The rise of the high-net-worth consumer in China has been a boon for luxury firms all over the world. But at home, perhaps not so much. Domestic Chinese luxury brands find it tough going to win Chinese HNW customers, although that may be poised for change.
Luxury brands from Europe and the U.S. have been expanding into China, with mixed results—occasional failures to understand the Chinese HNW consumer have resulted in some faux pas, such as one by Swiss watchmaker Longines detailed in a McKinsey report.
When the company first sought business in China, it launched a brasher product line specifically aimed at the Chinese HNW shopper that was unique to China. However, the fact that the specially designed product line was so different from Longines products sold elsewhere in the world aroused Chinese HNW consumer suspicion instead of desire, and the products failed. Once Longines changed its approach and instead focused on marketing classic elegance, its products became popular.
Chinese HNW consumers do much of their shopping while traveling. A recent KPMG report, Global Reach of China Luxury, reported that 71% of mainland Chinese respondents engaged in overseas travel in 2012; in 2008 only 53% did so. And 72% of those said they used overseas trips to purchase luxury items such as watches, handbags, and cosmetics. They also browse the Internet to research luxury brands; armed with specifics, they hit the shops when abroad, and bring home all sorts of luxury goods.
The traveling shopper has become so iconic, and the slowdown in Chinese luxury spending so marked, that many foreign luxury companies that built up a presence on the mainland have resorted to casino-style junkets for wealthy shoppers, organizing trips to Hong Kong to tempt buyers unmoved by the higher prices in mainland shops.
High-end brands host private events for their wealthy clients in Shanghai or Beijing, much as casinos do for their high rollers; the HNW shopping clients use the event to put down a deposit on goods that they then pick up, at a lower price than on the mainland, after they’ve been flown to Hong Kong by the brand. Swiss luxury watch brand Piaget has hosted two such all-inclusive trips per year for a group of 50 well-heeled clients, but this year plans to do more.
That doesn’t mean the brands are abandoning their presence on the mainland; they keep them as a way to woo purchasers to consider their wares.
Meanwhile, Chinese luxury brands have had slow going at home. The HNW on the mainland have more respect for old European brands, for their traditions and quality, and have not been enamored of companies at home. According to David Friedman, president of WealthX. “The Chinese luxury palate and appetite is on an evolutionary growth spectrum. They are learning about luxury, and so their tastes are evolving based on education around brands and quality,” he said.