The Chinese way of searching for luxury
The prime benificiaries of China’s growing wealth have been the brands of the luxury goods sector, a trend that looks set to continue
If in delivering the client experience, technology brands are the global stand out benchmark for the three themes of high net worth (HNW) quality – innovation, accountability and energy – then in China their place is likely to be taken by their luxury peers.
Today, and in the future, there is probably no other market where the nexus between rapid wealth creation and the success factor of luxury brand spending is better caricatured than China.
Hong Kong-based brokerage and investment firm CLSA has looked into this crossover between wealth and luxury spending in a new report –Dipped in Gold: Luxury lifestyles in China and Hong Kong.
The scale of the market is huge. For luxury brands and any other sector looking at this market the numbers and their future potential are a growing attraction. In 2010 China had 72 billionaires (Forbes), 477,000 HNWs (Cap Gemini), up 31 per cent on 2009, and the Chinese stockmarket capitalisation soared more than 100 per cent.
This has fuelled spending and, as the CLSA report points out, the prime beneficiaries of this have been the brands of the luxury goods sector. In fact, luxury sales in Greater China already represent 10 per cent of the global market which means the Chinese are punching about 250 per cent above their wealth weight.
However, when including the huge level of sales to Chinese tourists buying abroad, Greater Chinese consumers account for 15 per cent of global sales.
CLSA predicts that the luxury sector will also be the fastest growing consumer category in China through the next five years. By then, Greater Chinese customers will account for 44 per cent of global luxury sales and 50 per cent of sales growth. Regardless of whether the Chinese are by that point the world’s wealthiest country, their thirst for luxury will drive a huge sales boom for the sector.
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So what is it about luxury brands that the Chinese love? The lead factor is quality – the Chinese believe luxury and expense equals quality and will pay a premium for it. They also believe it shows off success.
After looking across their research, CLSA goes on to cite its “Red Eight”, the factors that distinguish Chinese HNWs luxury preferences from their global peers (see table).
We will not question or focus on the assumptions of CLSA, fascinating as they are. What we are interested in is the knowledge and its relevance to our own lead story from Scorpio’s Futurewealth initiative. The two works focus on understanding the customer, more or less, and both reveal those brands which match their appeal with the buying habits of Chinese HNW individuals are the most likely to succeed.
Interestingly, the CLSA report does not mention financial services as a part of consumer spending patterns. Looking forward, we would press them to do so.
Stephen Wall is a director at wealth management strategy think-tank Scorpio Partnership
