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Nov
2014

Market and Business Review Nevember 2014

China accounted for 47% of all global luxury goods consumption in 2013

According to a report produced by the Fortune Character Institute, China’s per capita luxury consumption outside of the mainland reached € 1,508 in 2013, making it the world’s highest being 3 to 5 times greater than that of European citizens. Last year, the Chinese bought 47% of all global luxury goods, with an estimated value of approximately US$102 Billion. However only US$ 28 Billion was consumed within Mainland China meaning that 72% of their luxury goods purchases were made overseas.

The top three shopping destinations were Hong Kong and Macau (30%), Europe (22%) and the USA (21%) in which consumption increased 7% compared to 2012, whereas Europe only increased 6%. Due to the higher prices in Mainland China and the increasing number of people traveling to Europe and the USA, luxury consumption in country actually decreased by 2%, and Hong Kong and Macau also decreased by 14%. The report predicted that Chinese would continue to prefer to purchase luxury goods overseas throughout 2014.

The 2014 figures are expected to deliver the first negative growth since 2000

According to a joint Bain and Fondazione Altagamma report ‘Global luxury market survey’ published on 15th October, the luxury market size for China this year is estimated to be€15 Billion (about 117.8 Billion RMB), a decline of 2% compared to 2013. As a result, this will be the first negative growth since the survey started in 2000.

However this decline may be a silver lining allowing luxury brands to get a clearer understanding of who the real luxury consumers are and greater insight into their behaviour. The exuberant impulse consumption era is gone, as the luxury gifting market has been restricted by government policy. Other than the anti-corruption action, the other reason for the market decline is the greater numbers of Chinese consumers that have started buying overseas for more reasonable prices, and some have also become mature and started trading down. Luxury brands that have taken top positions in the market for the past few years such as LV, Dior and Prada are no longer passé, consumers also looking for Michael Kors, Kate Spade and other designer brands with more individual personalities.

A Golden Week 2014 overseas traveler survey

Taking one’s holiday during the prescribed national holiday periods is the norm, so the 7 days of the Golden Week holiday is no doubt a good time to travel and purchase luxury goods overseas for the middle and upper classes. One of China’s biggest comprehensive portal websites Netease (NASDAQ: NTES) held a Golden Week survey online and 40,310 overseas travellers responded. The following are some of the findings:

Japan & Korea benefit the most

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Among the repondents

  • Females preferred to go to Japan & Korea and Oceania
  • Men preferred to go to Japan & Korea and Southeast Asia
  • Those from northern of China preferred to go to Japan & Korea and Oceania
  • People from southern would rather go to Japan & Korea and Southeast Asia
  • High-income families preferred to go to Japan & Korea, Africa and Europe
  • Middle and low-income families preferred to go to Japan & Korea and Southeast Asia

According the survey, Japan & Korea accounted for 59.57% of respondents becoming the absolute winner and attraction for Chinese overseas travelers during the 2014 golden week. In Japanese and South Korean media reports, retail performance jumped because of Chinese tourists during this time. The ‘Korea Economic Daily’ claimed that the sales value of the Lotte and New World Department Stores soared 87.2% and 67.6% respectively compared to 2013.

On Jeju Island a real favourite with Chinese tourists, Union Pay card volume increased three times. Over 160,000 Chinese tourists visited South Korea during the holiday, a 35% increase compared to last year which was 118,000.

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£500 Million spend in the UK

Although only 3.73% of interviewees in the survey went to Europe, the British media claimed that Chinese tourists spent £500 Million over the Golden Week holiday. It appears that after the recent visa relaxation policy was introduced, the country became a more attractive tourism and shopping destination. To capitalize on the opportunity, many big malls in London launched a level of Chinese service and Union Pay card discount.

70% of overseas travelers spent most of their budget on luxury

Of the 40,310 respondents who traveled overseas, 70% claimed that they had spent most of their budget (other than their flight tickets) on luxury. Some interviewees mentioned that buying luxury goods abroad could save money, and that sometimes the saving may even offset the transportation, accommodation and other trip expenditure. ‘Buying more is saving more’ is the psychology that drives many people to go on a shopping spree overseas.

The majority still have deep connection to the major brands

Given the established status of brands such as LV, Gucci and Chanel, its not surprising that they still top the ‘most wanted’ list of the traveling Chinese. What the survey wasn’t able to identify is the brands that are now being sought out by the more knowledgable and more experienced travellers. What would be interesting to know is that out of those who travelled to the US and Europe, which brands did they specifically search for? Our view is that the ‘other’ category below was likely to have been made up of the 4% who travelled the greatest distance.

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