Wealthy Chinese customers will shop abroad in 2014

Chinese Shoppers Chanel - Luxury Hotels of AmericaWealthy Chinese are likely to buy fewer luxury goods again this year after the steepest cut-back on spending in at least five years, changing the game for high-end retailers like Louis Vuitton which have staked their growth on China. Overall spending by wealthy Chinese fell by 15 percent in 2013, the third consecutive year of decline.

The drop coincides with a government crackdown on corruption and gifting, as well as an a growing penchant for travelling and shopping overseas to circumvent Chinese consumption taxes on luxury goods as high as 40 percent.

The shrinking ranks of wealthy residents in China has also reduced luxury spending. One in three so-called high net worth individuals have already left, or are planning to leave, the country, the report showed, mostly to seek better opportunities for their children’s education.

Advertisement Tower - Gervois Hotel Rating May 2017 featuring Pierre GervoisChinese are the top consumers of luxury goods globally. A slowdown in their spending, or a change in shopping habits, would hurt high-end retailers already struggling with a weaker Chinese economy and a more sophisticated clientele that has moved away from logo-branded goods.

Luxury group Richemont, the maker of high-end IWC watches and Cartier jewellery, reported this week slower-than-expected sales growth in the third quarter, largely due to weaker Asian demand.

LVMH, the world’s biggest luxury goods group, has also seen sales growth slow last year as Chinese demand cooled, prompting the company, and brands from rival Kering SA to offer goods with more discreet logos and in expensive materials.

The crackdown on conspicuous spending, which began in 2012, is part of a vow made by Chinese President Xi Jinping to be tougher on graft. He has focused in particular on gifts made to government officials often in exchange for preferential treatment or contracts.

Products by Hermes, Chanel, LVMH’s Louis Vuitton brand, Apple Inc and Gucci remained among the most sought-after brands for gifting.

Less popular were Bulgari – another LVMH brand – Salvatore Ferragamo, Tiffany and Co and the fiery baijiu liquor made by Chinese firm Kweichow Moutai Co Ltd, once the top tipple of Communist Party officials.

Affluent Chinese often shop online for the best price globally. They have also become more confident about their fashion choices, mixing high-street clothing and accessories with branded goods.Shanghai Travelers Club Winter 2013 Issue

According to Pierre Gervois, Publisher of the Shanghai Travelers’ Club magazine, a luxury travel publication for wealthy Chinese international travelers ” Chinese consumers probably won’t spend less – it’s absurd to say that – they will spend the same amount of money, and probably more, but not in China. They have already started to buy abroad, and as they prefer to pay cash, we will never know the real figures”

Over two-thirds of luxury spending by mainland Chinese was overseas in 2013, a factor that contributed to the United States overtaking China as the world’s fastest growing luxury market, according to a study by consultancy firm Bain & Company released in December.

China’s super-rich are also avid collectors – 70 percent of wealthy Chinese rank collecting as a hobby – but what they are coveting is changing.

Ancient calligraphy last year surpassed luxury watches as the most-collected, knocking watches out of the No. 1 spot for the first time in five years, the Hurun report showed, which could mean revenue losses for top watch makers but a boon for auctioneers.

Patek Philippe remained the most popular watch brand for collectors for the seventh year running while Christie’s was the top ranked foreign auction house, the report showed.

Besides spending less at home, more rich Chinese are leaving the country. The number of wealthy Chinese who have emigrated or are planning to do so rose to 64 percent from 60 percent in the previous year, the survey said.

Most of those leaving, or planning to, are looking for permanent residency overseas – the United States, Europe and Canada are top picks. Very few want to give up their nationality, perhaps because their outlook for China is improving.

The report showed millionaires’ confidence in China’s economy rose for the first time in five years but those who felt “extremely confident” still accounted for only 31 percent of those surveyed.

The survey’s results are based on responses from 393 Chinese millionaires, or those with personal wealth of at least 10 million yuan.

Mandarin speaking sales associates are not enough to attract Chinese affluent shoppers: A good digital strategy is more efficient.

Chinese tourists- China Elite FocusOver two-thirds of luxury spending by mainland Chinese was made overseas in 2013, an increase from 2012, according to the China Luxury Market Study from consultancy firm Bain & Company released on Monday.
Chinese shoppers often wait for trips abroad, plan shopping sprees to Hong Kong or get friends or specialist “daigou” agencies to bring back luxury items from overseas because they are often cheaper due to China’s high import taxes.
“Sometimes I’ll go to a China store and look online for details about things I’ve liked, or try something on for size I’ve seen online. But when it comes to actually buying it I’ll always get a friend to bring it back from abroad,” said Fang.
China is the number one luxury spender worldwide, making up 29 percent of total global luxury spend this year, according to the Bain report. So Chinese consumers – wherever they may be – are a key battleground for firms from LVMH Moet Hennessy Louis Vuitton SA and Gucci owner Kering Holland NV to trench coat maker Burberry Group PLC , cosmetics giant L’Oreal SA and Cartier watchmaker Compagnie Financiere Richemont SA .
Chinese luxury spending slowed at home in the wake of a crackdown on corruption and shows of wealth, prompting warnings of a sales slowdown from liquor maker Pernod Ricard SA and Volkswagen-owned Bentley Motors and Lamborghini.
Luxury brand store openings dropped significantly in 2013, according to Bain, which estimated China’s luxury market will grow two percent this year versus seven percent a year earlier.

On London’s Bond Street and Fifth Avenue in New York, luxury stores have been getting ready to welcome Chinese shoppers, boosting China know-how ahead of peak seasons such as the week-long Lunar New Year beginning January 31, 2014.
London’s Harrods department store is planning a themed display for the festival, with special products and menus designed for the occasion, it said.
Chinese visitors spent 300 million pounds ($488.34 million) in Britain in 2012, while the British government has relaxed visa rules to attract more people from the world’s second-largest economy.
“Having a strategy for Chinese visitors makes a massive difference. Chinese spending in the UK was up 132 percent in the first half of 2013,” said Jeremy Gordon, London-based director of China Business Services, which helps UK firms target Chinese shoppers.
“That’s obviously going to have a massive impact on your bottom line at a time when overall retail sales are not growing at anything like that rate.”
On Fifth Avenue, jeweler Tiffany & Co said it employs Mandarin-speaking staff. Tiffany has seen strong growth in the China market as the allure of diamonds grows, and said last month that sales at its flagship New York store were driven by Chinese and European tourists.
Around 1.5 million Chinese travelers visited the United States in 2012, a more than five-fold increase from 2005, according to the U.S. Department of Commerce.

“Western luxury brands have now fully understood the necessity to have Mandarin speaking sales associates in their New York and London stores, but it’s not enough. The purchase decision is made well before the trip, when future Chinese travelers are checking their luxury travel magazines on their iPad and luxury lifestyle Weibo pages. The irony of this is even if the sales associates do not speak Mandarin, Chinese shoppers will still buy”  said Pierre Gervois, author of “How U.S. Retail, Travel and Hospitality Industries can attract affluent Chinese tourists”
Saks Fifth Avenue, the department store unit of Hudson’s Bay Co , has a Lunar New Year strategy to focus on beauty products, while the flagship store of Macy’s Inc has a visitor centre with Chinese-language material.
Barneys, meanwhile, is launching its first Lunar New Year-themed marketing campaign in 2014. The department store has increased adverts in Chinese magazines and is testing campaigns around Chinese payment system Union Pay, it said.

Luxury firms are also going online to woo Chinese shoppers. Tiffany has a Chinese engagement ring app while Chanel offers an online make-up “classroom”. Italian fashion house Fendi has held talks on China’s Twitter-like Weibo, while Prada SpA and Christian Dior SA have Chinese videos online.
Luxury travel clubs for wealthy Chinese travelers have also their iPad App: The Shanghai Travelers’ Club has its own App, entirely in Chinese Mandarin, and features articles about US$50M private jets, gold plated hand made laptops, or entire private islands for rent for discerning (and rich) Chinese tourists.
Luxury leather goods firm Coach Inc has a U.S.-focused campaign in Mandarin using popular Chinese social media app WeChat. The app, developed by Tencent Holdings Ltd , has 272 million users worldwide.
Coach tailors some of its U.S. products for Chinese shoppers, a spokeswoman said. Chinese are the fast-growing segment of the firm’s North American tourist sales, which make up a fifth of total sales in the region.
“This trend is going to continue because the Chinese are a lot more integrated in the global economy and really informed, especially about price,” said Bruno Lannes, Shanghai-based partner with Bain and lead author of the luxury market report.
“At the end of the day it comes to the same thing: shoppers will either travel or go online to buy abroad.”