An HSBC report on the behavior of Chinese shoppers revealed that they make more than half their luxury purchases outside of China.
The ‘Red Bull' September 2012 report attributed this to the cheaper prices of luxury goods overseas, easier travel for Chinese nationals and the cachet of purchasing items abroad. The study added that trend of the Chinese going overseas on shopping sprees entails risks for luxury purveyors.
In addition, the behavior of Chinese shoppers is evolving faster than expected and Chinese consumers are now "more sophisticated and discriminating", according to the report, which said Chinese luxury consumers have become better informed. The Chinese consumer today is moving away from logo products and looking to purchase differentiated product designs to show that "they are in the know" about fashion.
While luxury labels have enjoyed success in China over the past few years, the evolution of the shopping patterns of the Chinese suggests that the ride may not be as smooth going forward.
One of the reasons is that corporate gifting, a major driver of luxury demand in China, is being clamped down by the government in view of a widening wealth divide in the country, thus cutting back on demand. Another is the high import duties and consumption taxes on all imported luxury brands resulting in prices up to 70 percent higher than in Europe, a rule that is unlikely to change any time soon. In 2011, a survey conducted by the Ministry of Commerce (MOFCOM) revealed that the prices of 20 luxury brands over five categories, (watches, leather goods, apparel, liquor and electronic products) were found to be about 45 percent, 51 percent and 72 percent higher than those sold in Hong Kong, the US and France respectively.
The dominance of first-movers in the luxury business such as Louis Vuitton and their rapid store expansion can no longer be a guarantee for success, added the report.
It is not all gloom on the horizons however as the report quashes fears that China might turn out to be the next Japan. China's luxury market is not anywhere close to being mature and the country remains a promising market where luxury brands are "recruiting customers rather than serving repeat ones."
The research findings also revealed the growing importance of the China luxury market. In a span of three years, Chinese consumers have expanded their share of the luxury market from 10 percent to 25 percent of the sector's total revenues.
EW
