China is responsible for 25% of all luxury sales worldwide. One third of total Swiss watches exports goes to China and if you consider all the Swiss watches that Chinese purchases while traveling we could consider that almost 50% of total Swiss watch production are bought by Chinese. So in a certain way we can say that China owns the luxury industry.
China, a giant luxury market, also beyond its borders.
Last year the luxury industry represented a little less than $250 billion worldwide. Despite of the economic crises booming since 2009, luxury has been not so bad with a year-on-year growth of 2 to 4%. The nature of different segments of this high-end industry have contributed to this sustainable growth. Also, Emerging countries like Brazil, India and especially China contribute to a very large majority of the luxury sales. We estimate around $63 billion sales made by Chinese in 2015. KPMG ran a survey in the Chinese market and the numbers are significantly impressive. 71% of Chinese people who answered the survey declared they have traveled outside of China. 63% of these Chinese travelers declared they have purchased luxury goods while traveling.
- 47% for Cosmetics, make-up and fragrances
- 37% for luxury watches
- 32% for luxury handbags
If we analyze where Chinese tourists travels to in order to buy luxury goods, we can see they have preferred destinations. For Cosmetics, Make-up and Fragrances 60% of Chinese purchases these items in HongKong, Macao and Taiwan, only 51% in China mainland and 20% in Europe. France is definitely a reference for everything related to fragrances, cosmetics, fashion and alcohol. If we take a look to the luxury watches sales, 51% of Chinese will buy their luxury watch in Hong Kong, only 37% of them will make a purchase in China main land and 25% in Europe. Naturally Switzerland is the reference country for luxury watches.
Why do Chinese people purchase luxury goods abroad?
Why Chinese purchase so many luxury goods outside their country? Probably one very simple reason to start with is the 30% taxes that the Chinese government apply to all luxury goods coming from abroad. This means that all these items are much cheaper else where. Brazil is in the same case. Luxury goods get a tremendous amount of taxes, that make it very hard to sell. Customers with enough purchase power to be a luxury client will travel and save money in the products they will acquire in foreign countries. Depending on the “shopping tour” you will be on, the savings you might get could pay the trip.
With the rise of internet, online shopping and online consulting became also a very powerful activity for China. Last year China had 680 million internet users. For the past 10 years the country has a year-on-year growth of the number of internet users of 30 million people. This means that more than 50% of the country population is regularly connected to the internet. 85% of these people connect to the web with their mobile phones. While the online luxury interest is growing exponentially, Chinese people use it more for information and comparison. A lot of them (72%) are still conservative about purchasing a luxury item online. They are afraid of fake products but also about after sales services potential issues. So there is still a lot of reassurance to be provided, especially for new brands. Chinese have good memory, so they will always remember a good product, service or treatment. That is why the online consumption of luxury news is exponential. Certain brands have benefit from a historical advantage. For example Rado was the first watch brand to advertise in Chinese Television back in 1979. Since then Rado is still a very popular brand in China.
China is a nest for millionnaires and billionaires, just ask!
China is still a golden city for luxury. The total population is 1.6 billion people. There are more than 12 cities in China that you have never heard about and that possess more than 10 million inhabitants. There are almost 850’000 millionaires and 55’000 billionaires in China. The first group have in average 3 cars and 4.4 watches per household. The 55’000 billionaires have in average 4 cars and 5 high-end watches. The market is still very young. 80% of luxury customers are less than 45 years old. While in Europe the average age of the wealthiest people is 60 years old, for China this is 47 years old.
So the potential is huge as these people are currently in the rise of their lives. These wealthy Chinese people spend a lot of money in collections as well. Chinese collectors are very influent and for some of them, especially in Art, they can reshape an entire market. Chinese collectors will invest in the following activities
- 44% in watches and jewellery
- 15% in ancient paintings and calligraphy
- 13% in wine
- 12% in luxury cars
- 7% in Contemporary Art
At this rate, China is going to take control of the entire luxury industry. Not only they have purchase power as customers but they are also very interesting in acquiring the companies who produce, create and commercialize luxury goods and services. Volvo, Corum, Sonia Rykiel, Cerruti, Marionnaud, ST Dupond or Jimmy Choo are some examples of brands with a Chinese ownership.
There is also a strong aim for Chinese wealthy people to embrace a more western glamorous lifestyle based in certain social status symbols. Chinese investors have also made several purchases in the Wine industry. In 2012, a Chinese investor acquired Chateau Gevrey-Chambertin. The castle and the vineyard were purchased for $8 Billion. It is hard not to sell especially when the economic crise is still around.
It is interesting to see that the luxury industry needs to adapt to a new clientele with their own tastes, references and even sizes. From the luxury hotel and travel business to clothes, cars, watches or fragrances, Chinese customers have specific needs and requirements that many often are not fulfilled. Probably that is why they end up acquiring the brands (and the fact they have $44 billion to invest also helps).