Chinese wealthy consumers’ new trends

Luxury goods marketers in China received some good news last month. After the country’s annual policy planning meeting, Minister of Commerce Chen Deming announced that Beijing would soon reduce tariffs and cut red tape on luxury goods imports. The decisions are in line with other policies that will stimulate domestic consumption and, the government hopes, will chip away at the globally contentious trade surplus that China enjoys.

The Chinese market for luxury products has been booming recently. In 2010, sales across categories such as jewelry, leather goods, and upmarket ready-to-wear clothing rose by 20% to reach $12.4 billion. By 2015, luxury goods sales will touch $27 billion — around 20% of global sales — making China the world’s largest luxury market.

There’s enormous potential in China, but marketers still face stiff challenges. Luxury consumers, although they’re relative newbies, are becoming more discerning and demanding, and marketers will have to change in order to appeal to a more confident and sophisticated Chinese consumer. Here are four insights from a survey of 1,500 luxury consumers we recently conducted:

Quality counts. Better quality is the reason to buy luxury goods, said 50% of the consumers we surveyed — up from 36% in 2008. Quality and craftsmanship are the top two considerations when making purchase decisions about ready-to-wear clothing, leather goods, jewelry, and watches. Smart companies have already realized this. A few months ago, Hermes held an exclusive exhibition in Shanghai, dubbed Leather Forever, which included a live show of Hermes’ bag manufacturing process accompanied by displays of raw materials used. Louis Vuitton stores deploy specialists who educate Chinese shoppers about the company’s heritage and how it crafts leather goods by hand.

The real thing. China is a haven for low-priced knockoffs, but luxury consumers are shunning the fake stuff. Just 12% of consumers said they would purchase fake jewelry, down sharply from the 31% who confessed they would do so two years ago. Some told us they would be embarrassed if someone noticed they were carrying a fake while others said they derived satisfaction from knowing that things they bought had appreciated even if they couldn’t be resold. One lady, for instance, was delighted to see the Chanel handbag she bought in 2008 for RMB 25,900 ($3,700) sell for RMB 30,800 in 2010 ($4,500).

Subtlety is chic. A growing number of buyers are shunning overt displays of wealth in favor of subtle ones. Contrary to popular impression, more than half of China’s luxury shoppers say they want less showy fashion — up from 32% in 2008. In fact, 41%, compared with 45% in Japan and 27% in the U.S., say that showing off luxury goods suggests poor taste. A maker of luxury watches told us that it had shifted from selling only flashy diamond-encrusted watches in China to more classic designs as well.

Service matters. The importance of service has shot up from 17% in 2008 to 30% in 2010. Two out of three consumers said they were disappointed with the indifferent attitudes and poor service of salespeople in China. In addition to training staff to be more courteous and patient, luxury marketers should re-examine how they define roles and compensation. For example, Louis Vuitton doesn’t tie the compensation of in-store specialists to sales, thereby ensuring that they concentrate on their task of communicating the brand’s heritage to shoppers.

Max Magni is the head of McKinsey & Company’s consumer practice in Greater China, and Yuval Atsmon is a partner in the firm’s Shanghai office.