Luxury brands might have forgotten that Wealthy Chinese shoppers also wanted a good service

Bottega Veneta store ChinaKering, the French luxury group, is adapting its sales approach to better cater for increasingly sophisticated Chinese customers, according to group managing director Jean-François Palus.
“We’ve changed the way we conduct our business in China and the way we address Chinese clients when they’re abroad,” said Mr Palus at the Financial Times luxury conference in Lisbon on Tuesday.
“We learnt that a very serious risk is to become complacent, to think that it’s an easy business, an easy customer base, easy to open stores with good products and then people will come in. That was true for a moment but Chinese customers have become sophisticated and highly demanding and we need to adapt.”
Chinese consumers account for more than 30 per cent of global luxury consumption, according to consultant Bain, which is forecast to increase to 35 per cent by 2020.
How much of global luxury consumption Chinese consumers account for, according to Bain, a figured set to rise to 35% by 2020
In the past, luxury houses relied on rapidly opening up stores in China to fuel growth amid rampant Asian demand for their products, but this approach has been undermined by an economic slowdown in China.
In the final quarter of last year, Chinese consumers showed signs of returning, although notably shopping more in mainland China, while tourism in Europe has slowed in part owing to recent terrorist attacks.
In China, Kering is retraining shop assistants and replacing email communication with WeChat, China’s most popular social media platform with more than 800m daily users.
Mr Palus said: “The way the Chinese treat very important clients is different — they have a very candid approach to wealth.”
He pointed to a recent visit to a Gucci store in Beijing where the store manager told him he had hired the daughter of a billionaire to work with clients in the shop “because to talk to wealthy people in China, you need to be wealthy”. He added that bad feng shui in a shop can hurt client traffic.
According to Pierre Gervois, the New York Based Founder and Publisher of the STC magazine, a luxury travel publication for High Net Worth Chinese global travelers “HNWI Chinese clearly signaled about  five years ago that they wanted to purchase luxury goods outside China, to enjoy the full experience of the iconic flagship stores in London, Paris or New York”
“This new trend has not been immediately recognized by luxury conglomerates such as LVMH and Kering, that led to an inflation of store openings in China in the years 2010/2015, with little customer traffic, insufficient staff training, and in some cases damaging consequences in terms of brand image.”, Mr Gervois added.
Kering posted a 31.2 per cent rise in revenues to €3.57bn in the first three months of 2017, lifted by a 34 per cent jump in sales from luxury activities.
Among its brands, Gucci led the way, posting record revenue growth of 51.4 per cent for the three months — the latest sign of improvement under creative director Alessandro Michele. Other Kering brands such as Brioni and Bottega Veneta were doing less well than the likes of Saint Laurent.
Mr Palus said: “The market has become more difficult and the pace of growth has slowed down. In this environment you need to take market share from the competition.”
Kering was not looking at acquisitions, added Mr Palus. “We have so much on our plate with helping our existing brands tap their potential . . . we don’t have enough time to think about M&A.”
He said that Kering was also still adapting to digital platforms. “We need to open ourselves to what’s happening in other industries and other countries. Our industry needs to become less product-centric and become more customer-centric.”

Source: The Financial Times / Chinese Tourists Blog


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.

Travel Retail Ready for Chinese Shoppers

Chinese shoppers - Luxury Hotels of AmericaLuxury brands are stepping up the battle for travelling shoppers with more outlets at airports and on cruise ships, tapping into one of the fastest growing sections of the market that looks set to keep booming thanks to soaring numbers of Asian tourists.

Revenues from travel retail, which also includes sales on airplanes, rose 9.4 percent in 2012 to $55.8 billion, according to a market study by Generation Research.

It should reach $60 billion this year and nearly double in size by 2020, the study forecast.

“This channel is becoming very important,” Bruno Pavlovsky, chairman of Chanel’s fashion business, said. “Customers are spending time in airports where the environment has become increasingly sophisticated.”

The French luxury brand, the world’s second-biggest behind Louis Vuitton by sales, has boutiques in four Asian airports and one at London’s Heathrow, and next year will open a boutique in Paris Roissy Charles de Gaulle airport and another in Dubai.

Kering’s Gucci, which like mega-brand rival Louis Vuitton has suffered a slowdown in the past two years partly due to emerging market shoppers’ growing preference for logo-free products, has opened boutiques in the same locations recently.

Tourism spending is up 12 percent worldwide since January while spending by Chinese tourists in Europe is up closer to 20 percent, according to data from tax-refund company Global Blue.

According to Pierre Gervois, CEO of China Elite Focus Magazines LLC, the publishing company owning the Shanghai Travelers’ Club magazine “Chinese shoppers want to differentiate from regular shoppers in Mainland China who can’t afford to travel. Buying luxury good overseas shows that you belong to the community of affluent consumers who can buy in Paris, London or New York – and not in a Beijing store with a generally bad customer service and the fear of having counterfeit goods, even in official flagship stores”

Chinese tourists, who barely featured in luxury brands’ customer statistics a little over a decade ago, now make up 29 percent of global luxury spending, consultancy Bain & Co said in a report published this week.

That trend is set to continue, with Boston Consulting Group (BCG) forecasting nearly half of all air traffic in the medium term will come from the Asia Pacific versus 37 percent now.

Though most luxury brands raised prices, particularly in the euro zone and in Japan, to make up for currency moves, Bain estimates that over two thirds of luxury spending by mainland Chinese was made overseas in 2013, due partly to local duties.

According to Renaissance Capital, Europe remains the cheapest market for handbags with price 9 percent below those in Hong Kong and 28 percent below mainland China, while the yen’s weakness has played in favor of luxury shoppers in Japan.

BCG expects the Chinese travel market will grow at a compound annual rate of about 11 percent from 2012 to 2030.

Chinese urban travelers took about 500 million domestic and outbound trips in 2012, spending about $260 billion, and it expects those numbers to increase to 1.7 billion trips and $1.8 trillion in spending by 2030.

Hermes, which has 50 boutiques in airports around the world, is turning these into proper free-standing shops to better tap the booming market.

“This channel affects customers that are more interested in luxury than the average,” said Patrick Albaladejo, deputy managing director of Hermes, adding that travel retail represented a “significant” portion of the brand’s total sales.

L’Oreal, the world’s biggest cosmetics group and maker of Lancome creams and Yves Saint Laurent lipstick, created a division last month dedicated to travel retail, which it described as a “sixth continent.”

Sales from travel retail generate 15 percent of total revenues at L’Oreal’s luxury division and 12 percent for rival Guerlain, the perfume and cosmetics brand owned by LVMH.

Perfume and cosmetics represent the biggest product category for travel retail with 28 percent of the market, according to Generation Research, ahead of wines and spirits with an 18 percent market share, fashion and accessories with 13.5 percent and watches and jewelry with 12.2 percent.

LVMH, which owns Louis Vuitton, is planning to launch in 2016 a new retail concept called Galleria, specially designed for travel luxury shoppers, first in Venice and then perhaps in Paris, in the former Samaritaine retail building which is due to be converted into a five-star hotel.

Sales from LVMH’s travel retail network, which includes duty-free shop chain DFS and Sephora cosmetics shops, another popular tourist destination, saw like-for-like growth of 19 percent in the nine months to September 30. The boost included contributions from LVMH’s new DFS concessions in Hong Kong.

By comparison, sales from LVMH’s fashion and leather goods, the bulk of which come from Louis Vuitton, rose by only 4 percent during the period.

Are “Luxury shopping tours” the future of luxury retail in China?

Chinese customers seem to have (relatively) deserted luxury flagship stores in Shanghai, but they are at the same time rushing into the same flagship stores in Paris, London, or New York. Is that a new trend? Who will be the winner?  Luxury industry or Travel industry?

We would like to thank all contributors for their participation to this collective article. This discussion has been started on May 17, 2010, and ended on June 4, 2010, on the professional blog “Luxury Society”.

Pierre Gervois Living in Shanghai I can see nearly every month a new flagship store bigger than the previous shops for brands such as Cartier, Louis Vuitton, Piaget, Chanel…
The problem is these shops are nearly empty. Between my home and my office, I can see directly a dozen of these flagship stores every day when I’m in the taxi. And I rarely see a Chinese customer inside… Most of the time, I can witness the staff looked really bored in these luxury, empty shops.
Obviously, the big groups (Richemont, LVMH, PPR…) have seen too big. The demand is very far to be what they have expected, probably based on false statistics on the consumption capacity of the Chinese consumers.
What is your opinion, specially if you live in China ?

Timothee Semelin Actually, I would say I was thinking the same thing a couple of years ago about the Beijing flasgship store scene. 
Then after I get to know more and more people in the luxury retail and working directly with some brands, what we can say is that the huge amount of money those brands make are not coming from the outstanding number of clients they have but more on the few BIG clients that they have .
On a one shot shopping that could spend hunderd of thousands of RMB and thus, those shops do not need many clients for now.
Plus those BIG clients may spend their time in the VIP area of the shops that you won’t see from outside the shop and I am not talking about the private sales… A flagship store is not always the key shopping place.
The question is how long this will last, because the BIG clients will have more and more brands to choose from and at some point, brands will also need more casual shopping people. when will they reach their turning point?
You should read this:

Pierre Gervois Many thanks for your very interesting comment. Yes, there are some private and discreet sales, but not that many. The biggest Chinese spenders will go directly to Paris, Geneva of NYC to buy the most expensive pieces. This is actually a big isue for luxury brands. They have not anticipated that Chinese consumers wuld travel abroad so easily for luxury shopping. 
In my opinion, the future of luxury retail for Chinese consumers is in “Luxury shopping travel”…

Timothy Coghlan Another two reasons for the big (albeit empty) flagship stores are as follows:
Prime real estate for luxury stores is running out fast in Shanghai, as it is in Beijing and already has run out in Hong Kong. Therefore brands are snatching up locations now before they run out even if it means operating at a loss for a few years.
The other reason is that they are simply acting as a ‘flagship’ that looks big and very pretty and gets noticed and lots of press. In this case the stores are more for show and prime streetside advertising space than as a revenue earner. Its essential for the brands to have presence in the big cities, but they often make most of their revenue from 2nd and 3rd tier cities, where the consumers are wealthy but not so sophisticated and prone to overseas travel.

Mireille Weber I have noticed that in Shanghai : luxury stores in beautiful malls , always empty, and staff yawning all day long.It is the other way round in Hong Kong!  We also know that the leases are quite expensive : between 150 000 and 180 000 RMB. per month if not more…. 
I guess it is part of the luxury brand’s strategy, they all have to be in Shanghai nowadays for obvious reasons. I do not agree with you : the demand is there, but most of the Chinese fly to Hong Kong to buy those items ( I am talking about luxury perfumes, my field), 
the import taxes in mainland China are too high + in Hong Kong, they are pretty sure to buy the real thing.

Ahn’na Hargrove Just finished our most triumphant supercar show in Monaco. We had partnership with The Hurun Report who brought one of their listed clients. He said that they preferred luxury travel and are the number 1 spenders in Paris at the great luxury stores. Buying in China for the richest doesn’t provide the international clout they have when travelling abroad.
Everyone at the show loved them and sought them. They loved the publicity and the cameras on them as they shot from one supercar to the next. It’s about time!

Felice Jiang I would agree that luxury travel is a major reason why those storefronts may be empty, and that it is not an issue with demand. We’ve covered outbound Chinese tourists extensively, with most predictions showing that they will be on the rise. As much as 75% of Chinese Businessmen are planning to travel even more this year. 
We also reported recently about the results of a survey, that 50% of luxury purchases were intended as gifts, likely a result of the loosening of travel restrictions and an increase in “shopping tourism.”
For the complete article:

Emilyn Lee Having store front = brand visibility and presence.
Brands that want to make an impact, giving an impression of having strong fundamentals and brand heritage, often go with a large store presence in key locations.
Besides, out of sight = out of mind.

Pierre Gervois Thank you for all these very interesting comments and analysis. Luxury travel is maybe the future of luxury retail for wealthy Chinese consumers…

Timothy Coghlan There is another reason I forgot to mention which is the malls will agree to a percentage of revenue (usually 5% or less) only as rental fee. For the top 10 or so luxury brands, developers will also pay 3000-4000 Euros per square metre fit out fee for the stores. Therefore the the top luxury brands get the store built for them and only have to pay a percentage of what they make.

Amalia Agathou What a great thread! Thanks everyone for the insights, I find the Asian market fascinating!

Jerome Mackay Yes, a great thread indeed! 
I must add that hearing about all these huge flagship stores does put off smaller brands who somehow get the impression that these big empty shops are the only way to do business in China and that it’s extremely costly. 
Surely there must be some smaller and successful operations too?

Alexandre Niepce Yes what an interesting subject and constructive insights! 
Living in Shanghai too for two months now, my point of view is that biggest Luxury Brands may have entered the game to easily and have omitted to elaborate a deep strategy to reach a maximum of customers. The Chinese market is much more complex than it first seems and even if the potential is there, huge and customers ready to buy, some key elements have to be taken into account: time, trust, culture understanding… Chinese market is also not waiting for us to undertake it but already shows signs of self development.

Pierre Gervois Yes, Alexandre, you have perfectly understood the core issue : Culture understanding. Major Foreign luxury brands have still a lot to do…