Luxury foreign products make inroads (China Daily) Updated: 2004-11-14 23:40
For Beijing, November is a time when a hundred brands are blossoming --a
hundred bright-coloured luxury brands.
The downtown Oriental Plaza, a place visited by 200,000 customers daily
during weekends, opened its new shopping arcade to showcase the world's high-end
consumer items.
Just a week after that, an international jewelry show is being staged, where
foreign merchants are for the first time allowed to directly cut wholesale and
retail deals with their Chinese counterparts. The show only changed its name to
"international" in 2003.
Not just Beijing, in Shanghai, as the official Xinhua News Agency reported,
the world's third largest Christian Dior centre opened around the same time.
Third only in time sequence -- after similar outlets were opened in Paris and
then Tokyo.
Prior to its upgrading, the Shanghai Dior centre was already generating 11
million yuan (US$1.3 million) in annual sales. And the management reportedly
hopes to raise the figure to over 15 million yuan (US$1.8 million).
Not very far and not long ago, LV, Giorgio Armani, E. Zegna all opened their
trendy flagship stores in China.
Not just Beijing and Shanghai, but the entire Chinese mainland is being
targeted. Chinese cities are being bombarded by the world's most expensive
brands, from fashion to jewelry to cars.
The world's most rapidly growing advertising industry --China's -- is
bringing more and more international brands into the urban young people's daily
language.
Yet this only begins the sowing season for the brand owners and their local
marketing managers. Will they get a large harvest -- not just in one or two
cities -- for all the money and enthusiasm they have poured into China? When
will China, in its luxury spending, overtake one consumer power after another in
the world, just as it did in general trade?
Number crunching game
A harvest of revenues will surely require more efforts than having the PR
managers get the shop-opening news covered by the Chinese media, from the
official newspapers all the way to Beijing Tatler, Chinese Elle, and up to 40
other fashion and lifestyle magazines to cater to a readership thirsty for
whatever consumer concepts from the West.
But how big is the readership? And how many of the readers of such glossy
pictorials can really afford the items they fancy? And how many more people are
there who can be persuaded into reforming their old way of life?
Because China was a planned economy some 20 years ago, when even food items
were rationed, it has not accumulated very comprehensive and consistent consumer
surveys. There have been some surveys in recent years, mainly by the urban
survey department of the National Statistics Bureau (NSB). But these surveys are
tailored for macro-economic decision-making and are usually too broad to reflect
much of sectoral significance.
A recent NSB survey shows that urban households making 200,000 yuan
(US$24,096) to over 1 million yuan (US$120,000) per year make up 22 per cent of
the nation's entire urban population.
However, to complicate the issue, many Chinese, especially those who make
more than others, have multiple sources of income.
According to a recent Merrill Lynch and Capgemini World Wealth Report, widely
quoted by the Chinese press, there is already a layer of "high-net-worth
individuals" (HNWI) in Chinese society, and their number has been growing faster
than many other places in the world.
"In particular," according to James Gorman, president of Merrill Lynch's
global private client group, "wealthy investors in the United States, China and
India were able to capitalize on these trends despite a great deal of
geopolitical uncertainty."
The total global wealth of HNWIs climbed 7.7 per cent to US$28.8 trillion in
the survey, while India's growth was 22 per cent growth, and China's 12 per
cent, as compared with more modest increases in the Middle East and Latin
America.
The Chinese Internet services recently also quoted a Morgan Stanley analyst
as saying that the actual number of individuals who can afford some luxury
spending is around 1 per cent of the mainland population, or around 13 million
-- although the figure could quickly rise to 100 million.
These are just the broad figures. As for the rich people who really want to
buy luxury items all the time, the number is understandably much smaller.
According to Yue Zheng, a Shanghai-based consumer analysis, their size is about
100,000 people in Shanghai, and China's total luxury spending is about US$2
billion -- despite its admittedly fantastic growth.
A bad example
Just like everything in China, too much of a progress can look unsteady, if
not truly dangerous. Too much enthusiasm, once seen as a single-minded chase of
the rich and powerful, may at times appear arrogant and distasteful, and cause
misgivings.
In fact, like consumer societies everywhere in the world, there are plenty
people who don't like big companies and big brands. Not every Chinese has an
equal amount of sense of vanity.
Good marketing methods (including PR) that make sense to the local culture
are always more valuable than the sales a company can generate for a short
period.
One-sided promotion is a typical case in the point. Just last week, as many
mainland media reported, some people from a presumably semi-official China
Association of Branding Strategy claimed that the nation's number of luxury
consumers has swelled to a spectacular 160 million.
The size of this group is going to grow further to 250 million in 2010, they
added.
But what did they mean by luxury consumers? Those who have some money to buy
one or two pieces of luxury goods in their life? Or those who are addicted to
lavishing lifestyle? Those who can afford any little thing carrying an
international brand? Or those who can afford a BMW? The officials didn't seem to
give a definition.
They just said the 250 million big spenders in 2010 would be making 20,000
yuan (US$2,410) to 50,000 yuan (US$6,024) per month. Nor did they bother to
clarify whether these figures are for per capita income or per household income.
But whether in per capita income or household income, these figures don't
have support from any other sources, whether official data or any respected
overseas researchers.
Small wonder that the official People's Daily found the CABS figures
annoying. One of its commentators called it a foreign luxury merchants'
downright conspiracy, alleging that such propaganda was used by those merchants
to make Chinese consumers spend more on their goods, while many people in this
country actually cannot make even 2,000 yuan (US$240.96) to 5,000 yuan
(US$602.41) per month, and some not even 200 yuan (US$24.10) to 500 yuan
(US$60.24).
Having disputed the reliability of the figures, the commentator went on by
arguing that buying luxury goods is an indication of a "mistaken view of life,"
urging his readers to stick to China's time-honoured virtue of frugality.
It is easy to see that too many of this sort of things may lead to the
politicizing of business, and ruin the whole game. But as to how to prevent them
from happening from time to time, and how to avoid the unhealthy impact it may
cause, it would call for a lot of careful studies of what marketing methods can
really be withstood within this particular society.
However, despite the call by the People's Daily commentator for going back to
the traditional frugality, there is no question that increasing RMB is indeed
being spent on brands and goods that Chinese citizens had hardly seen and heard
of merely a decade ago.
Some of the early sowers are already seeing their seeds budding, not just in
Beijing and Shanghai, but in many other cities. They can say the nation is
riding on a great leap forward in its imports of French perfume, Swiss watches,
Italian fashion, and foreign car.
If Chinese mainland and Hong Kong are combined, the sales of Swiss watches in
China have reportedly already exceeded those from Japan.
The Rolls Royce representative in Shanghai claimed his confidence in meeting
the company's 2004 sales target of 50 units in China.
In some cities, there is even a shortage of staff in the sales and service
related to luxury goods. Hangzhou, for example, is reportedly having a
difficulty staffing its jewelry retail business.
And apparently, from the near frantic growth in the sales of luxury goods in
China, the central government is not seeing a dangerous mistaken view of life.
The rumour that floated in the early months of the year, that spending on
luxury items would be taxed, has not become a reality, after the denial by an
official to the official Xinhua News Agency in June.
Beginning as of January 2005, China will lower its tariffs on diamond
imports. And that is expected to give another boost to the awakening consumer
interests in luxury items in the Chinese mainland.
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