2percentofallluxuryconsumers,60percentarewomenaged28-55in

Guangzhou,Beijing,ShanghaiandChengdu.16Aluxuryloverwillpurchasealuxury

itemafterseeinganotherpersonwiththesameitem,butwillalmostneverpurchase

aluxuryitemonimpulse.Brandsareencouragedtomarkettothisdemographic

throughthecreationofdesignandbrandstories,orthestoryofhowtheproduct

wasmadeandthehistoryandprestigeofthebranditself.

“Luxuryfollowers”arehighlycollectivist,andareknownforimpulsive

purchasesofluxurygoods.Thisdemographicmakesup21.9percentofluxury

consumers,and,similartoluxurylovers,thegroupispredominantlywomen,at72

percent,inthesamecities,Chengdu,Guangzhou,BeijingandShanghai.17

“Luxurylaggards,”27.6percentofallluxuryconsumersinChina,areknown

fortheirimpulsivepurchasesofconspicuousgoods.18Thegroupisdominatedby

womenat84percent,mostlyinChengdu,butalsofoundinotherTier1cities.

Consumersinthisgrouplargelyfocusonfunctionoverbrandoraesthetic,whichis

importantinunderstandingthatmarketinglargelyhasnoeffectontheirpurchase.

156oftherespondents,just1.9%ofthosesurveyedwerefromHongKong,Macao,Taiwan,orOverseasChina.Answersmaydisproportionatelyrepresentwomenduetotheluxurygoodssurveyed.16PierreXiaoLu,EliteChina:LuxuryConsumerBehaviorinChina,(Singapore:JohnWiley&Sons(Asia)Pte.Ltd.,2008):91-2.17Ibid.,92-3.18Ibid.,94.

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Lastly,“luxuryintellectuals”areconsumerswithavastknowledgeofluxury

goods,andareknownfortheirpurchaseofinconspicuousgoods.Thegroupisonly

55percentwomen,themostequalgenderdispersionofallfourcategories,andis

largelycenteredinBeijing.19Aconsumer’swillingnesstopayforaluxurygoodis

basedupontheperceivedsocial,economical,andutilitarianvalueofagood,butas

theirknowledgeofbrandsincreases,theconsumerpurchasesgoodsthatare

inconspicuousandmoreindividualistic.20Theseindividualsseekoutnewbrands

andputthoughtandresearchintotheirdecisions,andareresponsibleforbringing

newbrandsintoChina.

Degenclaimsthatmembersofthe“newrich”arenotaffordedtheirstatus

throughtheirwealthalone,butthroughthepurchaseofhigh-endluxurygoodsina

practicecalled“conspicuousconsumption.”21Consumersbuycertaingoodsinorder

toelevatetheirsocialstatus.22Thoseintheemergingmiddleclassattempttouse

conspicuousconsumptiontomoveupthesocialhierarchy.Whenasocietyis

extremelyfluid,likeinChinawherepeoplearemeetingnewpeopleeverydaydueto

denselypopulatedurbancenters,peoplebegintoasserttheirclassstatusand

positionthroughobjects,soothersthattheydonotknowaregivenanindicatorof

wheretheystandinrelationtoanotherpersoninthesocialhierarchy.Some

19Ibid.,93.20PierreXiaoLu,andBernardPras."ProfilingMassAffluentLuxuryGoodsConsumersInChina:APsychographicApproach."ThunderbirdInternationalBusinessReview53,no.4(2011):435-455.21RonaldJeanDegen,“OpportunityforluxurybrandsinChina,”JournalofBrandManagement6,no.3(September2009):75.22AndrewB.Trigg,“Veblen,Bourdieu,andConspicuousConsumption,”JournalofEconomicIssues35,no.1(March,2001):99-115.

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researchersarguethatanaudience’sreactiontoaproductprovidesmore

satisfactioninconspicuousconsumptionthantheactualuseofaproduct.23

YuvalAtsmon,DianeDucarme,MaxMagni,andCathyWu,“China’sNewClassofShoppersTakeontheWorld,”(survey,McKinseyandCompany,December2012).

Ascanbeseeninthechartabove,theChinesemiddleclassisasignificant

factorinthefutureofluxurygoodsinChina.In2011,theChinesemiddleclasswas

16%oftheworkforce,averaginganincomeofUS$7,264andUS$60,532annually.24

Today,theChinesemiddleclasshasabout146millionpeople,comparedto111

23PierreXiaoLu,EliteChina,14-15.AaronC.AhuviaandNancyY.Wong,“PersonalTasteandFamilyFace:LuxuryconsumptioninConfucianandWesternSocieties,”PsychologyandMarketing,15(5),1998,423-441.24PatrickBoehler,“TheChineseDreaminSurveys:AHappyMiddleClass,”SouthChinaMorningPost,December18,2013.

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millionpeoplein2011.25Themiddleclassispredictedtoexpand,astheChinese

governmenthassetatargettodoubletherealincomeofChinesecitizensby2020.

“Inthecomingyears,“JoshuaLureports,“we[will]seethatrisingincomewillbring

acouplehundredmillionpeopleintotheconsumerclass.”26Thereisnoconsensus

amongscholarsastothemakeupoftheChinesemiddleclass,butitisunderstoodby

scholarsthatthereis,atthemostbasiclevel,anuppermiddleclass,andalower

middleclass.27

Shoppingpreferencesofthemiddleclassdependuponwhichsubsectiona

personisin.Thoseinthelowermiddleclasslargelyfocusonamenities,without

muchregardtonamebrandproducts.Preferencesbegintochangeasonegains

moreincome.28Aconsumerstartstofocusmoreonnamebrandgoodsandbeginsto

buynon-essentialgoods.Onceaperson’sincomegrowslargeenoughtoattain

uppermiddleclassstatus,heorshestartstoconsumeluxurygoods.Theseluxury

goodsincludeanygoodthatisatthetopofitsfield,likepurchasingcoffeefrom

Starbucksasopposedtoalocalcoffeeshop.29Themoreexperiencetheconsumer

hasasabuyerofluxurygoods,themoresophisticatedtheirluxurygoods

preferencesbecome.SilversteinandFiskediscusstherecenttrendofmiddleclass

25Gerth,“LifestylesoftheRichandInfamous,”2011.26JoshuaLu,Goldman-Sachs,“RiseoftheChineseConsumerClass”,video,3:44,September2015,http://www.goldmansachs.com/our-thinking/pages/chinas-new-consumer-class.html. 27DavidS.G.Goodman,ClassinContemporaryChina,(JohnWiley&Sons,2014).28PierreandPras."ProfilingMassAffluentLuxuryGoodsConsumersInChina,"435-455.29MichaelJ.SilversteinandNeilFiske,TradingUp:TheNewAmericanLuxury(NewYork:PortfolioPenguinGroup,2003):1.

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consumerstoaspiretopurchasegoodsthatarejustoutofreachoftheircurrent

income.30

AccordingtosurveydatafromthemarketingresearchcompanySimon-

Kucherin2013,“menarethefuturegrowthdriversofluxuryinChina.”31 GengSong

andTracyK.Leeattributethisdifference,inparttothedifferentperceptionsof

masculinityinChina,particularly,theimportanceoftheconceptofpinwei,“good

taste,”tomiddleclassChinesementhatmen’slifestylemagazineshavecultivatedin

Chinasince1999.32

ChinesemenconsumealargeramountofluxurygoodsthaninWestern

nations.LosAngelesTimesquotedthepresidentofCoachRetailInternationalin

ShanghaiassayingthatChinesemenconsume45percentofallhandbagsinChina,

comparedtojustsevenpercentintheUnitedStates.33L’Orealnowsellsmore

productsformeninChinathaninWesternEurope.Throughthismarketingstrategy,

in2010L’Orealexperiencedtheir10thconsecutiveyearofdouble-digitgains.34In

2010,Chinesemenspentover7billionRMB(overUS$1billion)onluxuryclothing,

comparedtothe2.8billionRMB(overUS$432million)spentbyChinesewomen.35

30Ibid.31CrépyandOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013,”17.32GengSongandTracyK.Lee,“Consumption,ClassFormationandSexuality:ReadingMen’sLifestyleMagazinesinChina,”TheChinaJournal,no.64,July2010:163.33NeerjaPawhaJetley,“Men,NotWomen,DriveLuxuryGoodsSalesinChina,”CNBC,November29,2011,http://www.cnbc.com/id/45472638.34“NewcustomersmakeupL'OrealsalesinChina,”ChinaDaily,March8,2011,http://www.china.org.cn/business/2011-03/08/content_22082657.htm.35NeerjaPawhaJetley,“Men,NotWomen,DriveLuxuryGoodsSalesinChina,”CNBC,November29,2011,http://www.cnbc.com/id/45472638.

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MarketingstudiesinChinahasshownthatChinesemenarelikelytospendupwards

of61percentmoreonfragrancesthantheirfemalecounterparts.36

DefiningLuxuryGoodsNumerousscholarshaveattemptedtodefineluxurygoods,andeach

definitionlendsgreaterinsightintowhatluxurygoodsare,howtheyareconsumed,

andthemotivationsfortheirconsumption.Simplyput,aluxurygoodisagood

whosedemandincreasesmorethanitssupply,raisingpricesdisproportionateto

thecostofmakingtheproduct.Luxurybrandsare“timeless…fastgrowing,and

highlyprofitable.”37Additionalaspectsofaluxurygoodmayincludeexclusivity,

brandidentity,brandawareness,andquality.Allaspectstogetherallowluxury

brandstomaintaintheirhighsaleslevelsandcustomerloyalty.38Qualityand

designareveryimportantfeaturesinthedesirabilityofluxurybrands.39

AccordingtoBernardDubois,GillesLaurent,andSandorCzellar,luxury

goodsmusthavethefollowingattributes:excellentquality,averyhighprice,

scarcityanduniqueness,aestheticsandsensuality,ancestralheritageandpersonal

history,andsuperfluousness.40Forpremiumquality,thecustomer’s“perceptionof

36Ibid.37Frynas,JedrzejGeorge,andKamelMellahi,GlobalStrategicManagement(OxfordUniversityPress,2015):31. 38IanPhauandGerardPrendergast,“ConsumingLuxuryBrands:TheRelevanceofthe‘RarityPrinciple,’”JournalofBrandManagement7no.5(2000):370.39GerardPrendergastandClaireWong,"Parentalinfluenceonthepurchaseofluxurybrandsofinfantapparel:anexploratorystudyinHongKong,"JournalofConsumerMarketing20,no.2(2003):16540BernardDubois,GillesLaurent,andSandorCzellar,“Consumerrapporttoluxury:Analyzingcomplexandambivalentattitudes,”LesCahiersdeRecherche(2001):736.Seealso,PierreXiaoLu,EliteChina:LuxuryConsumerBehaviorinChina,(Singapore:JohnWiley&Sons(Asia)Pte.Ltd.,2008):21-25.

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quality[is]moreimportantthantheactualquality.”41Aslongasthecustomer

believesthattheproductisofthehighestcaliberintermsofquality,theactual

qualitystandardoftheproductdoesnotmatter.Theaspectofscarcitynotonly

referstospecialmaterialsusedorthecomplexskillsrequiredtomakealuxury

good,butalsothelimitedavailabilityandaccesstoaproduct.Whenluxurybrands

maketheirproducttooeasilyavailable,thedesirabilityoftheirproductdecreases,

ascanbeseenwithsuchlinesasCoach,TommyHilfiger,andcurrentlyMichaelKors.

Theaspectofaestheticsandsensualityreferstotheaestheticaspectsoftheproduct,

whichareviewedbymanyasthemostimportantaspectofaluxurygood.According

toDubois,Laurent,andCzellar,aestheticsimpartakindof“sensualpleasure”toa

product.42Heritageandhistoryrefertotheimportanceintheconsumer’smindof

thelonghistory,elaborateprocesses,ortraditionofaluxurybrand.Lastly,the

scholarsdefine“superfluousness”asreferringtothelackoffunctionalvalueofa

luxuryproduct.

Luxurybrandsareinauniquepositioninthattheycanchargea“premium

pricefortheperceivedhighstatusoftheir[product]provides.”43Anexampleofthis

canbeseeninabagsoldbyLouisVuitton,calledtheCapucinesMM.Thepurseis

madeofcrocodileandgoatskin,andsellsforUS$60,000.Neitherthepurse’s

materials,northecraftsmanshiprequiredtomakeit,warrantitssellingprice.The

41Ibid.42Ibid.43ChristopherM.MooreandGreteBirtwistle,"TheBurberrybusinessmodel:creatinganinternationalluxuryfashionbrand,"InternationalJournalofRetail&DistributionManagement32,no.8(2004):412-422

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purse’sconnectionstotheLouisVuittonnameanditslimitedavailability,increase

thepricedramatically.

Whatluxurygoodsarebeingconsumed? Chinaisuniqueinthetypeofluxurygoodsbeingconsumed.Accordingto

BainandCompany,in2012accessorieswerethemostpurchasedluxuryitemat28

percentofallglobalsalesrevenue,followedbyclothingat26percent.Beauty

products(skincareandmakeupproducts)onlymadeup20percentofallglobal

salesrevenue.44InChina,however,perfumesandcosmeticsaremoresoughtafter

thanhandbags,andfinewinesandspiritsaremoredesirablethanjewelry.45

Consumersaremoreinclinedtopurchaseluxurywatchesandcosmeticsorskincare

productsthanclothing.46

Source:MartinCrépyandFanOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013”(survey,Simon-KucherandPartners,2013),200respondents.

44“BainSurvey2013LuxuryGoodsWorldwideMarketStudy,”(survey,BainandCompany,October2013),23.45MartinCrépyandFanOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013”(survey,Simon-KucherandPartners,2013),200respondents.46Ibid.,17.

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TheChinesemarketisseeingasignificantshiftrecentlyawayfromovertly

conspicuousluxurygoods.Preferenceforlargelogoshasfallendrasticallyinrecent

years,withrespondentsrankingvisiblelogosataneightoutofteninimportant

criteriaforpurchasingaluxurygood.47Ina2012survey,two-thirdsofrespondents

statedtheypreferredproductsthatwere“low-keyandunderstated.”48Comparedto

2010,whenonly37percentofrespondentsrespondedthatlargelogoswereinbad

taste,51percentofrespondentsstatedthatlargelogoswereinbadtastein2012.49

Thistrendcouldbeanindicationoftheincreasingsophisticationoftheluxury

consumerinChinainrecentyears,ormerelyaresponsetotheHarmoniousSociety

Campaign,thelargegovernmentcampaignpriortothatofXiJinping’santi-

corruptioncampaign,whichfocusedonaddressinginequalityinChinesesociety.

Intermsofluxurycosmetics,skincareandperfumesales,Chinaisthesecond

largestmarketinAsiaafterJapan,andtheeighthlargestmarketintheworld.50

Luxurycosmetics,skincareandperfumesareconsideredluxuryitemswhentheir

priceisexponentiallyhigherthantheaveragedrugstorepriceforthesameproduct.

Chinesemenandwomenareequallyinterestedinpurchasingnewproductsin

luxurycosmeticsandperfumes.51Theluxurycosmeticandskincareindustryis

dominatedbyafewbrands;EsteeLauderandShiseidocombinedhaveover80%of

47Ibid.,5.48MartinCrépyandFanOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013”(survey,Simon-KucherandPartners,2013),17.49YuvalAtsmon,DianeDucarme,MaxMagni,andCathyWu,“China’sNewClassofShoppersTakeontheWorld,”(survey,McKinseyandCompany,December2012),24.50“Cosmetics,”ChinaDaily,accessedDecember20,2015,http://topic.chinadaily.com.cn/index/special/sid/143?offset=2.51CrépyandOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013,”17.

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themarketshareinChina.52Inthefirst10monthsof2012,cosmeticssalesinChina

garneredUS$17.3billion.53By2014,men’sskincareproductinChinagarnered

US$1.14billioninsalesrevenue,andispredictedtoreachUS$1.85billionin2020.54

ThegrowingsaleofcosmeticsandperfumesinChinaisattributedtothegrowing

“metrosexualphenomenon,”whichoriginatedinKoreaandJapan.55Forexample,

eightypercentofmeninChinabelieveskincareisimportantandspend,onaverage,

25minutesadayusingskincareproducts.56

TheliquorindustryinChinawasworthaboutUS$63.5billionin2011,before

thegovernmentcrackdownthatbeganinlate2012.Beforethecrackdownon

corruptionandindulgence,high-endspiritsandwineswerepopularitemstogift

officialsandserveatextravagantparties.57ThepriceofChinesespiritshasrisenby

anaverageof5to7percentannuallysince1999.OnebrandofChineseluxury

liquor,calledMoutai(orMaotai),hasasellingpriceof2,000RMB(US$307.46)per

bottle.58

LuxurywatcheswerethehottestcommoditiesintheChineseluxurymarket

beforethegovernmentcrackdown,astheywerecommonlygiftedtoChinese

officialstoincurfavors.Withluxurywatches,Chineseconsumersarelookingfor

superiorcraftsmanship,internationallywell-knownbrands,andinnovative52Ibid.53Ibid.54EmmaGonzales,“ChineseMetrosexualsspawna241billioncosmeticsmarket,”ChinaDaily,January1,2016.55Metrosexualinthissensereferstoamanwhoputseffortintohisappearancetoremainfashionableandwellkept,inregardstohaircutsorskincare.56Gonzales,“ChineseMetrosexualsspawna241billioncosmeticsmarket.”57Explainedinfurtherdetailinchapter2.58“Liquor,”ChinaDaily,accessedDecember20,2015,http://topic.chinadaily.com.cn/index/special/sid/179.

21

designs.59InChinathereisa“near-monopolyoftheluxurywatchmarketbySwiss

Brands.”60From2005to2012,thevalueofexportsfromSwitzerlandtoChinagrew

from1.6billionSwissfrancs(US$16billion)to51.6billionSwissfrancs(US$52.9

billion).61

In2013,Chinawasthethirdlargestmarketforjewelryalone,withover

US$10billioninsales.62McKinseyandCompanyreportsthatjewelryisoneofthe

mostimportantsectorsfordomesticconsumptionamongtheuppermiddleclassin

China.Chineseconsumersarethefourthlargestconsumersofgoldjewelryandthe

largestconsumersofplatinumjewelry.63Theluxuryjewelrymarkethasgrownfrom

2billionRMB(US$308million)in1990,89billionRMB(US$13.7billion)in2000,to

454billionRMB(US$70billion)in2012.64Chinaisuniqueinthatthelargestmarket

shareofjewelryisfinegoldjewelry,comparedtodiamondjewelryintheUnited

States.Morethan75%ofwomeninurbancentersownanoteworthypieceofgold

jewelry.AccordingtoGeoffreyYork,in2005,Chinaconsumedover250tonsof

gold.65

59YuvalAtsmon,VinayDixit,andCathyWu,“TappingChina’sLuxuryGoodsMarket,”McKinseyandCompany,April2011.60ChrisHorton,“China’sTurmoilmaystallreboundinwatchsales”NewYorkTimes,September7,2015.61Ibid. 62Gerth,“LifestylesoftheRichandInfamous,”492.63Ibid,.492. 64TaoHsu,AndrewLucas,ZhiliQiu,MuLi,andQingyuanYu,“ExploringtheChineseGemandJewelryIndustry”Gems&Gemology50,no.1(Spring2014).65GeoffreyYork,“GolfRushGripsChineseConsumers,”BellGlobalMedia,January1,2006.

22

Source:MartinCrépyandFanOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013”(survey,Simon-KucherandPartners,2013),200respondents.

In2010,thedesignerhandbagmarketinChinagarneredaprofitofabout14

billionRMB(US$2.16million).66Anexampleofconspicuousconsumption,owninga

designerhandbaginChinacreatestheimageofhighstatus,makingtheir

consumptionvitalforthosewhoseekupwardsocialmobility.Accordingtoa2013

surveybySimon-Kucher,themostpreferredbrandsintheChineseluxurymarket

wereLouisVuitton(24.3percent),Hermès(21.3percent),andGucci(11.8

percent).67AccordingtoasurveybyMcKinseyMarketingSolutions,luxury

consumerslargelypreferWesternproducts.Onlytwentypercentstronglyprefer

Chineseproducts.68

66“Handbags,”ChinaDaily,accessedDecember20,2015,http://topic.chinadaily.com.cn/index/special/sid/150.67MartinCrépyandFanOswald-Chen,“China’sLuxuryGoodsMarket:ChangingConsumerProfileOpensNewPotential,”Simon-KucherandPartners,2013.68YuvalAtsmon,DianeDucarme,MaxMagni,andCathyWu,“China’sNewClassofShoppersTakeontheWorld,”(survey,McKinseyandCompany,December2012),23.

23

Chinaisthesecondlargestconsumerofluxurycars.69TheChinesemarketis

thebiggestoverseasmarketforbrandslikeRollsRoyce,Audi,BMW,Bentley,and

Lamborghini.AccordingtoChinaDaily,Chinaisamongthetopthreemarketsfor

Porsche,Mercedes-Benz,andFerrari.TheChinesemarketforluxurycarsis

expanding.In2011,Chinapurchased980,000unitsandispredictedtopurchase2.7

millionunitsofluxurycarsin2020.70TheChineseluxurycarmarketisexpectedto

surpasstheUnitedStatesby2020.71

69Gerth,“LifestylesoftheRichandInfamous,”490.70“LuxuryCars,”ChinaDaily,accessedDecember20,2015.http://topic.chinadaily.com.cn/index/special/sid/166.71YuvalAtsmon,DianeDucarme,MaxMagni,andCathyWu,“China’sNewClassofShoppersTakeontheWorld,”(survey,McKinseyandCompany,December2012),23.

24

Howareluxurygoodsbeingconsumed?TrendsinChineseluxurygoodconsumptionpointtotwoconsumption

practicesthatareunique:thelargeamountsspentonluxurygoodsabroad

comparedtoothernationalitiesandthetraditionof“gifting.”72

Chineseconsumersoftenpurchaseluxurygoodsabroad,atrendthatappears

tobeunaffectedbythecrackdown.Forexample,sixtypercentofwatchespurchased

byrespondentsinatwo-yearperiodbefore2013werepurchasedabroad.In2011,

Chinesetouristsspentover52billionRMB(overUS$8million)outsideChinaon

luxurygoods.73In2014,117millionChinesepeopletraveledinternationally.74That

sameyear,HongKong,Macao,andTaiwansawa5percentincreaseinluxury

purchasesbyChinesemainlanders,from27percentin2014to31.8percentin

2015.75

Oneofthemajorfactorstobuyluxurygoodsabroadisalowerprice,dueto

lowertaxesandtariffs,orlackoftaxesandtariffsinforeignmarkets.Theaverage

priceabroadforwatchesis1.5timeslowerthanthosesoldinChina.76Aluxurybag

inBeijingisfortypercentmoreexpensivethantheexactsamemodelinParis,dueto

72Forcomparisontoothernationssee:ClaudiaD’Arpizio,FedericaLevato,DanieleZitoandJoelledeMontgolfier,"LuxuryGoodsWorldwideMarketStudyFall-Winter2014:Theriseoftheborderlessconsumer,"BainandCompanyDecember31,2014,accessedApril21,2016.http://www.bain.com/offices/tokyo/ja/publications/periodicals/Luxury-goods-worldwide-market-study-2014-tokyo.aspx.73“BainSurveyofLuxuryGoodsConsumersinMainlandChina2011,”(survey,BainandCompany,December2011),4.74Cong,"中国奢侈品市场走向成熟：挖掘长线潜能,"FortuneChinaNetwork,June9,2015,accessedApril15,2016,http://app.fortunechina.com/mobile/article/241442.htm.75Asopposedtothe4percentdecreaseinluxurygoodspurchasedonthemainland.Cong,"中国奢侈品市场走向成熟,”2015.76CrépyandFanOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013,”10.

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taxesandtariffs,soChinesetouristsplurgewhentheyareabroad.77The

phenomenonofChineseconsumersmakingtheirpurchasesabroadhasledtoluxury

brandsreducingpricesinChinaandslightlyraisingpricesinEuropeanstorein

2015toequalizepricesandincentivizemoreChineseconsumerstopurchase

domestically.78Itshouldbenoted,however,thatChineseconsumersspentanequal

amountabroadanddomesticallyonshoesandsmallleathergoods.79

Otherfactorscontributingtothelargeamountofluxurygoodspurchased

abroadareconcernsaboutcounterfeits,poorservicequality,accesstomorebrands,

andthelackofavailabilityofnewerproductsupontheirreleasecomparedto

foreignmarkets.80

ThepracticeofgiftingisveryimportantintheChineseluxurygoodsmarket.

Acommonpracticeinbusinessventures,businessmenwillpresentagifttoan

officialinordertogainfavor,connectionsorguanxi.Guanxiisaseriesof

“relationshipsthatarebasedimplicitlyonmutualinterestandbenefit”inChinese

society.81Thepracticeisespeciallyimportantinbusinessdealsthatrequirelarge

amountsofgovernmentoversight,suchastherezoningofland.Watchesand

expensiveliquorswerethemostcommongifts,thoughexpensivehandbagswould

sometimesbegiftedtothewivesofofficials.Someestimatethatbeforethemost

77YuvalAtsmon,DianeDucarme,MaxMagni,andCathyWu,“China’sNewClassofShoppersTakeontheWorld,”(survey,McKinseyandCompany,December2012),22.78Cong,"中国奢侈品市场走向成熟,”2015.79CrépyandFanOswald-Chen,“ChineseLuxuryGoodsBuyersSurvey2013.”80Ibid.,13.81MayfairYang,Gifts,Favors,andBanquets:TheArtofSocialRelationships(Ithaca,NewYork:CornellUniversityPress,1994),1-2.

26

recentanti-corruptioncampaign,giftgivingaccountedfor50percentofallluxury

sales,and75percentofluxurywatchsales.82

SummaryThemarketreformsofthe1978ledtotheabilityofChinesecitizensto

accumulatewealth,leadingtothecreationoftheUpperandMiddleClassinChinese

society.DuetothefluidstateofChinesesocietyandthelargepopulationsofcities,

Chinesecitizensoftenasserttheirsocialpositionthroughtheuseofconspicuous

consumption,usingrecognizablegoodstostressone’ssocialpositionaboveanother

person.Thisneedforamediumtoexpressone’sstatusledtoanexplosivedemand

forluxurygoods,predominantlyWesternsgoods,astheycarryanimageofquality

andprestigeinChina.

ChinadiffersfromWesternnationsinluxurygoodsconsumptionin

numerousways.Duetohighdomestictaxrates,largeportionsofluxurygoods

purchasedbyChineseconsumersaremadeabroad.Menhavehistoricallymadethe

majorityofluxurypurchases,butthisischangingasmorewomenenterthemiddle

classandbegintoshopforluxurygoods.83Lastly,theChinesecustomofgiftingto

incurfavorfromgovernmentofficialshascreatedademandforluxurygoodslike

watchesandhigh-endcognacs.

Risingdemandforluxurygoodshascausedluxurysalestoincrease

exponentially,leadingmanytobelieveChinawillsoonbecometheworld’slargest

singleconsumerofluxurygoods.Thismakesunderstandingthecurrentmarketin82RadhaChadhaandPaulHusband,TheCultoftheLuxuryBrand:InsideAsia’sLoveAffairwithLuxury(NicholasBrealeyInternational,2006),174.83ErwanRambourg,TheBlingDynasty:WhytheReignofChineseLuxuryShoppershasonlyjustBegun(Singapore:JohnWileyandSonsPte.Ltd.,2014),27.

27

China,whoispurchasing,howtheyarepurchasing,andhowthegovernmentis

involvedinthesepurchasesvitallyimportantinunderstandingamarketthat

employsthousandsandgeneratesbillionofdollarsinrevenue.

28

Chapter2:TheCrackdownThischapterexaminesthedifferentaspectsofanti-corruptioncampaignsin

thePeople’sRepublicofChina,withspecificattentionpaidtothatofthemostrecent

anti-corruptioncampaign.Inlate2012,ChinesePresidentXiJinpingimplementeda

governmentcrackdownoncorruptionandextravagance.Xivowedto“bringdown

both‘fliesandtigers’–corruptcadresatalllevels,”believingbothposeathreatto

thesurvivalofChinaandtheCommunistparty.84Inadditiontoin-depth

investigationsintopersonalandbusinesslivesofgovernmentofficials,thecampaign

includesrestrictionsonwhatcarsofficialscandriveorown,andwhatofficialscan

eat.Thispaperseekstoshowthatthesemeasureshaveledtoadecreaseingifting

andconspicuousconsumptionamongofficials,bothofwhichcontributetolarge

portionsofluxurysalesinChinaandabroad.

AHistoryofAnti-CorruptionCampaignsinModernChinaSinceDengXiaopingimplementedeconomicreformstoopenupthemarket

in1978,thefighttostemcorruptionhasbeenanearconstantbattle.Chinahas

experiencedfivemajoranti-corruptioncampaigns,thefirststartingjustafewyears

afterthereform,beginningin1982.Thefiveanti-corruptioncampaignshavelargely

occurredbacktoback,andhavehadvaryinglevelsofeffectivenessduringtheir

duration.

Theanti-corruptioncampaignshave,withtheexceptionofthemostrecent

campaign,focusedondifferenttypesofcorruption.The1982anti-corruption

campaignfocusedoneconomiccrimes.Of136,024cases,44,000people

84TaniaBranigan,“Politburo,army,casino:China’scorruptioncrackdownspreads.”TheGuardian,February14,2015.

29

surrenderedthemselvestothepoliceand26,000peoplewereconvicted.In

contrast,theanti-corruptioncampaignthatfollowed,from1983to1987,focusedon

“consolidatingpartyorganization.”85Thecampaignfocusedonfindingparty

memberswhohadviolatedpartydisciplineorengagedincorruptactivities.The

numberofseniorofficialsatthecountylevelorabovewhowerepunishedduring

thecampaignwasabove35,000.Theanti-corruptioncampaignfrom1988to1989

focusedongraftandbribery,resultinginthearrestof20,794individualsandthe

recoveryof482.86millionRMB(US$74.23million).Thelastlargeanti-corruption

campaignlastedfrom1993tolate2012,endingwiththemostrecentanti-

corruptioncampaign.Thecampaignsoughtto“forcefully[curb]unhealthy

tendencieswithingovernmentdepartments,”throughthe“selfregulationofsenior

officials”withintheChineseCommunistParty,aswellasthestrengtheningof“the

investigationandpersecutionoflarge-scalecorruptioncases.”86

PresidentXi’sCampaignThemostrecentanti-corruptioncampaignbeganinlate2012.AtaPolitburo

meetingonDecember5th,2012,newlyelectedPresidentXiJinpingintroducedthe

planforawide-scalecrackdownoncorruption.87Xihasbeenquotedassayingthat

hebelievescorruptionposesan“existentialthreat”toChinathat,ifunaddressed,85ChangzhengDai,"CorruptionandAnti-CorruptioninChina:ChallengesandCountermeasures,"JournalOfInternationalBusinessEthics3,no.2(July2010):66.86Forfurtherinformationontheintricaciesofthecampaignsee:Dai,“CorruptionandAnti-CorruptioninChina,”67.87TheNationalPeople’sCongress,2987members,electsmemberstoaCentralCommittee,madeof205fullmembersand171part-timemembers.TheCentralCommitteeinturnselects25memberstocreatethePolitburoattheirfirstmeeting,calledthefirstplenum.OfthePolitburo,7elitesmembersareelectedtothePolitburoStandingCommittee,whichinturnelectsthePartySecretary,currentlyXiJinping.

30

willleadto“thecollapseoftheCCPandthedownfallofthestate.”88An“assumption

hasbeenthateradicatingcorruptioncanonlymeanaswiftimprovementinthe

[Chinese]system.”89Thecampaignisquitedifferentfromthoseinthepast,asXi

declared,“thatnocorruptofficialwillbespared.”90Previousanti-corruption

campaignshavesolelyfocusedontheconvictionoflowtomid-levelofficials.Xi,

however,hasaddressedcorruptionatalllevelsofthegovernment.AsofFebruary

14,2015,about100,000officialshadbeenpunishedforcorruption.91Officialsare

detained,arrested,andinsomeextremecases,executed,intherecentcrackdownon

corruption.

Thenumberofhigh-rankingofficialsthathavebeeninvestigatedor

convictedunderthenewanti-corruptioncampaignisconstantlygrowing.LiuHan,a

Chineseminingbillionaire,wasconvictedofmultipleaccountsofhomicide.92Xu

Caihou,theformervice-chairoftheCentralMilitaryCommissionandPolitburo

member,wasconvictedofacceptingbribesinexchangeforpromotionswithinthe

military.93ZhouYongkang,former“securitytsar,”wassentencedtolifeinprisonfor

“abuseofpower,acceptingbribesandrevealingstatesecrets.”94

88HannahBeech,"China’sCampaignAgainstCorruptionIsHuge.WillItDoAnyGood?"TimeMagazine,July15,2014.JamesLeung,"Xi’sCorruptionCrackdown,"ForeignAffairs94,no.3(May2015):32-38.89Branigan,“Politburo,army,casinos”(2015).90Leung,"Xi’sCorruptionCrackdown"(2015).91Branigan,“Politburo,army,casinos”(2015).92Ibid.93Ibid.94MichaelForsythe,“ZhouYongkang,formersecuritychiefinChina,getslifesentenceforcorruption.”NewYorkTimes,June12,2015.

31

Thecurrentanti-corruptioncampaignisthemosthighlypublicizedanti-

corruptioncampaigninrecentChinesehistory.NewssourcesinChinahavebeen

followingthecampaignveryclosely,andthecasesofhigh-rankingofficialslikeBo

XilaiandZhouYongkanggarneredsignificantmediaattentioninChina.The

campaignhasbeenenormouslypopularandhascreateda“populistedgetoXi’s

image,”evencontributingtoagrowingcultofpersonalityaroundthepresident.

PresidentXiJinping’sworriesthatcorruptionwilldestabilizethepartyare

notunfounded.TheGINIcoefficientforChina,ameasurementofinequality,has

“increasedmorethan50percentinthelasttwodecades.”95Infact,urbandwellers

earnoverfourtimesmorethantheincomeoftheirruralcounterparts.MostChinese

assumetheincredibly“wealthyamassedtheirwealththroughcorruption,”taking

advantageoflandspeculationandprivatizationofStateOwnedEnterprise(SOE)

throughtheirconnectionstoofficials.96SomeexpertsarguethattheTiananmen

Protestsof1989wereprimarilytoprotestofficialprofiteering.Therefore,an

addressofthecorruptioninChinabyXiJinpingis,insomeways,essentialto

keepingtheChineseCommunistpartyinpowerandquellingcivilunrest.

Widespreadcorruptionistheresultoftwomajorfactors:thenation’sone

partysystemandthestatecontroloftheeconomy.China’sonepartysystemhasled

toanextreme“lackoffirmchecksandbalances.”Thisabsenceofregulationhasled

towidespreadissueswithgraftandbribery.Someclaim,“noChineseinstitutionis

95KarlGerth,"LifestylesoftheRichandInfamous:TheCreationandImplicationsofChina'sNewAristocracy,"ComparativeSociology10,no.4(November2011):497.96Ibid.,500.

32

freeofthem.”97AccordingtoA.K.Jain,bureaucraticdiscretionarypower,andthe

associationofthispowerwitheconomicrents,aretwoofthethreeprerequisitesfor

corruption,bothofwhichChina’sone-partysystemhelpsfacilitate.98Accordingto

some,Xiis“bettingthatchangingthemoralcharacterofofficialswillallowhimto

leaveintacttheone-partystate.”99

Statecontroloftheeconomyreferstostatecontrolofresources,businesses,

andevenland.Becausethegovernmenthassuchvastcontroloverallareasofthe

economy,officialsusetheirregulatorypowertoexactlargeamountsofcontrolover

businesses.Forexample,ZhengXiaoyuacceptedoverUS$850,000inbribesfrom

pharmaceuticalcompanieswhenhewasheadoftheStateFoodandDrug

Administration,resultinginthedeathofover100peopleinPanamadueto

contaminatedcoughsyrup.100Thisisjustoneextremeexampleoftheinfluence

officialsholdoverprivatebusiness.Prohibitingbusinessesfromstartingor

continuingventureswithoutofficialpermissionallowsofficialstolinetheirown

pockets.

Therehasbeennosignificantmovetoaddresscorruptioninthemilitary,

largelyinpartbecausePresidentXihasnotcompletelystrengthenedhisposition

withintheChinesemilitary.ThemilitaryequivalentoftheCCDI,theCommissionfor

DisciplineInspectionoftheCentralMilitaryCommission,hasnotexperiencedany

changesinstafforleadershipthatwouldallowXiJinpingtoextendhisreformsinto

97Leung,"Xi’sCorruptionCrackdown"(2015).98A.K.Jian,“Corruption:Areview.”JournalofEconomicSurveys,no.15(2001):71-121. 99BarbaraDemick,“Chinatryingtopullbackongift-giving.”100Leung,"Xi’sCorruptionCrackdown."

33

themilitary.101Itiswellknownthatcorruptionisprevalentinthemilitary,asjunior

militaryofficerswilloftenbribehigher-rankingofficialsinordertobeawarded

promotions.AfterthearrestofXuCaihou,officialsfoundnumerousluxuryitemsin

hishouse,likegold,cash,andjewels,whichwere,purportedlygiventohimfrom

juniormilitaryofficersinexchangeforpromotions.102

TheCampaign’sEffectonLuxuryConsumptionPresidentXi’santi-corruptioncampaignismultifaceted,focusingon

corruption,likegraftandbribery,aswellasextravaganceamonghigh-ranking

officials.TheChineseCommunistPartyPolitburomeetingonDecember5th,2012,

“unveiled”alistof“do’sanddon’t”fortopofficialsinanattempttowin“the

confidenceandsupportofthepeople.”103Somearguethecampaign’srestrictions

areinplacetomakethewealthgaplessvisible,whileothersarguethepurposeof

thelistwastoimprovetheimageoftheparty.104Overthecourseofthenextyear,

thelistwasexpandedupontoincluderestrictionsforautomobileuse,banquets,and

workdinners.

ByDecember2013,sharkfinsoup,bird’snestsoup,andwildanimal

productswerebannedfromofficialdinners.105Restrictionshavebeenplacedon

officialbanquets,limitingofficialstojustfourcoursesandasoup.106These

101Ibid.102Ibid.103TimDonovan,"China'sCrackdownonCorruptionandGovernmentSpending:ATimeline."ChinaBusinessReview(January2014):5. 104ErwanRambourg,TheBlingDynasty:WhytheReignofChineseLuxuryShoppershasOnlyJustBegun(Singapore:JohnWileyandSonsPte.Ltd,2014),21.105Donovan,“China’sCrackdownonCorruptionandGovernmentSpending.”106LijiaShang,WillyLamandBenjaminLim,interviewedbyKristieLuStout, OnChina:Beijing’scrackdownoncorruption,CNN,October15,2013.

34

restrictionshavenegativelyaffectedtheChineseluxurycateringindustry,nearly

destroyingawholeindustryasofficialssoughttoavoidanypracticesthatwouldput

themunderscrutiny.107

Fromthebeginning,thecampaignincludedregulationsontheuseofluxury

vehiclesbyofficials,expandingovertimetoberestrictive.OnMarch31st,2013,the

governmentimplementednewregulationsthatrevokedtheeligibilityofforeign

luxurycarbrands,likeBMWandBentley,toqualifyformilitaryorarmedpolice

plates.108ByNovember,2013,China’sStateCouncil“releasedregulations”banning

provincialofficialsfrom“usinggovernmentcarsforgeneraluse.”109Thisregulation

wasexpandeduponlessthanthreemonthslater,whentheStateCouncilbanned

“theChinesemilitaryfrompurchasinganyforeignmadecars.”110

Earlymorningraidsofforeignluxuryfirms,havebecomecommonplacein

China.111DavidBlumenthal,ananalystforForeignPolicy,makestheargumentthatif

Chinacanincreasetheoddsthatitsownbusinessmenwillsucceedintheglobal

market,itcan“centralizepoliticalandeconomicpowerandmakeitmoredifficult

forforeignbusinessmentocompete”intheChinesemarket.112

107BenMoshinsky,“ThisonechartshowshowChina’scorruptioncrackdownputanendtoextravagantparties.”BusinessInsider,August6,2015.108Donovan,“China’sCrackdownonCorruptionandGovernmentSpending.”109Ibid.110Ibid.111NatashaBertrand,“WhyChinaisraidingforeigncompaniesatdawn.”BusinessInsider,January16,2015.112DavidBlumenthal,“WhyChinaisshootingitselfinthefootbycrackingdownonforeigncompanies.”ForeignPolicy,September20,2014.

35

EffectonGift-GivingThispaperseekstodisplaythatthegovernment’scrackdownonthepractice

ofgiftingwasacontributingfactortothemarketlossofmanyluxurybrandsin

China.Luxurycognacsalesfell11%in2013,comparedtoagrowthof16%justthe

yearbefore.SharesinKweichouMoutai,aluxurybrandthatsellswhitespirits,saw

a27%dropinsharesoverjust6months.113Sincethecrackdown,liquorbrandsare

pushingmoremid-pricedproducts.Forexample,Martellisnowsellingaproduct

calledMartellNobligefor$75,comparedtoatypicalbottleofthebrand’sXO

cognac.114

Watches,amajoraspectofgifting,experiencedadecreaseinsalesduetothe

campaign.Duetothecampaign,luxurywatchsalesfell9%in2013,comparedto

their6%riseinsalesin2012.115Watchesworthover$10,000wereprimarily

targetedinthecampaign.116Asaresult,themarketnowfavorswatchesinthe

mediumpricerange,the$1,600to$4,000range.117Luxurywatchdealersbelieve

thedownturninsaleswillnotbepermanent,asthegrowingmiddle–classinChina

isexpectedtoabsorbtherevenueslostfromsalesofhigh-endwatches.

113KateHoliday,“Gift-givingcrackdownhitsChinaluxuryretailer,”CNBCAsia,February8,2013.114JasonChowandLaurieBurkitt,“SalesofLuxuryAlcoholRisingAgaininChina”WallStreetJournal,October16,2015.115FflurRoberts,“WhatisreallyhappeninginChina’sluxurymarket?”LuxurySociety(2014).116JamesShotter,“Chinacallstimeonexpensivewatchesinfaceofcrackdown,”FinancialTimes,May3,2013.117ChrisHorton,“Chinaturmoilmaystallreboundinwatchsales,”TheNewYorkTimes,September7,2015.

36

EffectonLuxuryGoodsOnlytheluxuryhandbagbrandsPradaandBurberryhavementionedany

connectionbetweenadecreaseinsalesandgiftgivinginChina.118AsofJuly15th,

2015,BurberrysalesinHongKong,acommondestinationforChineseluxury

buyerstomakepurchases,weredown12.7%fromtheyearbefore.119Theluxury

brandPradahasexperiencedevengreaterlosses.Prada,inthefinalquarterof2015,

experiencedabouta38%decreaseinsales,comparedtotheyearbefore.120

Chinaconsumesmassivequantitiesofgoldjewelry,butrecentlyjewelry

makershavebeenworkingtocreateamarketdemandinChinafordiamonds.

JewelrymakersinChinahaveconvincedconsumersthatdiamondsareanecessity,

ratherthanaluxury,toavoidsituationsthatwouldputtheirbuyersindifficult

situationswiththelaw.121Asluxuryhasbeenoutafavorquiteregularlyinthepast

decade,withtheHarmoniousSocietycampaignandthecurrentanti-corruption

campaign,turningdiamondjewelryintoatypeofnecessity,likeintheUnitedStates

withdiamondengagementrings,preservesthemarketdemandforsomethingthat

otherwisewouldoftenbebannedorrestrictedbythegovernment.Asaresult,eight

outofevery10couplessurveyedinfirst-tiercitiesinChinawerewillingtopurchase

diamondweddingrings,and50%werewillingtospend15,000RMBto20,000RMB

118LianaBrinded,“PradasaleshurtbycrackdowninChinaongiftsforcorruptofficials,”BusinessInsider,February23,2015.119SeanFarrell,“BurberrysharesdropassalesinHongKongcontinuetofall,”TheGuardian,July15,2015.120"ChinaweaknessdrivesPradaquarterlyprofitdown38%"CNBC,December16,2015.121TimTreadwell,“AmidChineseCrackdown,MerchantsTrytoconvincebuyersDiamondsaren’tLuxury,”Forbes,February5,2014.

37

ontheirweddingjewelry.122Whenputintoperspectiveoftheaveragepercapita

incomeinChina,between16,885RMBto32,154RMB,thepurchaseofdiamond

engagementringsissizeablepurchase.123

Thecampaignhasfocusedonconspicuousluxurygoods,socosmetics,

skincare,andperfumeshavelargelybeenunaffectedbythecrackdownitself.

Watches,liquor,andluxuryautomobilearethemosteasilytargeted,andhave

experiencedthegreatestlossesinrevenues.Inaddition,thereisnoevidencethat

thegovernmentprefersdomesticluxurygoodstoforeign,wantinginsteadto

addressluxuryconsumptionregardlessoforigin.Thislackofbiascanbeseeninthe

ratherlargedecreaseinsalesthatChowTaiFook,aHongKong-basedjeweler

experiencedin2013,beforerecuperatinglossesin2014.

Summary

TheeffortsofXiJinpingtoaddresscorruptionamongofficialsintheChinese

government,fromthelowestofficialstothehighest,beganinlate2012andhashad

manyhardreachingeffects,chiefamongthemareductiononluxuryitemsales.

Conspicuousconsumptionbyofficialsisoneofthemajortargetsofthecampaign.

Thisfocushasledtorestrictionsonluxurycaruseandpurchasesbyofficials,

limitationsondiningextravagance,andboundariesontheacceptanceofhigh-end

gifts,likeliquororwatches,toofficials.AstheChinesemarketisamongthegreatest

consumersofhigh-endliquorandluxurywatches,therespectivemarketsforthese

productshaveseenalargedeclineinsales.

122Tao,“ExploringtheChineseGemandJewelryIndustry,”(2014). 123DavidS.G.Goodman,ClassinContemporaryChina,45.

38

39

Ch.3:TheGovernmentCrackdownanditsEffectontheMarketingofLuxuryGoods

Thegovernmentcrackdownoncorruptionandextravagancehasmany

implicationsforluxuryadvertisinginChina.InFebruary2013,theCCPannounceda

banonTVandradioadvertisementsforluxurygoods.Accordingtooneofficialfrom

theStateAdministrationofRadio,Film,andTelevision(SARFT),luxury

advertisements“publicizedincorrectvaluesandhelpedcreateabadsocialethos

[withinChina],”astatementwhichmay,inpart,relatetothegovernment’seffortsto

counterdissatisfactionwithChina’sgrowinginequality.124Followingthe

announcement,Burberry,LVMH,RichemontandChowTaiFookstocksfell.Looking

back,thebanisviewedasoneofthefirstattemptsbyXiJinpingto“dousegrowing

frustrationinthewealthgapbetweenthecountry’srichandpoor—andtostop

corruptionconductedthroughluxurygift-giving.”125

Thecrackdown,whichledtoabanonadvertisementsofluxuryitemsin

publicplaces,continuedtheluxuryadbanthathadoccurredin2011,focusedon

increasingsocialharmonyanddecreasingawarenessofthegrowinginequalityin

Chinesesociety.Forcingluxurybrandstobecomecreativewiththeirstrategiesin

howtoreachviewersandincreasebrandawarenesscausedbrandstofocuson

advertisementsthroughe-commerce,magazines,andproductplacementinChinese

film,apublicavenuethathasnotyetbeenrestrictedfrommarketingluxury

124RamyInocencio,“ChinaBansTelevisionAdsforBling,”CNN,February8,2013.125Ibid.

40

brands.126Thebanhasseenaninterestingshiftinthecontentofadvertisementsas

well,onethatcanbeseengloballyasmostluxurybrandsusethesamemarketing

campaignonaninternationalscale.Understandingtheeffectofthecrackdownon

advertisementsinChinaisimportantbecauseadvertisementsareanindicatorof

whatluxuryloversandluxuryfollowerswillpurchase,astheadvertisementsarea

primarysourceofinformationforthetwogroups.

AdvertisingofLuxuryGoodsinChinaInastudybyZhouNanandRussellW.Belk,theresearchersfocusedonthe

effectofglobalandforeignappealsinadvertisingonChineseluxuryconsumers.The

studyfoundChineseconsumersheldtwoopposingpreferencesasaresultof

advertising.TheypreferredgoodswithanationalisticChineseelementorgoodsof

highvalue.ThenationalistpreferenceinvokesChinesevaluesthatareseenaslocal

inorigin,whilethesecondappealstoaconsumer’sdesirefor“global

cosmopolitanismandstatusgoods.”127Thisstudyisimportantinunderstanding

thatChineseconsumersdonothaveaone-sidedfascinationwithforeigngoods,but

alsoembraceChinesegoods.Equallyimportantistheimplicationthatproductsthat

displayglobalcosmopolitanismareseentoconveystatustotheiruser,a

straightforwardexampleofconspicuousconsumption.

Chineseconsumersholdahighdegreeofskepticismtowardstheadvertising

mediumsoftelevision,radio,newspaper,magazine,andtheInternet,alloutlets

luxurybrandsusetomarkettheirgoodsinChina.Therecentadbanhasprohibited126“China’sLatestAdBanaBlessinginDisguiseforLuxuryBrands?”JingDaily,February15,2013.127HongCheng,AdvertisingandChineseSociety:ImpactsandIssues(CopenhagenBusinessSchoolPressDK:2009):115.

41

advertisingluxurygoodsinpublicspace,limitingluxurybrandadvertisingto

magazinesandtheInternet.OnestudyhasshownthatChineseconsumersleast

trustcosmetics,pharmaceuticalsandrealestate,probablyduetomisleadingand

deceptiveadvertisingthatoverstatethebenefitsofproductssoldbythose

industries.ThisstatistichassignificantimplicationsforluxurysalesinChina,as

luxurygoodsforcosmeticsandskincaremakeupthelargestpercentageofallluxury

goodspurchased.ThestudyalsofoundthatChineseweremoreskepticalofprint

mediathantelevision.128Thisfindingisimportantinunderstandingluxury

advertising,becausewhenthebrandswereforcedtostartfocusingheavilyone-

commerceandadvertising,theybeganstreamingmoremini-commercialson

Chineseweb-siteslikeYoukuthataremoreeffectivethanprintadvertisementsin

directlytargetingyoungeraudiences.

Oneofthemostimportantcharacteristicsofluxurygoodsisthatluxury

goodsandbrandsareexclusive,butthischaracteristicalsocreatesaninteresting

paradoxsurroundingtheluxurygoodmarket.Toincreaserevenues,companies

oftentrytoincreasesales,butluxurybrandscandonosuchthing.Ifsalesoftheir

productsincrease,theexclusivityofthebrandisharmed,hurtingthebrand’sluxury

image.StrachandEverettresearchedthediminishingrarityvalueofluxurygoodsin

relationtotheirprice.Theyfoundthatasaproductbecomesmoreaffordableandis

purchasedatahighervolume,theproductlosesitsuniquenessandthevalueofthe

128SongTian,andYorgoPasadeos,"ChineseConsumers'SkepticismTowardAdvertising,"ChinaMediaResearch8,no.1(January2012):64-75.

42

productisdiluted.129Inordertoprotecttheirbrand,luxurycompaniesrestrictthe

availabilityoftheirproductsthroughselectivedistribution,andinsomecases,like

thatofLouisVuitton,assuringthatexcessmerchandisecannotbesoldatdiscount

pricesbyburninganythingnotsoldattheendoftheseason.Luxurybrandskeep

demandupbytheregularseasonalreleaseofnewproducts,causingluxurybrand

consciousconsumerstocontinuetopurchasenewluxurygoods.

Theneedforexclusionhasadverseeffectsonitsmagazinereadership.In

2014,Jiang,Gao,Huang,DeWall,andZhoufoundthatluxuryadvertisementscreate

negativementalrepresentations,similartothoseofsocialexclusioninChinese

viewers.Givennumerousadvertisementstolookat,ofluxuryandnon-luxury

brands,participantsinthestudyweremorelikelytofeel“rejectedbymodelsinthe

luxuryadvertisementsthanmodelsinthenon-luxuryadvertisements,”becausethe

luxuryadvertisementsappearunattainabletotheaverageviewer.130Inanother

studyofmagazinesinChina,researchersfoundthatChinesemodelswereonly

presentin26.5percentofadvertisementsaimedattheirownethnicity,showing

thatpartofthisfeelingofrejectioncouldbeattributedtothelackofethnic

representationinmagazineadvertisements.131Lookingatluxurybrand

advertisementsresultsindecreasedlifesatisfactionandincreasedtheviewer’s

expectationsofbeingrejected,whichcouldhaveimplicationsforsocialinstability129P.StrachandA.M.Everett,“Brandcorrosion:mass-marketing’sthreattoluxuryautomobilebrandsaftermergerandacquisition,”JournalofProduct&BrandManagement15,no.2(2006):106-120.130MingJiang,Ding-GuoGao,RenHuang,C.NathanDeWall,andXinyueZhou,"TheDevilWearsPrada:Advertisementsofluxurybrandsevokefeelingsofsocialexclusion,"AsianJournalOfSocialPsychology17,no.4(December2014):245.131Theother59.2%ofadvertisementsstudiedeitherfeaturedmodelsofanotherethnicity,orfeaturednomodelatall.

43

duetoeconomicinequality.Asdiscussedinchapter2,thegrowinginequalityisa

majorproblemfortheChineseCommunistParty.

In2013,somearguedthattheadvertisementbanwouldbegoodforluxury

brands,ifitaffectedthematall.Chineseluxuryadvertisementshadpreviouslybeen

restrictedin2011throughabantopromotesocietalharmony,sotheindustry

alreadyknewhowtoworkwithabanonluxurygoodadsby2013.Thebanonly

addressedluxuryadvertisementsinpublicareas,soluxurybrandswentonlineto

advertiseandcreategreaterbrandawareness.China’sluxuryecommercemarketis

worthover$3billion,andisusedbyretailersforbothadvertisementandsales.132

BrandslikeLouisVuitton,Burberry,andChanelallhaveactiveWeChataccounts

withextensivemobilecontenttoengageconsumers.133Advertisementsthatwould

oncehaveplayedonpublicradioortelevisionturnedtositeslikeYoukutoairtheir

ads.Themovetodigitalallowsluxurybrandstoreachtheirtargetaudience,young,

middleclassChinesewiththepurchasingpowersupportofboththeirparentsand

grandparents,easilyandefficientlywithoutupsettingindividualswhowould

otherwiseviewtheadvertisementsasdetrimentaltothestabilityofChinesesociety.

134

The2013LuxuryAdvertisingBanSincethegovernmentcrackdownbeganinlate2012,marketinginChinahas

seenasubtle,yetsignificantchange:theuseofChinesemodelsininternational132“China’sLatestAdBanaBlessinginDisguiseforLuxuryBrands?”JingDaily,February15,2013.133"WeChatFashionandLuxuryCampaigns:10CaseStudies."WalktheChat,August15,2015.134"Chineseluxuryshoppersflockingonline:survey,"CCTVEnglish,February26,2014.

44

luxurymarketingcampaigns.ThroughmyresearchIhavediscoveredthatthe

numberofChinesemodelshasdecreasedsincethecrackdown.

Thegovernmentcrackdownoncorruptionhashadaneffectonthe

percentageofnon-westernmodelspresentinadvertisementsinElleChina.The

percentageofnon-westernmodelsdecreasedoverthecourseof5years,ascanbe

seeninthechartbelow.In2010,thepercentageofnon-westernmodelsinElle

Chinawas21percent,comparedto12percentin2015.Thehighestpercentofnon-

westernmodelsoccurredin2011with25percentofadvertisementsfeaturingAsian

models.

Previously,advertisementsmarketedtotheChineseaudiencewouldonly,

withsomeexceptions,135featureWesternmodelsoractressesandactors.Luxury

brandshavenowbeguntoincludeChinesemodelsinadvertisementsalongside

Westernmodels,andsomemodelshaveevenheldcampaignsforluxurybrandsby

135Skincareadvertisementsarethenotableexception,whichusuallyfeaturedanAsianmodelbeforethecrackdown.From2012topresent,theresearcherfoundthatthepresenceofwesternmodelsinChineseprintadvertisementincreased.

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015

PercentageofM

odelsPer

JanuaryIssue

AdvertisementsFeaturingWesternorAsianModelsintheJanuaryIssue(s)ofElleChina(n=449)

Western

Asian

45

themselves.ThistrendoffewerAsianmodelsinadvertisementsreflectsthesmall

numberofChinesemodelsinthefashionindustry.Whilethenumberisgrowing,it

isstillextremelysmallincomparisontothenumberofWesternmodelspresent.Fei

Fei,MingXi,LiuWen,andSuiHearethemostusedfemaleChinesemodelsforad

campaignsoverthelast5years,showingthattheincreasingdiversityinglobal

advertisementsisnotasacceptingofnewtalentforChinesewomenasitisfor

Westernmodels.

ThefollowingisadissectionofluxuryadvertisementsfeaturingChinese

modelsthathavebeenreleasedsincethecrackdownbegan.

ChineseLuxuryAdCampaigns:ElleChinaCaseStudyElleChinaisaninternationalfashionmagazinefirstintroducedinChinain

1988.136EachissueofElleChinaaveragesaround280to400pages.137In2007,Elle

Chinahad4.81percentoftotaladvertisementexpenditureforthetop10magazines

inChina,secondonlytoCosmopolitanChina.138Today,ElleChinareaches6million

readerseverymonth,withitsaverageviewershiparound16to24yearsold,

predominantlyfemale.139ThetargetaudienceofElleChinaistheuppermiddleclass

andabovewithitsluxuryarticlesandadvertisements.

136“ElleChinaLaunchesSemi-MonthlyEditionStartingFebruary2012,“HearstCompany,lastmodifiedFebruary2,2012,http://www.hearst.com/newsroom/elle-china-launches-semi-monthly-edition-starting-february-2012.137Ibid. 138YangFeng,andKatherineFrith,“TheGrowthofInternationalWomen’sMagazinesinChinaandtheRoleofTransnationalAdvertising,”JournalofMagazineandNewMediaResearch10,No.1(2008):6.139ZhouYu,LengShujia,ZhangGe,ZouWei,"AnalysisandMarketingStrategyofElleMagazineinChina,"(mastersproject,HongKongBaptistUniversitySchoolofCommunicationandSchoolofBusiness,May2012):42,

46

Theresearchersetouttodeterminewhetherthegovernmentcrackdownon

corruptioninfluencedhowadvertisementswerepresentedinluxurylifestyle

magazines.TodosotheresearcheranalyzedtheJanuaryissue(s)ofElleChina

Magazinefrom2010to2015.140

Theresearchersoughttoanalyzethemagazineissuesinregardstopresence

ofmodelsintheadvertisements,thepresenceofnon-westernmodelsin

advertisements,andnumberofadvertisementsperissueadvertisingacertaintype.

Theresearcherfocusedonthepresenceofmodels,asopposedalackofmodelsin

advertising.Thepresenceofmodelsinanadvertisementinanactivechoice,anda

moreexpensiveone,pointingtoabeliefbyadvertiserthatthepresenceofamodel

inwarrantedorrequiredtoadvertisetheirgood.141Inadditiontostatistical

analysis,theresearchercomparedadvertisementsofskincareandmakeup,watches,

jewelry,fragrances,technology,automobiles,andclothing,aswellastheindividual

advertisementsofRolex,Dior,Gucci,andLouisVuittonoverthecourseoffiveyears

todetermineifmarketingstrategieswerechangedtoaddresschangesinthe

corruptioncampaign.

http://comd.hkbu.edu.hk/mm/mmgtproject/image/projects/2012_project/12_group5.pdf. 140Forthemostpart,luxurybrandsreleasethesameadcampaigninternationally,withtheexceptionofRado,aSwisswatchmaker,whichreleasesadvertisementsforitsChineseaudience.141Astudyby###foundthatwesternmodelsweremorecommonlyusedforadvertisementsthatfocusontheirbody,andChinesemodelsweremorecommonlyusedinadvertisementsfocusedonfacialbeauty.ThisledtheresearcherstoconcludethatthepresenceofwesternmodelsinChineseadvertisementswasatypeofracialsexualobjectification.KatherineTolandFrith,HongCheng,andPingShaw,"RaceandBeauty:AComparisonofAsianandWesternModelsinWomen’sMagazineAdvertisements,"SexRoles50,no.1(January,2004):50.

47

Theresearcheranalyzedthepresenceofmodelsinadvertisementsin

JanuaryissueofElleChinaoverthecourseof5years.Intheprocess,Ifoundthatthe

percentageofadvertisementsperissuefeaturingmodelshitalowin2013,before

reboundingthefollowingyear.In2010,55percentofadvertisements[N=449]used

models,comparedto60percent[N=449]in2015.Thelowestpercentwasin2013,

withonly49percentofalladvertisementsintheissuefeaturingamodel.

Watches Ofthe451advertisementsfeaturedinElleChinafrom2010to2015,only47

wereforluxurywatches,onlyabout10percentofalltheadvertisementswerefor

watches.ThemostprominentbrandsforluxurywatchesfeaturedinElleChinawere

Rolex,with6advertisements,Chopard,Jaeger-Coultre,andRadowith5

advertisementseach,andChanelwith4advertisements.

0%

10%

20%

30%

40%

50%

60%

70%

2010 2011 2012 2013 2014 2015

PercentageofAdvertisements

PerIssue

ElleChinaAdvertisementPerIssueFeaturingModels(n=449)

DoesnotfeatureamodelFeaturesamodel

48

Rolex,aluxurywatchmanufacturer,hadan

advertisementinatleastoneJanuaryissueofElle

Chinafrom2010to2015,withtheexceptionof2012.

Chronologically,Rolexhasgonefromovertly

grandioseadvertisementsin2010and2011tomore

streamlinedadvertisements2013to2015.Boththe

2010and2011advertisementsthewesternmodelis

thefocalpoint,withthe

renderingofthewatchplacedin

thefarbottomleftcorner.Inthe

2013and2015advertisements,

thewatchisthefocalpoint.No

modelispresent,andthemuted

whiteandoff-whitebackgroundplaceextra

emphasisonthewatchbeingadvertised.The

2014advertisementfeaturesfemaleathletes

CarolineWozniack,AnaIvanovicandLindsey

VonnalongwithmusiciansYujiaWang

andAnoushkaShankar.142Theadvertisement

carriestheaestheticofthe2013withthe

greenlinecuttingthroughthecenterofthepage.143

142Rolex,Advertisement,January2014,ElleChinano.2,150-1.143Rolex,Advertisement,January2013,ElleChinano.2,2-7.

49

Throughtheanalysisofthewatchadvertisementovertheperiodof2010-

2015,theresearcherfoundnoevidenceofashiftinadvertisementsofwatchesto

suggestaconnectionbetweenthecrackdownandstyleofadvertisement.Watch

advertisementsfeaturedsimilarnumbersofnon-westernmodelsperissue,one,

overtheperiodoftime,withtheexceptionoftwoadvertisementsfeaturedinthe

2014Januaryissues.Onaverage,56percentofallwatchadvertisementsfeaturedno

model.Thepresenceofopulentbackgrounds,featuringabedofrubies,diamonds,or

feathersaddstotheextravaganceofthewatchbeingpresented,thoughby2014

watchadvertisementswithoutamodelbecamemorestreamlined.

50

Handbags From2010to2015,35ofthe451,or8percent,ofalladvertisementsinElle

Chinawereforhandbags.Ofthose35advertisements,only2didnotfeaturea

model.Only4ofthe35advertisementsfeaturedanon-westernmodel,oneforeach

Januaryissuefor2013and2014.

Asforthegeneralaestheticoftheadvertisementandifanychangewasseen

overtime,theresearcheranalyzedtheadvertisementsofthebrandGucci,which

hadanadvertisementeveryyearexcluding2011.EveryyearGuccihadan

advertisementfortheirhandbagsfeaturedinElleChina,theadvertisementfeatured

awesternmodelholdingaGuccihandbag,intheformofasatchel,totes,andcross

body.Theadvertisementsfor2010and2013areinquiteopulentsettings,western

settings.Thesettingfor2010isclearlyatahigh-classswimmingpooland2013ata

gardenorbeachparty.144Theadvertisementsfor2014and2015supportthe

researchersclaimthatadvertisementswereeffectedbythecorruptioncampaignin

144Gucci,Advertisement,January2010,ElleChinano.1,10-11.Gucci,Advertisement,January2013,ElleChinano.1,2-3.

51

China,asthereislittletonosettingasidefrom

thenon-descriptchairstherespectivemodels

siton,holdingtheirGuccihandbags.145

145Gucci,Advertisement,January2014,ElleChinano.1,2-3.Gucci,Advertisement,January2015,ElleChinano.1,8-9.

52

LouisVuittonhadan

advertisementinElleChinaeveryyear

startingin2011.Alladvertisements

featuredawesternmodelmodeling

bothLouisVuittonhandbagsand

clothing.Forthepurposeofthis

analysis,theresearcher

focusedsolelyonthose

picturesinthespreadsthat

featureaLouisVuittonbag.

Theadvertisementfor2011

and2012aresetonabeach,

asthemodelinonepictureis

surroundedbypalmtreesandinanotherthe

modelisplacedbeforeanoceanforboth

spreads.146Theadvertisementfor2013and2014

prominentlydisplaysthemodelinahotair

balloon,thoughtheadvertisementfor2014places

themodelinaEuropeansetting,perchedfromthe

sideoftheballoon’sbasketinfrontofSt.Mark’s

SquareinVenice.147Anotheradvertisementfrom

146LouisVuitton,Advertisement,January2011,ElleChinano.2,1.LouisVuitton,Advertisement,January2012,ElleChinano.2,1.147LouisVuitton,Advertisement,January2013,ElleChinano.2,1.

53

2014featuresamodelleaningoffabalconyinwhatappearstobeatraditional

Europeanoperasetting.148The2015advertisementstandsout,asitismerelya

modelsurroundedbyLouisVuittonmerchandiseinawhitebackground.149The

researcherdoesnotthinkthisisanyindicationofashiftamongluxury

advertisementstrategiestoavoidgovernmentcensorship,butratherastylisticshift

inpresentation.

LastlyDior,whichhadadvertisementsfortheir

leathergoodsinElleChinaeveryyearfrom2011to

2015,showsashiftin2013and2014.Everyyear

from2011to2015,DiorfeaturedtheFrenchactress

MarionCotillardinitshandbagadvertisementsfor

ElleChina.Theactresswasplacedinvarioussetting,

besideapoolinHollywood,onabeach,inawhite

LouisVuitton,Advertisement,January2014,ElleChinano.2,1.BibbySowray,"DavidBowieStarsinLouisVuittonAdvert,"TheTelegraph,November8,2013.148LouisVuitton,Advertisement,January2014,ElleChinano.1,31.149LouisVuitton,Advertisement,January2015,ElleChinano.1,29.

54

room,atnightinanurbancenter,orontheLondonEyeFerrisWheel.150For2013

and2014especially,thesettingofthephotographislargelyambiguous,asimple

whiteroomwithbluepaintdripsandtheurbancentersettingofthe2014adis

largelyblack,withlinesoflightfromleavingalongexposureonthecamera.151The

advertisementfor2015wassetatthetopoftheLondonEyeFerrisWheel

overlookingtheHousesofParliamentinLondon.152Thechangeinsettingfor2013

and2014couldbeareactiontotheanti-corruptioncampaigninChina,orastylistic

choice.Withoutdirectinputontheshiftfromthoseinvolvedinthevariousphoto

shoots,onecannotsaydefinitelyiftheshiftisinanywayrelatedtothesituationin

China.

Withoutdirectinsightintothecreativeprocessesinvolvedinthecreationof

variousadvertisements,theresearchercannotdefinitivelystatewhetherornot

luxuryadvertisementsofhandbagswasaffectedbythesituationinChina.That

beingsaid,thereisaclearshiftinadvertisingaestheticsaroundthetimetheanti-

150Dior,Advertisement,January2011,ElleChinano.2,2-3.Dior,Advertisement,January2012,ElleChinano.1,BackCover.151Dior,Advertisement,January2013,ElleChinano.1,BackCover.Dior,Advertisement,January2014,ElleChinano.2,2-3.152Dior,Advertisement,January2015,ElleChinano.2,2-3.

55

corruptioncampaigninChinawasgainingmomentum.Thechangeinsettingfrom

clearlyidentifiablesettingstonondescript,almostmonochromatic,backgroundsfor

2013and2014forDiorcouldbeareactiontotheanti-corruptioncampaignin

China,orastylisticchoice.Inasimilarmanner,thelackofasettinginGucci

advertisementsfor2014and2015,couldbeasimilarreactionbyaluxurycompany

tocreateaninternationaladvertisingcampaignthatcouldbeusedinChina.Interms

ofmodels,whethertheyarepresentinanadvertisement,orwhetherthemodelin

westernornot,theresearcherfoundnosignificantlastingchangeoverthecourseof

fiveyears.TheJanuaryissuesof2013and2014didseeanincreaseofone

advertisementperrelease,fourintotal,butthisshiftdidnotcarryonto2015.

Inluxurycaradvertising,printadvertisementsdidnotchangeintheir

aestheticfrom2012-2015.Forexample,theprovidedimagesareforthe2012Audi

advertisementcampaignandthatofthe2015advertisementcampaign.The

presenceofanactualsettinginthe2015advertisementisallthatreallysetsthetwo

apart.Inbothimages,thecaristhecentralfocus,notamodeloractor-

spokesperson,asiscommoninAmericanautomobileadvertisements.Overthe

courseofthefiveyearsstudied,ElleChinahadaroundfiveautomobile

advertisementsperJanuaryissue.Ofthe23advertisementsforautomobiles

56

featuredoverthefive-yearperiod,only3hadmodelsinthem,2beforethe

crackdownbyAudiandLexus,and1afterbyVolkswagen.Thismeansthat83%of

alltheadvertisementshadnomodel,andonly13%featuredamodelatall.Allthree

advertisementswithamodelfeaturedanAsianmodel.

Summary

Theadcampaignstartedinearly2013causedsomeinterestingreactions

amongluxurybrandsastheyadaptedtothenewrestrictions.Luxurybrandsbegan

usingsiteslikeYoukuandWeibo,andappslikeWeChattoreachyoungeraudiences

toincreasebrandawareness,tocircumventthebanonluxuryadvertisementsin

publicplaces.TheuseoftheInternettoreachnewconsumershasremained

constant.

ThroughtheanalysisoftheJanuaryIssuesoftheElleChinamagazinefrom

2010to2015,theresearchersawashiftinhandbagadvertisementsin2013and

2014,butnotinaestheticsorpresentationofluxurywatchadvertisementsforthe

sameperiod.Overall,theresearchersawadecreaseinAsianmodelspresentin

luxuryadvertisementsinElleChina.Theresearcheracknowledgesthatshiftsin

aestheticscouldmerelybeachangeinartisticpreferenceofthoseinvolvedinthe

variousphotoshootstocreatetheadvertisements.Withoutinputfromthose

involvedinthecreativeteamsthatcreatedtheadvertisements,anyconnection

betweentheshiftinaestheticsandtheanti-corruptioncampaignisspeculative.No

shiftinaestheticsorpresentationcanbefoundinluxurywatchadvertisementsfor

thesameperiod.

57

Chapter4:MarketLosses TheluxurymarketinChinahasregularlybeenreportedashavingtakena

serioushitinsalesduetotherecentgovernmentcrackdown.Restrictionsongifting,

banquetingandluxurycarusehavebeensaidtohavenegativelyaffectedtheluxury

market’ssuccessinallareas.Therestrictions,however,areonlytargetedatofficials,

andhavenobearingovertheshoppingpracticesofeverydayChinesecitizens,

despitewhatinternationalmediaisreportingaboutChina’seffectontheluxury

market.

Overthecourseofthispaper,Ihavesoughttoanswerthequestionof

whetherthegovernmentcrackdownoncorruptionandextravagancehadaffected

theconsumerpreferencesofChinaasawhole.Thebestindicatorofashiftin

marketingpreferencesamongChineseconsumersishowtheseconsumersusetheir

money;aretheystillpurchasingluxurygoods?Hasthemarketstayedatalevelof

salesatoraroundthatofthosepre-crackdown,orhastherebeenanincreasein

luxurysales,indicatingnotonlyresilienceinluxuryconsumption,butanincreaseof

newconsumerspurchasingluxurygoods?

LuxuryRetailersTheorganizationoftheinternationalluxurymarketmakesfindingannual

revenueforasinglebrandextremelydifficult.Themarketisorganizedinto

conglomerates,thelargestbeingLVMH,followedbyKeringandRichemont.Other

luxurysubsidiariesfallundermorespecializedcompanieslikeSwatch,whichowns

numerouswatchbrands,EstéeLauder,whichownsthemajorityofluxury

cosmetics,andPrada,whichownasmallnumberofshoesandclothingbrands.For

58

thesakeofcomparison,IhaveincludedthedomesticChinesejewelrymaker,Chow

TaiFook.Boldedlabelsarethoseconsideredtobetopluxurybrandsworldwide.

LuxuryGoodsParentCompaniesandSubsidiariesParentCompany SubsidieriesLVMH Wines/Spirits:Ardbeg,Belvedere,BodegaNumanthia,CapeMentelle,

Chandon,ChandonArgentina,ChandonAustralia,ChandonCalifornia,ChandonChina,ChandondoBrasil,ChâteauChevalBlanc,Châteaud'Yquem,ChevaldesAndes,CloudyBay,DomPérignon,Glenmorangie,Hennessy,Krug,Mercier,Moët&Chandon,NewtonVineyard,Ruinart,TerrazasdelosAndes,VeuveClicquot,andWenjunJewelry/Watches:Bvlgari,Chaumet,DeBeersDiamondJewellers,Fred,Hublot,TAGHeuer,andZenith.Fashion/LeatherGoods:Berluti,Céline,ChristianDior,DonnaKaran,EdunEmilioPucci,Fendi,Givenchy,Kenzo,Loewe,LoroPiana,LouisVuitton,MarcJacobs,NicholasKirkwood,andThomasPink.Perfumes/Cosmetics:AcquadiParma,BenefitCosmetics,Fresh,GivenchyParfums,Guerlain,KenzoParfums,MakeUpForEver,Nude,ParfumsChristianDior,andPerfumesLoeweOther:Sephora

Kering Gucci,BottegaVeneta,SaintLaurent,AlexanderMcQueen,Balenciaga,Brioni,ChristopherKane,McQ,StellaMcCartney,Boucheron,Dodo,Girard-Perregaux,Jeanrichard,Pomellato,Qeelin,andUlysseNardin

Richemont Cartier,VanCleefandArpels,A.LangeandSöhne,BaumeandMercier,IWFSchaffhuasen,Jaeger-LeCoutre,OfficinePanerai,Paiget,RalphLauren,RogerDubuis,VacheroonConstantin,Mont-Blanc,Dunhill,Alaïa,Chloé,Lancel,PeterMillar,Purdey,ShangaiTang,andCiampieroBodine

EstéeLauder Aerin,Aramis,Aveda,BobbiBrown,BumbleandBumble,Clinique,Darphin,DonnaKaranNewYork,EditionsDeParfumsFrédéricMalle,ErmenegildoZegna,EstéeLauder,Glamglow,GoodskinLabs,JoMaloneLondon,Kiton,LaMer,LabSeries,LeLabo,M•A•C,Marni,MichaelKors,Ojon,Origins,Osiao,Prescriptives,RodinOlioLusso,Smashbox,TomFord,TommyHilfiger,andToryBurch

PUIG Prada,Valentino,CommeDesGarçons,NinaRicci,CarolinaHerrera,PacoRabanne,JeanPaulGaultier,Penhaligon's,andL'ArtisanParfumeur

Swatch Breguet,HarryWinston,Blancpain,GlashütteOriginal,JaquetDroz,LéonHatot,Omega,Longines,Rado,UnionGlashütte,Tissot,Balmain,Certina,Mido,andHamilton

Prada Prada,MiuMiu,Church's,andCarShoe153

153ItshouldbenotedthatPradaalsoownsMarchesi1824,aluxurycaféinMilan,butitisnotrelevanttothecurrentstudyandwasthereforeexcluded.

59

LuxuryconglomeratesdonotproviderevenueinformationforChina

individually,likeautomobilecompaniesdo,butratherfortheAsia-Pacificregion

(excludingJapan).ThefollowingchartdisplaystherevenueinthousandsofEuros

forLVMH,Richemont,Kering,Prada,ChowTaiFook,andEstéeLauder.Itshouldbe

notedthatrevenuesforChowTaiFookandEstéeLauderhavebeenconvertedto

eurosusingendofyearconversionratesfortheHongKongDollarandUnitedStates

Dollar,respectively.

Source:SeeAppendixA

Asonecanseefromthechartabove,theluxuryconglomeratewiththemost

diversifiedportfolio,LVMH,hadrevenuesalmostdoubletheirclosestcompetitorin

2013,andstillheld€2million(US$2.2million)moreinrevenuesthanChowTai

Fookin2015.LVMH’sdiversifiedportfolio,withwines,spirits,cosmetics,jewelry,

watches,clothing,andleathergoods,allowedthecompanytosuccessfullynavigate

theAsian-Pacificmarket,despiterestrictionswithinChinaduetothegovernment

€-

€2,000,000.00

€4,000,000.00

€6,000,000.00

€8,000,000.00

€10,000,000.00

€12,000,000.00

2010 2011 2012 2013 2014 2015

Revenue(inthousandsofeuros)

LuxuryGoodSalesinAsia-PacikicRegion

LVMH

Richemont

Kering

Prada

EsteeLauder

ChowTaiFook

60

crackdown.ParentcompanieslikePradaandEstéeLauder,whichhavetheleast

diversifiedportfolios,focusingallofitssubsidiariesononlyaspecificcategory,like

leathergoodsandclothingforPradaandcosmeticsandfragrancesforEstéeLauder.

PradastartedwitharoundthesameannualrevenuesasLVMHin2010,buttheir

lackofbranddiversitypreventedlargeincreasesinannualgrowth.

Source:SeeAppendixA

Theabovechartshowsthat,overthecourseoffiveyears,thestagnationof

RichemontannualrevenueswasnotrestrictedtotheAsia-Pacificmarketalone.

Mostinterestingisthedecreaseinrevenuesfrom2014to2015inEurope.The

chartalsoshowstherapidgrowthluxurybrandsexperiencedinAsia-pacificregion.

ItshouldbenotedthatthedecreaseinsalesrevenueforEuropecanbeattributedto

theadditionoftheMiddleEastandAfricaRegiontothe2015AnnualReport.

ForPrada,thedecreaseindemandforconspicuousconsumption,like

productswithlargebrandlogos,hurtthebrand’sannualsalesdrasticallybecause

050010001500200025003000350040004500

2010 2011 2012 2013 2014 2015

Inmillionofeuros

CrossRegionalComparisonofRichemontAnnualRevenues

Europe

Asia-Paci�ic

Americas

Japan

61

thebrandhadnotexpandedintoothermarkets.154After2012,whenthecrackdown

began,Prada’ssalesdecreased,despitegrowth,nomatterhowlargeorsmall,byall

theotherluxuryconglomerates.Thisdecreaseinsalescouldbeanindicatorofa

markettrendinChinathatPradahasnotyetgrasped.AsdiscussedinChapter2,

somebrandsareprovidingmoreproductsinanaffordablepricerange,inorderto

offsetthedecreaseofsalesexperiencesineliteluxurysales.Thebestexampleofthis

isinthesaleofluxurywatchbrandsprovidingwatchesintheUS$1,600toUS$4,000

range,tooffsetdecreasesinsalesofhigh-endwatches.155

AninterestingfindwithinmyresearchisthesuccessofChowTaiFook,a

HongKongownedjewelrymaker,consideredthelargestintheworld.Thebrandis

notdiversifiedinitsproducts,sellingonlyjewelryandwatches.Thesuccessof

ChowTaiFookcanbeattributedtomultiplefactors,itsabilitytosuccessfully

markettoChineseconsumers,itsappealamongyoungerChineseconsumers,andits

abilitytoavoidtariffsasadomesticcompany.Anexampleofthebrand’sabilityto

attractyoungconsumersisthecompany’srecentStarWarscampaign,inwhichitis

sellinggoldbeadsfeaturingStarWarscharacterslikeBB8orC3POforitspendant

bracelets.

154Pradasellsshoes,clothing,handbags,andfragrances,andhasnotyetdiversifieditsportfolioamannersimilartoLVMH.155ChrisHorton,“China’sTurmoilmaystallreboundinwatchsales”NewYorkTimes,September7,2015.

62

LuxuryAutomotiveIndustry

TheChinesecarindustryisrapidlyexpandingduetoincreasingnumbersof

Chinesecitizenswhopossessadriver’slicense.Thisincreasehadcauseda

proportionalincreaseinthenumberofcardeliveriesandregistrations.Intheluxury

carmarket,saleshavealmostdoubledforallbrands.Thetopluxurycarssalesin

ChinaareattributedtoAudi,BMW,MercedesBenzandPorsche.MercedezBenzand

PorschedonotprovidesalesreportsforChinaalone,unlikeAudi,BMW,and

Jaguar/LandRover.Asaconsequence,thefollowingresearchonlyfeaturesan

analysisofunitsalesforAudi,BMW,andJaguar/RangeRover.Inaddition,itshould

benotedthatautomobilecompanieshavenotreleasedtheirannualreportfor2015,

andtheprovidedanalysisofluxuryautomobilesalesisjustoverafour-yearperiod

from2010to2014.

Asshowninthechartabove,luxurycarmanufacturersinChinahave

experiencedunexpectedlyhighsalesreturns,andhavebeenunaffectedbythe

0

100000

200000

300000

400000

500000

600000

700000

2010 2011 2012 2013 2014

UnitsSold

LuxuryCarSalesinChina

Audi

BMW

Jaguar/LandRover

Source:SeeAppendixA

63

measureinthecrackdownregardingluxuryvehicles.Audihasdoubleditsunitsales

since2010,from227,938unitsin2010to578,931unitsin2014.156Inasimilar

manner,BMWalsoexperiencedanover31percentincreaseinunitsalesfrom2010

to2014,from183328to456732.157Lastly,Jaguar/LandRoverisincludedtoshow

thattheincreaseinsalesisacrosstheboard,eveneffectingsmallerluxury

automobilecompanies.Jaguar/LandRoversalesincreasedover60percentfrom

2010to2015,from17,004unitsto103,077units.158

SummaryUsingsalesasanindicatorofconsumerpreference,thedatashowsthat

Chineseaffluentconsumersstillprefertospendtheirmoneyonhigh-end,luxury

products.Inthecaseofluxuryretail,morediversifiedbrandshadgreatermarket

gainsfrom2010-2015thanbrandsthatfocusesonaparticularfield.Theincreaseof

156AudiAG,2010AudiAnnualFinancialReport,Dec.31,2010,p.151,fromAudiinvestorrelationswebsite,http://www.audi.com/content/dam/com/EN/investor-relations/financial_reports/annual-reports/2010_audi_annual_financial_report.pdf.AudiAG,2014AudiAnnualFinancialReport,Dec.31,2014,p.168,fromAudiinvestorrelationswebsite,http://www.audi.com/content/dam/com/EN/investor-relations/financial_reports/annual-reports/2014_audi_annual_report_financial.pdf.157BMW,2010BMWAnnualFinancialReport,Dec.31,2010,p.18,fromBMWinvestorrelationswebsite,https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2010/BMW_Group_AR2010.pdf.BMWGroup,2014BMWAnnualReport,Dec.31,2014,p.29,fromBMWinvestorrelationswebsite,https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2014/12507_GB_2014_en_Finanzbericht_Online.pdf.158JaguarLandRoverplc.,2010JaguarLandRoverAnnualReport,Dec.31,2010,p.11,fromJaguarLandRoverinvestorrelationswebsite,http://www.jaguarlandrover.com/media/2737/2010-2011_annual_report.pdf.JaguarLandRoverPLC,2014JaguarLandRoverAnnualReport,July28,2014,p.69,fromJaguarLandRoverinvestorrelationswebsite,http://www.jaguarlandrover.com/media/75843/jaguar-land-rover-annual-report-2014-15-web_final.pdf.

64

revenuesbyLVMHandChowTaiFook,especially,showthatChineseconsumersare

stillwillingtopurchaseluxuryproducts,andthegrowingmiddleclassis

responsibleforthelargeannualpercentincreaseinrevenuesforluxurycompanies.

FortheluxuryautomobileindustryinChina,luxurycarsaleshavenotonly

increasedoverthepastfouryears,buthavemorethandoubledinmostcases.This

increaseinsalesisaresultofincreasingcarregistrationandincreasingpreference

forhigher-qualityautomobilesinChina.

65

Conclusion TheluxurymarkethassufferedinChinasince2012asaresultofthe

governmentcrackdownoncorruption.Acrosstheboard,luxurybrandsand

conglomerateshaveexperiencedlowpercentincreasesinsales,ifnotareductionin

sales.Despitethisslowingofgrowth,internationalluxurybrandscontinuetogarner

billionsofdollarsoreurosinprofitfromtheChinesemarket,andfromChinese

consumerspurchasingabroad.

Tocombatthelossoftheirsalestogovernmentofficialsthroughpractices

suchasgiftgiving,theluxurymarketisusingnewstrategiestoreachnew

customers.LuxurybrandsareexpandingtothemiddleclassinChina.Intermsof

marketing,luxurybrandsareincreasinglyrelyingonInternetadvertisementand

customerengagementthroughsitesandapps,likeWeibo,WeChat,andYouku.

Thesenewbrandstrategieswillassistluxurybrandsinincreasingtheirsalesto

womenandyoungadults.

Therecentcrackdownoncorruption,extravaganceandgraftinitiallycaused

shocksintheluxurymarket,butovertimethemarketrecoveredtoitspre-2012

demand.Brandsthataremorediversifiedweatheredtheinitialshockbetterthan

thosethatarespecialized,butallhaveexperiencedthebenefitoftheChinese

consumers’loveofluxury.Thecrackdownhasseentohavenoeffectoverthe

averageluxuryconsumer’sperceptionofpurchasingorowningluxurygoods,ascan

beseenintheincreasingsalesacrosstheboardforluxuryproductsinChina.There

isalsonoevidenceofanynationalisticshiftofconsumerstodomesticgoods;

66

AmericanandEuropeangoodsarestillpurchasedathigherpricesforwhatChinese

consumersperceivedtobesuperiorqualityitems.

Limitationandfutureresearch FindingsarelimitedbythelackofdataavailableinregardstoChinese

consumerpreferences,andarefurtherlimitedtothemostwell-knownbrandsin

China.Theresearchseekstoexpandthecurrentresearchpresentedinthispaper

throughthecreationofaconsumersurveyinthefutureandamoreexpansivestudy

ofluxuryadvertisementsinChinesemagazinesthroughtheanalysisofmore

magazinetypes,venturingintotechnologyandmen’slifestylemagazines.

Thispaperbroadensthetheoreticalresearchpertainingtoconspicuous

consumptioninChinaproposedbyplacingthephenomenoninthecontextof

Chinesepolitics.Fromapracticalperspective,thepaper’sfindingsprovide

suggestionsforfurtherstatisticalresearchintoconspicuousconsumptioninChina.

GainingabetterunderstandingofthebehaviorofChineseconsumersofluxury

brandsshouldbenefittheluxuryindustrybyincreasinginformationinclientelein

potentiallythelargestconsumermarket.

67

AppendixAReferenceTableforChart4.1

2010 2011 2012 2013 2014

Audi 227,938159 313,036160 405,838161 491,989162 578,932163

BMW 183,328164 233,630165 327,341166 391,713167 456,732168

Jaguar/LandRover 28,893169 50,994170 77,075171 103,077172 115,969173

Numbersrepresentunitssoldineachfiscalyear.

159AudiAG,2010AudiAnnualFinancialReport,Dec.31,2010,p.151,fromAudiinvestorrelationswebsite,http://www.audi.com/content/dam/com/EN/investor-relations/financial_reports/annual-reports/2010_audi_annual_financial_report.pdf.160AudiAG,2011AudiAnnualFinancialReport,Dec.31,2011,p.154,fromAudiinvestorrelationswebsite,http://www.audi.com/content/dam/com/EN/investor-relations/financial_reports/annual-reports/2011_audi_annual_financial_report.pdf.161AudiAG,2012AudiAnnualFinancialReport,Dec.31,2012,p.166,fromAudiinvestorrelationswebsite,http://www.audi.com/content/dam/com/EN/investor-relations/financial_reports/annual-reports/2012_audi_annual_financial_report.pdf.162AudiAG,2013AudiAnnualFinancialReport,Dec.31,2013,p.168,fromAudiinvestorrelationswebsite,http://www.audi.com/content/dam/com/EN/investor-relations/financial_reports/annual-reports/2013_audi_annual_financial_report.pdf.163AudiAG,2014AudiAnnualFinancialReport,Dec.31,2014,p.168,fromAudiinvestorrelationswebsite,http://www.audi.com/content/dam/com/EN/investor-relations/financial_reports/annual-reports/2014_audi_annual_report_financial.pdf.164BMW,2010BMWAnnualFinancialReport,Dec.31,2010,p.18,fromBMWinvestorrelationswebsite,https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2010/BMW_Group_AR2010.pdf.165BMWGroup,2011BMWAnnualReport,Dec.31,2011,p.24,fromBMWinvestorrelationswebsite,https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2011/report2011.pdf.166BMWGroup,2012BMWAnnualReport,Dec.31,2012,p.24,fromBMWinvestorrelationswebsite,https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2012/report2012.pdf.167BMWGroup,2013BMWAnnualReport,Dec.31,2013,p.29,fromBMWinvestorrelationswebsite,https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2013/report2013.pdf.168BMWGroup,2014BMWAnnualReport,Dec.31,2014,p.29,fromBMWinvestorrelationswebsite,https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2014/12507_GB_2014_en_Finanzbericht_Online.pdf.169JaguarLandRoverplc.,2010JaguarLandRoverAnnualReport,Dec.31,2010,p.11,fromJaguarLandRoverinvestorrelationswebsite,http://www.jaguarlandrover.com/media/2737/2010-2011_annual_report.pdf.170JaguarLandRoverPLC,2011JaguarLandRoverAnnualReport,Mar31,2012,p.6,fromJaguarLandRoverinvestorrelationswebsite,http://www.jaguarlandrover.com/media/2741/fy2011-12annualreport.pdf171JaguarLandRoverPLC,2011-2012JaguarLandRoverAnnualReport,Dec.31,2013,p.88,fromJaguarLandRoverinvestorrelationswebsite,http://www.jaguarlandrover.com/media/14149/jaguar_land_rover_automotive_plc_annual_report_2012-2013.pdf172JaguarLandRoverPLC,2014JaguarLandRoverAnnualReport,July28,2014,p.75,fromJaguarLandRoverinvestorrelationswebsite,http://www.jaguarlandrover.com/media/23108/annual-report-2014.pdf.173JaguarLandRoverPLC,2014JaguarLandRoverAnnualReport,July28,2014,p.69,fromJaguarLandRoverinvestorrelationswebsite,http://www.jaguarlandrover.com/media/75843/jaguar-land-rover-annual-report-2014-15-web_final.pdf.

68

ReferenceTableforChart4.2

2010 2011 2012 2013 2014 2015

LVMH €499,100.00174 €6,430,000.00175 €7,895,000.00176 €8,669,000.00177 €8,740,000.00178 €9,636,000.00179

Richemont €1,740,000.00180 €2,569,000.00181 €3,684,000.00182 €4,162,000.00183 €4,235,000.00184 €4,100,000.00185

Kering €1,541,900.00186 €1,962,000.00187 €2,439,700.00188 €2,469,800.00189 €2,582,800.00190 €2,956,200.00191

Prada €645,680.00192 €872,992.00193 €1,160,166.00194 €1,292,753.00195 €1,252,675.00196 €1,252,675.00197

174LVMH,2010ReferenceDocument,April2011,p.164,fromLVMHinvestorrelationswebsite,https://r.lvmh-static.com/uploads/2014/10/lvmh-2010-reference-document.pdf.175LVMH,2011ReferenceDocument,April2012,p.156,fromLVMHinvestorrelationswebsite,https://r.lvmh-static.com/uploads/2014/10/reference_document_2011_lvmh.pdf.176LVMH,2012ReferenceDocument,April2013,p.160,fromLVMHinvestorrelationswebsite,https://r.lvmh-static.com/uploads/2014/10/document_de_reference_2012_va.pdf.177LVMH,2013ReferenceDocument,April2014,p.170,fromLVMHinvestorrelationswebsite,https://r.lvmh-static.com/uploads/2014/10/document_de_reference_2013_va.pdf.178LVMH,2014ReferenceDocument,April2015,p.166,fromLVMHinvestorrelationswebsite,https://r.lvmh-static.com/uploads/2015/02/lvmh-2014-reference-document.pdf.179LVMH,2015ConsolidatedFinancialStatements,February2016,p.47,fromLVMHinvestorrelationswebsite,https://r.lvmh-static.com/uploads/2014/10/lvmh-2010-reference-document.pdf.180Richemont,2010AnnualReport,February2011,p.33,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2010/richemont_ar2010.pdf.181Richemont,2011AnnualReport,February2012,p.31,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2011/ar_fy2011_re64f5rd9.pdf.182Richemont,2012AnnualReport,February2013,p.30,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2012/ar_fy2012_f8s6jhd843e.pdf.183Richemont,2013AnnualReport,February2014,p.36,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2013/ar_fy2013_d83fg7s.pdf.184Richemont,2014AnnualReport,February2015,p.34,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2014/ar_fy2014_s92mf72js8.pdf185Richemont,2015AnnualReport,February2016,p.33,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2015/ar_fy2015_h68qw95aw9b.pdf.186Kering,2010ReferenceDocument,March22,2011,p.137,fromKeringinvestorrelationswebsite,http://www.kering.com/sites/default/files/sites/default/files/publications/PPR2010DRFENBD.pdf.187Kering,2011ReferenceDocument,April16,2012,p.139,fromKeringinvestorrelationswebsite,http://www.kering.com/sites/default/files/sites/default/files/publications/PPR_2011DDR_EN_0.pdf.188Kering,2012ReferenceDocument,April19,2013,p.132,fromKeringinvestorrelationswebsite,http://www.kering.com/sites/default/files/document/ppr_ddr_2012_va.pdf.189Kering,2013ReferenceDocument,April14,2014,p.160,fromKeringinvestorrelationswebsite,http://www.kering.com/sites/default/files/document/kering_ddr_va_2013.pdf.190Kering,2014ReferenceDocument,April2,2015,p.171,fromKeringinvestorrelationswebsite,http://www.kering.com/sites/default/files/document/kering_ddr_2014_va.pdf.191Kering,2015FinancialDocument,February19,2015,p.61,fromKeringinvestorrelationswebsitehttp://www.kering.com/sites/default/files/document/kering_2015_financial_document.pdf.192PradaGroup,2010AnnualReport,February2011,p.64,fromPradaGroupinvestorrelationswebsite,http://www.pradagroup.com/documents/reports/2010%20Annual%20Report_PRADA%20spa%20Group_ENG.pdf.193PradaGroup,2011AnnualReport,February2012,p.32,fromPradaGroupinvestorrelationswebsite,http://www.pradagroup.com/documents/201201/E-Annual-Report.pdf.194PradaGroup,2012AnnualReport,February2013,p.36,fromPradaGroupinvestorrelationswebsite,http://www.pradagroup.com/documents/announcement/E-Annual-Report-2012.pdf.195PradaGroup,2013AnnualReport,February2014,p.37,fromPradaGroupinvestorrelationswebsite,http://www.pradagroup.com/system/pdf_ens/152/original/e-Annual%20Report%202013.pdf.196PradaGroup,2014AnnualReport,February2015,p.41,fromPradaGroupinvestorrelationswebsite,http://www.pradagroup.com/uploads/prada/document/document/44/e-Annual_Report_2014.pdf.197PradaGroup,2015InterimFinancialReport,February2016,p.12,fromPradaGroupinvestorrelationswebsite,http://www.pradagroup.com/system/pdf_ens/211/original/e-Interim%20Financial%20Report%202015.pdf.

69

EsteeLauder €1,127,671.34198 €1,357,259.08199 €1,525,493.11200 €1,539,770.56201 €1,845,102.77202 €2,007,532.10203

ChowTaiFook €2,203,093.54204 €3,478,007.30205 €5,535,584.34206 €5,375,820.88207 €8,250,269.06208 €7,636,812.43209

Numbersrepresentrevenueineurosforeachfiscalyear. 2010210 2011211 2012212 2013i213 2014214 2015215

Europe 2099 2588 3097 3611 3919 3067

Asia-Pacific 1740 2569 3684 4162 4235 4100

Americas 712 998 1253 1473 1603 1588

Japan 625 737 833 904 892 814

198EsteeLauder,2010AnnualReport,June30,2011,p.87,fromEsteeLauderinvestorrelationswebsite,http://investors.elcompanies.com/phoenix.zhtml?c=109458&p=irol-reportsannual.199EsteeLauder,2011AnnualReport,June30,2012,p.97,fromEsteeLauderinvestorrelationswebsite,http://investors.elcompanies.com/phoenix.zhtml?c=109458&p=irol-reportsannual.200EsteeLauder,2012AnnualReport,June30,2013,p.105,fromEsteeLauderinvestorrelationswebsite,http://corporate.chowtaifook.com/en/ir/reports/ar2012.pdf201EsteeLauder,2013AnnualReport,June30,2014,p.119,fromEsteeLauderinvestorrelationswebsite,http://investors.elcompanies.com/phoenix.zhtml?c=109458&p=irol-reportsannual.202EsteeLauder,2014AnnualReport,September24,2015,p.51,fromEsteeLauderinvestorrelationswebsite,http://investors.elcompanies.com/phoenix.zhtml?c=109458&p=irol-reportsannual.203EsteeLauder,2015AnnualReport,September24,2016,p.62,fromEsteeLauderinvestorrelationswebsite,http://investors.elcompanies.com/phoenix.zhtml?c=109458&p=irol-reportsannual.204ChowTaiFook,2012AnnualReport,July2012,p.2,fromChowTaiFookinvestorrelationswebsite,http://corporate.chowtaifook.com/en/ir/reports/ar2012.pdf.205Ibid.206Ibid.207ChowTaiFook,2013AnnualReport,December15,2013,p.2,fromChowTaiFookinvestorrelationswebsite,http://corporate.chowtaifook.com/en/ir/reports/ar2013.pdf.208ChowTaiFook,2014AnnualReport,June17,2014,p.2,fromChowTaiFookinvestorrelationswebsite,http://corporate.chowtaifook.com/en/ir/reports/ar2014.pdf.209ChowTaiFook,2015AnnualReport,July5,2015,p.16,fromChowTaiFookinvestorrelationswebsite,http://corporate.chowtaifook.com/en/ir/reports/ar2015.pdf.210Richemont,2010AnnualReport,February2011,p.33,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2010/richemont_ar2010.pdf.211Richemont,2011AnnualReport,February2012,p.31,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2011/ar_fy2011_re64f5rd9.pdf212Richemont,2012AnnualReport,February2013,p.30,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2012/ar_fy2012_f8s6jhd843e.pdf213Richemont,2013AnnualReport,February2014,p.36,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2013/ar_fy2013_d83fg7s.pdf.214Richemont,2014AnnualReport,February2015,p.34,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2014/ar_fy2014_s92mf72js8.pdf215Richemont,2015AnnualReport,February2016,p.33,fromRichemontinvestorrelationswebsite,https://www.richemont.com/images/investor_relations/reports/annual_report/2015/ar_fy2015_h68qw95aw9b.pdf.

70

AppendixB:ElleChinaYearlyStatistics

2010Statistics(n=67)

Model? NoModel 30 No 45%ContainsModel 37 Yes 55%WesternorAsian: Western 20 Western 30%Asian 14 Non-western 21%Type: Watch 5 Watch 7%Skincare 39 Skincare 58%Handbags 2 Handbags 3%Fragrance 7 Fragrance 10%Jewelry 6 Jewelry 9%Automobiles 5 Automobiles 7%Technology 2 Technology 3%Clothing 1 Clothing 1% Numberofarticles 67

2011Statistics(n=82)

Model? NoModel 39 No 48%ContainsModel 43 Yes 52%WesternorAsian: Western 21 Western 26%Asian 21 Non-western 26%Type: Watch 6 Watch 7%Skincare 52 Skincare 63%Handbags 6 Handbags 7%Fragrance 3 Fragrance 4%Jewelry 7 Jewelry 9%Automobiles 4 Automobiles 5%Technology 1 Technology 1%Clothing 3 Clothing 4%

71

Numberofarticles 82

2012Statistics(n=83)

Model? NoModel 37 No 45%ContainsModel 46 Yes 55%WesternorAsian: Western 32 Western 39%Asian 13 Non-western 16%Type: Watch 11 Watch 13%Skincare 38 Skincare 46%Handbags 5 Handbags 6%Fragrance 7 Fragrance 8%Jewelry 10 Jewelry 12%Automobiles 2 Automobiles 2%Technology 2 Technology 2%Clothing 7 Clothing 8% Numberofarticles 83

2013Statistics(n=83)

Model? NoModel 41 No 49%ContainsModel 42 Yes 51%WesternorAsian: Western 31 Western 37%Asian 8 Non-western 10%Type: Watch 10 Watch 12%Skincare 37 Skincare 45%Handbags 7 Handbags 8%Fragrance 7 Fragrance 8%Jewelry 9 Jewelry 11%Automobiles 6 Automobiles 7%Technology 0 Technology 0%Clothing 5 Clothing 6% Numberofarticles 83

72

2014Statistics(n=76)

Model? NoModel 34 No 45%ContainsModel 42 Yes 55%WesternorAsian: Western 31 Western 41%Asian 11 Non-western 14%Type: Watch 8 Watch 11%Skincare 29 Skincare 38%Handbags 7 Handbags 9%Fragrance 4 Fragrance 5%Jewelry 13 Jewelry 17%Automobiles 3 Automobiles 4%Technology 2 Technology 3%Clothing 3 Clothing 4% Numberofarticles 76

2015Statistics(n=58)

Model? NoModel 23 No 40%ContainsModel 35 Yes 60%WesternorAsian: Western 28 Western 48%Asian 7 Non-western 12%Type: Watch 5 Watch 9%Skincare 24 Skincare 41%Handbags 8 Handbags 14%Fragrance 5 Fragrance 9%Jewelry 7 Jewelry 12%Automobiles 3 Automobiles 5%Technology 0 Technology 0%Clothing 5 Clothing 9% Numberofarticles 58

OverallStatistics(n=449)

NoModel 204 NoModel 45%

73

ContainsModel 245 ContainsModel 54%WesternorAsian: Western 163 Western 36%Asian 74 Asian 16%Type: Watch 45 Watch 10%Skincare 219 Skincare 49%Handbags 35 Handbags 8%Fragrance 33 Fragrance 7%Jewelry 52 Jewelry 12%Automobiles 23 Automobiles 5%Technology 7 Technology 2%Clothing 24 Clothing 5%

Comparisonsregardingmodels 2010 2011 2012 2013 2014 2015Western 30% 27% 39% 37% 41% 48%Asian 21% 25% 16% 10% 14% 12%Doesnotfeatureamodel 45% 47% 45% 51% 45% 40%Featuresamodel 55% 53% 55% 49% 55% 60%

74

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