Tag Archives: retailing

China’s Changing Consumers

McKinsey, the international management consultancy, says three findings stand out from its latest annual survey of China’s consumers:

  • Even in the face of rising inflation, Chinese consumers are more confident this year than in 2010 about their financial prospects. Note, though, that the survey field work was done between February and April when inflation was not seen as being as persistent as it has turned out to be and confidence in the global economy not affecting China’s growth greatly was still strong.
  • Among urban consumers, the number of first-time buyers—a group that has been a major driver of category growth in China—is declining. Note, though, that in less mature niche categories and with several big-ticket items, first-time buyers remain important.
  • Brand awareness is rising, but there is little sign that brand loyalty is following suit. More and more consumers choose among a growing number of favorite brands, typically three to five in any category. Note, thus, that faith in brands does not necessarily translate to brand loyalty.

The good news for retailers is that consumers embrace thousands of new products, services and brands with ease. The less good news is that this ready acceptance can leave retailers breathless trying to keep up.

Leave a comment

Filed under Economy, Industry

China Said To Cut Luxe Tariffs To Boost Domestic Consumption

Here, if true, is a drop of bad news for luxury goods retailers in London, Paris and Hong Kong: China is planning to cut the taxes on high-end watches, shoes, clothes, bags, cosmetics and the like to encourage more domestic consumption, according to a report last week in the 21st Century Business Herald. (Update: Finance ministry officials have denied the report which was based on statements by Commerce ministry officials. That probably means the two ministries are still arguing over the details of how much the luxury tax and import duties will be trimmed, in what mix, on which products and how the change will be phased in. )

Duties of 65% on fine wines, 50% on cosmetics and 30% on watches have driven many wealthy Chinese to pick up such luxuries duty free on foreign shopping binges, a trend further encouraged by the spread of China Union Pay terminals abroad; Harrod’s department store in London now has 40, giving Chinese visitors ready access to their bank accounts back home. With a forecast 65 million tourists coming from China this year, up from 57.4 million last year, it is perhaps not surprising that Burberry’s says that Chinese account for half of its sales in London.

A Commerce ministry study found that prices of a sampling of 20 luxury goods were 51% higher in China than in the U.S. and 72% higher than in France, the most popular European destination for Chinese shoppers and where they spent an estimated 650 million euros ($1 billion) on duty free items in 2010, according to a survey by Global Blue, a tax-free-shopping group. The World Luxury Association, a trade organization, estimated that Chinese consumers bought a total of $10.7 billion worth of luxury goods (exceeding transport–planes, yachts, cars) in 2010 with four out of five of those dollars being spent outside China.

Even though China has lowered its average import tariffs to 9.8% from 15.3% since joining the World Trade Organization, it still has some of the world’s highest tariffs on luxury goods. The 21st Century Business Herald says that some import duties may be scrapped altogether, with the National Day holiday in October the target date for the change. (That assumes the commerce and finance ministries have resolved their trade balances vs tax revenues dispute by then; it will probably have to be refereed at State Council level.)

Most top international luxury goods retailers, including LVMH, Gucci and Hermes, have dozens of stores in China already to cash in on the fast growing ranks of China’s wealthy. Coach, a high-end U.S. leather accessories manufacturer, for example, has said it plans to increase its sales within China to $500 million from $100m within three years. Such foreign luxe retailers won’t necessarily lose sales overall because of tariff cuts; indeed they will continue to have the twin winds of growing Chinese international travel and rising wealth in their sales, but they could feel an inelegant pinch to their profit margins.

Leave a comment

Filed under Economy, Trade

Luxury Spreading Far and Wide

Chinese already spend one of every eight dollars spent on luxury goods worldwide–as the proliferation of international luxury brand retailers from Armani to Louis Vuitton operating in the country and their growing dependence on its business already bear tony testimony. By 2015, Chinese consumers will be spending at least one dollar in every five, according to newly published research by McKinsey, the international management consultancy. That adds up to sales of luxury watches, jewelry, handbags, shoes, and clothing of the order of 180 billion yuan ($27.5 billion), up from 80 billion last year.

Good news for the international luxury brands that Chinese consumers prefer? Up to a point. This broadening of their customers will move them out of their traditional niche of selling to the very rich. McKinsey reckons that there are 13 million Chinese households with incomes of 100,000-200,000 yuan ($15,000-30,000)–upper middle class in China and on the first rung of the ladder of luxury consumption–and that this number will increase nearly sixfold to 76 million by 2015. Their share of the Chinese luxury goods market is forecast to grow from 12% last year to 22% by 2015, making it the fast growing sector of the market.

Addressing their needs requires a different marketing approach to the high-touch, for which read expensive, way luxury-goods makers are used to dealing with their best-heeled customers. That implies better in-store services and digital experiences for their customers, and the development of products and services designed for the local market (as Hermes is doing with its Shang Xia brand), three factors that have not always been the strong suit of luxury companies, especially their online strategies; the broad spread of social media is a particular challenge to the exclusiveness of a luxury brand. The luxury companies’ market will also spread from the the first tier cities to the second and third, compounding the reach and brand dilution issues, though it will also remain concentrated in the main cities.

Luxury-goods manufactures will also find that growing familiarity with luxury goods will make Chinese consumers more value conscious. Brand retailers won’t be able to get away so easily with just slapping a high price on their goods. Luxury goods prices in China are about 20% higher than even in Hong Kong. On the flip side, the research shows that as consumers get more brand conscious, they value craftsmanship and quality more, and are becoming more aware, and rejecting of, counterfeits.

McKinsey also predicts that spending on luxury services, such as spas and other wellness activities, will grow faster than that on luxury goods, another shifting sand for luxury retailers. The elephant in the room, though, is whether China will generate its own luxury brands as the once similarly foreign-brand besotted Japan has done.

Leave a comment

Filed under Industry, Politics & Society

China Moves To Boost Rural Retailing

A ragbag of measures has been announced by the commerce ministry aimed at boosting domestic consumption, narrowing the income gap between city and countryside and sopping up unemployed returning migrant workers. These include encouraging small-scale retailing in rural areas and giving central government the right to overrule local administrations seeking to block cross-regional mergers.

The centerpiece of the proposals is the expansion of a two-year-old program of state-subsidized country stores, There are 260,000 of these already and the ministry says 250,000 more will be added over the next year. The announcement follows the nationwide expansion from the beginning of the month  of a pilot program to subsidize domestic appliances for rural households.

The new shops and their support services will create an estimated 775,000 jobs by 2010, the ministry reckons. While that will make only a slight dent in the 20 million returning migrant workers who have lost city jobs in recent months, every little helps.

Leave a comment

Filed under Economy, Politics & Society