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119 2013 China Yacht Report 2013 China Watch Report 2013 China Fine Wine Report 2013 China Duty-Free Report 2013 China Second-hand Luxury Market Report 2013 Human Resources Report to China Luxury Industry
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Chairman of the Group CEO of the Group Publisher Editorial Board
Consultant Managing Editor Watch Editorial Director Wings Editorial Director Yacht Editorial Director The World of Fine Wine Editorial Director Education Editorial Director Art Director English Editors Editors
Coordinating Editor Design Director Designer Circulation
Sales PR Communication
2013 China Luxury Report
Luxury market continues to expand,
a 3% growth rate; consumption overseas will
in other words increasing the consumptions in
but consumption enters an era that
grow further to reach $74 billion. Together in
European regions. On the contrary, European
is more driven by cost-effectiveness.
2013 Chinese consume $102 billion worth of
buyers have diminishing interests in buying
luxury goods, equals to about RMB 600 billion.
luxury goods.
Chinese consumers spend over
It also means that Chinese purchased 47%
hundred billion dollars on luxury
of the world total luxury goods, becoming the
products annually, holding up more
undisputable world number one luxury goods
worth individuals, many Chinese consumers
than half of global luxury market.
consumer market.
had abandoned top line luxury brands, especially among those ultra-wealthy, the cohort
Differing from previous years, this time around,
Despite the evident fast growth of luxury
FCI’s 2013 China Luxury Report emphasized
market, there are lingering risks and hidden
to use “core consumer, marginal consumer
less on data, but made unprecedented
troubles concerning luxury brands and luxury
and potential consumer” to classify luxury
projections on developing trends in luxury
industry. FCI discovered that the major drivers
consumption groups. FCI projects that the trend
industry, painting a dim picture of global and
of luxury product growth were the growing
of high net worth individual consuming outside
Chinese luxury markets. Many controversial
body of consumers in emerging market and the
of China will intensify, and the increase of mid-
views had prompted heated debates within the industry.
class, marginal consumers will slow down. major luxury brands are putting a break on the
In the next three to five years, the escape of
speed of opening new branches, in 2013, the
core consumers will negatively impact the
The research by FCI showed that, in 2013,
average rate will still reach 9%. Essentially, the
consumption enthusiasm of marginal and
despite abundant pressures, the global luxury
increase in luxury good sales was derived from
market will reach a record-breaking $217 billion,
new shop openings in new markets, meanwhile,
a 11% annual growth rate. Chinese domestic
these branches became frontier marketing sites,
luxury consumption will surpass $28 billion at
attracting more traffic to the places of origin,
The Venn Diagram For Luxury Brand Consumers
luxury brands will witness a large-scale decline.
Counterfeit is the last force that heightens the degradation. For a long time, although counterfeit creates a major headache for most luxury brands, not enough efforts were devoted to fix it. However, based on FCI’s survey, the visibility of counterfeit has surpassed authentic made luxury brands very accessible to the mass; the demystification makes the products less appealing. FCI firstly proposed “Game Theory of Luxury Brand Value and Visibility of Luxury Product”, made bold projections that luxury brands led by Louis Vuitton, Gucci and Cartier, because the visibility of luxury goods had surpassed a reasonable threshold, the brand value will continue to decrease and
Graph a: The Venn Diagram for Luxury Brand Consumers
market potential will be further restricted.
Fortune Character Institute
Graph b: Game Theory of Luxury Brand Value and Visibility of Luxury Product
The trends for luxury brands to become more popularized and fashionable will continue to intensify, taboo over “cost-effectiveness” had been lifted and replaced by a refreshed embracement of costeffectiveness by luxury brands in marketing strategy. This new thinking will appear on more luxury opportunity for customized luxury industry. Experience-oriented and individual-eccentric products will receive favorable following, whereas logo-driven consumption will dip. FCI projects that by the end of 2013, there will be more than 4,000 customizable luxury brands. Chinese indigenous luxury brands will embark on a continuous growth. Those with the best potentials already start off with sizable markets and competitiveness. More Chinese companies and entrepreneurs become equity investors in foreign luxury brands or even conduct acquisition. NOW overseas, it is advisable to acquire raw material manufacturing companies, since this segment adds more value to the industry value chain. In the future, Chinese entrepreneurs will make a larger footprint in global luxury industry.
数据来源：财富品质研究院 《2013 中国奢侈品报告》
数据来源：财富品质研究院 ・《2013 中国奢侈品报告》
数据来源：财富品质研究院 ・《2013 中国奢侈品报告》
CHAPTER 1
2013
CHAPTER 2
2013
数据来源：财富品质研究院
数据来源：财富品质研究院
Layout_FortuneCharacter_Soprano_Tag DFS-ELEGANT_AP [Converted].pdf 1 05/11/2013 16:59:01
CHAPTER 3 数据来源：财富品质研究院
2013
CHAPTER 4
2013
CHAPTER 5
2013
CHAPTER 6
2013
数据来源：财富品质研究院 东浩人力资源
数据来源：财富品质研究院 东浩人力资源
数据来源：财富品质研究院 东浩人力资源
CHAPTER 1
数据来源：财富品质研究院 东浩人力资源
China Yacht Report 2013
A. Overview of China Yacht Market
PREFACE The China Yacht Report by The Fortune Character Institute is the first of its kind to illustrate the yacht appetite of high net worth Chinese individuals. It is the premier professional report done by a third party media group, which comprehensively analyses the accelerated growth of yacht business in China. The report also includes the “China Yacht Industry City-by-City Index” which offers an essential reference for organizations interested in understanding the yacht market potential in China. The China Yacht Report highlights the critical fact that the China yacht market is underdeveloped in spite of a striking growth rate. In 2012, the overall China yacht market was
1.Increasing Demands and Evident Future Growth Trend Import is a key measure of the growth of the
valued at RMB1.75 billion, of which RMB 0.78 billion was spent on luxury yachts. Italy
yacht industry. Over the years, China’s imported
and Great Britain are the dominant yacht-builders in the market.
yacht market has kept a trend of steady growth, from USD 3.7 million in 2001 to USD 236.37
Interview results with 341 wealthy Chinese revealed that yacht brand recognition is
million, a 63.9 times expansion within 12 years, achieving a 432.4% CAGR (Compound Annual
China yacht market therefore the position is up for grabs. Business use is currently
Growth Rate).
the predominant reason for purchase. This situation, however, is expected to change over the next few years. RMB 20 million is the benchmark price point for a yacht to be considered luxury-class. As far as size is concerned, the jumbo yacht is unarguably
These key drivers contribute to the dynamic growth: 1) real estate development – many
waterfront luxury houses base their value
Based on the Fortune Character Institute’s
proposition on yachts and services to yacht
study, the size of the overall China yacht market
owners; 2) elevated consumption appetite
has reached RMB1.75 billion, with luxury yachts
among wealthy Chinese, a progression from
accounting for RMB0.78 billion or 44.6%. The
luxury cars toward luxury yachts; 3) foreign
percentage is likely to grow and luxury models
yacht markets are fast approaching saturation,
will become the mainstream. Moving out of
thereby making China naturally become an
the economic downturn in 2012, the forecast
appealing destination for international yacht
for 2013 is a modest 20% growth, which
brands. After years of development, the Chinese
nevertheless equals a RMB1 billion market
yacht market is ready to step up its growth
value. From 2014 onward, the annual growth
trajectory and usher in a quantitative increase in
rate will be no less than 40%, reaching a RMB 4
the next decade.
Grounded in statistical evidence and unbiased analysis, the China Yacht Report presents an outlook for the development of the China yacht sector, projects an exponential growth in yacht service and elucidates the most lucrative investment opportunity in wharf/dock management. Such an assessment has already prompted investment zeal in the Chinese real estate community.
Graph 1-1 China Yacht Import Volume and Annual Growth Rate (2001-2012)
Graph 1-2 China Yacht Import Value and Annual Growth Rate (2001-2012)
2.Vigorous Demand for Luxury Models is the Market Trendsetter Against the backdrop of a global macroeconomic slowdown, 2012 recorded a decrease in yacht import quantity. Even so, trade value increased 47% and the unit price rallied to a historical high of USD 753,000 per unit. It illustrates a stable appetite for luxury yachts and reflects the low elasticity of yacht consumers, who are less likely to make purchase decisions based on the overall macro economy.
Graph1-3 The Unit Price of Chinese Imported Yacht (2001-2012)
3.Italy Captures the Largest Share of Luxury Yacht Market While UK Leads Chinese High-end Yacht Market By country of origin, Italy, UK and France are the major yacht exporters to China, among which Italy is the uncontestable market leader. Its export volume and value continued to rise in three consecutive years. Following closely is the UK, a quick mover since 2012 which recorded the highest unit price at USD$1.17 million. Some more advanced yacht manufacturers and service providers from USA, Canada and Australia have been focusing on middle to low end models, such in luxury yacht market and unit price.
Graph 1-6 China Yacht Industry City Development Index
4. China Yacht Industry City-by-City Index
Shandong, Fujian, Liaoning, Zhejiang and Guangdong, have promulgated industrial plans that will open up large water bodies, propel government spending on supporting facilities and yacht infrastructures resulting in a favourable investment environment. The positive correlation between the yacht and real estate industries motivates local governments to spare no effort in promoting the yacht industry. In the meanwhile, nation-wide yacht clubs and annual yacht expos provide platforms for yachting enthusiasts, further facilitating the development of the China yacht industry. Despite rapid growth the China yacht industry remains embryonic and on a relatively small industrial base, which leaves room for urban yacht market development, a key component of high-end service industry. In order to shed light on the reality and trends of the Chinese urban yacht market, the Fortune Character Institute established the following index to Graph 1-4 A Country Breakdown of Yacht Export Volumes to China (2010-2012)
Graph 1-5 A Country Breakdown of Yacht Export Value to China (2010-2012)
highlight development status and future potentials in key cities.
Shanghai:
Sanya:
The Largest Yacht City
The Fastest Growing Yacht
in China
Tourism Industry Base
Shanghai is the most developed yacht market
Sanya’s potential not only derives from its
with the highest number of yacht clubs in the
unique geographic location, i.e. unparalleled
mainland, where top international brands
ocean resources and climate, but also from
hurried to set up representative offices, such
its strong economic performance. Every year,
as AZIMUT and FERRETTI from Italy, and
the “Hainan Rendez-Vous” attracts over 20
SUNSEEKER from the UK. Shanghai has
international brands including the top five
abundant wharf resources and houses the most
to participate and showcase their newest
yacht docks. Every year the splendid Chinese
yacht models. Without a doubt, Sanya is best
International Yacht Expo delivers the highest
positioned to be the fastest growing industry
transaction volume. With such advantages,
base for yacht tourism in the coming years.
B. Wealthy Chinese’ Consumption Concept for Luxury Yacht
5.Luxury Yacht is Still by and Large a “Mysterious” High-end Product As a symbolic investment reflecting a higher consumption grade, most Chinese rich have no direct access to luxury yachts, especially those in land-locked regions with under-developed yacht infrastructure.
Shanghai is second to none as China’s largest yacht city.
Qingdao: Qingdao:
Dalian:
Xiamen:
A City City of of Strategic Strategic Importance Importance A for Yacht Yacht Industry Industry Development Development for
Domestic China Yacht Brands
Qingdao has a very bright future for services
Being a strategic port in the northern part of
Several leading yacht manufacturers are
affiliated with luxury products. Driver of
China, Dalian is the hometown to the majority
located in Xiamen, including Hansheng,
Shandong Peninsula’s economic development
of wealthy Chinese populations in the North
Tangrong, Xinxiang, Honglong and Feipeng.
and blessed with geographic advantages and
Eastern region, although it is also known for its
Their shared characteristics include large
oceanic resources, Qingdao is poised to be the
cold weather. A frontier city for consumer goods,
production volume, good brand awareness,
fastest growing yacht location. During the 11th
many luxury brands have recorded remarkable
and export-orientation. The output for 2007 was
The survey result revealed that 38% of Chinese wealthy populations do not have direct luxury yacht
Five Year Plan, Qingdao invested more than
sales records in this city. In line with other
RMB3.5 billion which marked a 60% increase
experience aside from informational exposure at yacht expos or from the media. 61% of them have
RMB30 billion in high-end tourism projects on
cities, and driven by real estate industry and
year-on-year. Yacht export in the same year
up to 4 times cruising experience on luxury yachts. Only 1% of the total have been on a luxury yacht
the sea, including 30 piers designed for yacht
tourism, the government’s endorsement has
was RMB24.23 million, a 78% growth year-on-
more than 5 times or own a luxury yacht themselves.
clubs with over 5,000 berths. According to
sealed the deal for the fast development of
year and accounts for 18% of the national total.
incomplete data, currently there are 50 yacht
yacht tourism. Thanks to the consumption
In the wake of yacht economic zones locally,
companies in Qingdao with total revenue of
habits of rich individuals from the North Eastern
Wuyuanwan, XIangshan and Dongkengwan,
RMB3 billion in 2009. 90% of the production in
region, Dalian is ideally suited as a location of
Xiamen appeal to be well-known to domestic
Most wealthy Chinese hold a high threshold price for luxury yachts. More than 63% believe that
Qingdao sells to Europe and North America,
yacht clubs.
Graph 1-7 Wealthy Chinese Yacht Experience
6.Wealthy Chinese Favour Expensive, Over-sized Luxury Yachts
and foreign yacht manufacturers, distributors
only yachts priced above RMB 20 million can be counted as luxury, whereas the other 22% put the
and this makes Qingdao the most important
and club managements. An accelerated phase
threshold price at RMB 50 million, and the remaining 15% agree on RMB 100 million. Obviously,
industrial hub for yacht industry.
of growth is anticipated as Xiamen becomes the
wealthy Chinese favour expensive, over-sized luxury yachts, making them a product with symbolic
incubator for domestic yacht brands.
value for its associated sophistication.
8.Wealthy Chinese Favour 2-5 Million RMB Luxury Yacht As far as price is concerned, 64% of wealthy Chinese picked the RMB 2-5 million price bracket, compared with 19% who went for the RMB 5-20 million range. 12% preferred the range of RMB 2 million and below, and 4% chose RMB 20 million and above. Only 1% went for RMB 100 million and above.
9.From Business to Personal Use Business and personal lives are inter-connected for wealthy Chinese. Most purchased luxury yachts, especially those which cost more than RMB 20 million, are used for business social purposes. Apart from showing social status of the owners, yachts provide business venues for Graph 1-8 Threshold Price for Luxury Yacht in the Hearts of Wealthy Chinese
7. 63% of Wealthy Chinese Showed Strong Willingness to Own Yachts in the Future The appetite for luxury yachts is genuine. When asked about purchasing intentions for luxury yachts, 63% responded positively. Some of the respondents live in land-locked cities and have no
private parties and river cruising experiences business occasions. The pattern is destined to change, in step with the wealthy Chinese’
Graph 1-11 Consumption Purpose of Luxury Yacht among wealthy Chinese
growing emphasis on an enjoyment-driven lifestyle.
access to yacht docks. To them, yachting is a symbol of a fashionable, modern lifestyle. There were still 28% that responded negatively, and the remaining 9% were unsure. The principal constraint to purchasing relates to docking and its associated high costs.
51% of interviewees would buy a yacht for a higher quality of life, whereas 36% would buy for business, and only 2% wanted to buy for investment reasons based on the fact that the majority of this group owns yacht real estate business or yacht clubs. Similar to cars, yachts can be considered as consumer goods with little or zero investment value or appreciation potential. The remaining 11% have no explicit purpose for buying yachts, which can be seen as copying the behavior of their rich peers.
Graph 1-12 Yacht Purchase Criteria among wealthy Chinese
Graph 1-9 Luxury Yacht Purchase Plan among Wealthy Chinese
Graph 1-10 Most Favoured Luxury Yacht Price Bracket among Wealthy Chinese
11.Very Limited Brand Awareness In the survey, Fortune Character Institute uncovered low brand awareness among wealthy Chinese who are embarking on their yacht education: only 1% can name more than 10 yacht brands, 5% can count 5, and 57% know of 1 to 5. The remaining 37% have zero yacht knowledge, which is typical for a mid-westerner. So international yacht brands have a long way to go in China, and it should be perceived as a golden market opportunity. Whichever brand gets their marketing right and therefore resonates in the hearts of wealthy Chinese, will quickly build up a brand advantage over
Graph 1-13 Yacht Brand Awareness among wealthy Chinese
12.Customization is a Rising Trend 10.Brand Consciousness Without sophisticated knowledge of the yacht industry, wealthy Chinese are neveretheless brand conscious. The Fortune Character Institute survey revealed that 45% of the wealthy are inclined to choose well-known brands. Meanwhile, some wealthy Chinese pay close attention to customer support services offered, particularly the one-stop style that save them from hassles in purchase and maintenance. Those service-sensitive buyers account for 31% of the total. In reality, most yacht clubs lack the technical talent required to provide support services and maintain the facility. This results in endless trouble for yacht owners, which to a great extend deters others from owning a yacht. Customization is another major criteria, 17% deem it important to add personalized features on their yachts. It explains why yacht orders from China always demand more customized features. Only 7% of wealthy Chinese make decisions based on price and other considerations.
Over the past decade, the China yacht market has matured and so have the customers. Although brand awareness is yet to be established, China yacht buyers are fond of customization that demonstrates individualism. 90% of purchase orders are submitted with customization items, especially top-end luxury yachts. Commonly seen is engraving a personal or company name on the yacht.
C. Yacht Marketing
1.Lack of Market Promotion Efforts
Many yacht brands are under the impression that good sales results will harbinger brand
2.Yacht Expo as the Predominant Promotion Measure
Fueled by strong market demand, international
awareness. As a matter of fact, volume cannot
yacht brands sell to China at a satisfactorily high
go up until a strong brand is established.
Attending yacht Expos is a widely-adopted
growth rate, therefore the inclination to adopt a
Hampered by this false perception, many yacht
practice for market promotion, eating up the
robust and proactive brand building strategy is
brands suffer from a loss of momentum.
majority of marketing budget. Any yacht brand doing business in China makes frequent
very low. Most brands currently only conduct sales in China.
3) Weak industrial base, talent deficit and
appearances at yacht expos; brands that
incomplete infrastructure support: All together it
haven’t yet entered China are also exhibitors
Generally speaking, it is a result of one or a
creates a bottleneck for the holistic development
at the shows. Correspondingly, yacht expos
combination of the following reasons:
of the yacht industry. Many brand managers
in China have become highly popular and
express concern about wasted marketing dollars
lucrative. There are more than 50 yacht-themed
1) Market uncertainty: Policies and regulations
in these circumstances. The situation, however
exhibitions in China each year, front and
interfere with the healthy development of
slowly, is improving.
centered by Shanghai International Yacht Expo
the China yacht market. High uncertainty
yacht industry insiders believe the golden era for
discourages international brands from putting
the China yacht market is dawning.
When surveyed, 75% of
Another standard practice is hosting yacht
money into marketing campaigns or related activities; 2) A relatively small market size: although
and Sanya Rendez-Vous.
In all, 58% of interviewees admitted an increase
events, commonly at a yacht marina or on
in marketing budget for 2013, 15% reported
a yacht. Some brands prefer to showcase
budget cutting plans and 27% were uncertain.
miniature models in an exhibition hall, those
growing exponentially, the limited sales volume
tend to be brands with some level of brand
cannot justify high marketing expenses.
recognition in the marketplace. Compared to more portable and displayable luxury products, yacht brands execute many fewer PR events. 57% of brands host or participate in more than 10 events per year, and the means of engagement is largely asset exchange or brand partnership, not so much monetary spending.
Graph1-15 Rate of PR Event for Yacht Brands in China
Graph 1-14 2013 Media Budget Projection for Yacht Brands in China
D. China Yacht Industry Trends 3.Misunderstanding in Market Promotion
1.Growing Popularity Will Create a Brilliant Market for Yacht Brands
Advertising is under-regarded. One contributing factor is the budget constraint for marketing activities, the other is the disproportionate rate of return on advertising money, given that yachts are
When the yacht industry picks up its growing
by nature a luxury, available only to a very wealthy few. Yacht brands would rather target potential
pace and reaches a certain size, it will go
clients directly via PR events.
through a de-mystifying phase where prices will start to drop sharply. The market will be
In fact, spending most of the marketing budget on PR events does not seem to be the cost-effective
mature enough to serve more buyers, whose
communication approach as it may take lots of time and effort for customers to make purchasing
purchasing decisions will be made to personal
decisions. Rarely is the case that a consumer would immediately make purchasing actions.
needs rather than business purposes. By then,
However, such PR events would be a lot more impactful if the brand had already built certain
luxury yachts will become more commonly
levels of awareness. Without pre-installed brand recognition, the effect of an event is similar to that
possessed by yacht owners.
of an advertisement, but with 10 times more costs, if not hundreds or thousands of times, more. Brand loyalty to luxury yacht brands is a lot the natural yet effective integration of advertising and PR events.
less than that to luxury car brands. Moreover, local Chinese brands take more advantage of
Another common mistake in marketing is the sole focus on professional media. With well-
local resources and are competing well with
established brand mapping in the industry, consumer perceptions around product quality, and brand
overseas brands.
value, the pricing propositions of various brands are all well set. Therefore, the professional media decisions. Based on such observation, The Fortune Character Institute encourages yacht brands to
2.Yacht Related Services Obtain Endless Business Opportunities
expand to luxury magazines that focus on wealthy lifestyle to bring subtle but more powerful impact to the target consumers.
The yacht market is an important part of the high-end service sector. It is closely associated with lifestyles such as high-end, luxury, private and tasteful. Alongside it is the spillover effect on supporting and related services. Yacht club
CHAPTER 2
memberships, in particular, will soon overtake golf club memberships thus providing the highest and most long-term investment value.
3.Marina/Dock Investment will Yield the Highest Return Yacht docks are currently holding back growth. Although China is rich in port resources, the current capacity by no means meets the strong demand for yacht marinas and docks. As a result, investing in marina/dock development will yield a higher return than in real estate.
China Watch Report 2013
A. Market Analysis of High-End Watches in China
of 2013, but did not achieve any further increase throughout the rest of the year. Concurrent with the growth in import volume, the average price for high-end watches was also ascending. In the recent 10 years, the average price jumped almost tenfold. In a way, it demonstrates that even though the Chinese high-end watch market was heatedly competitive, top brands still have a strong influence on market price. There is a huge demand for limited edition and customized products especially those from top brand ranges. However, the Graph 2-1 Annual Import Volume of Watches and the Growth Rate (2002-1st Quarter, 2013)
1.The Market Continuously Expands therefore the Sales Volume Bounces Back
Graph 2-3 the Average Price of Chinese Imported High-end Watches (2002-1st Quarter, 2013)
forecast indicates that the price increase of high-end watches will slow down, and fashion brands will become very competitive in the China watch market for its much lower price ranges and trendy designs.
Today, the watch industry in China is a RMB 40 Billion business, where high-end brands make up In 2012, the China high-end watch market experienced some RMB 3,000 and above. The rest of the market is shared by 10% of watches that are cheaper than
setbacks but it did not hinder fast global growth. Germany, UK,
RMB 1,000, and another 15% that are between RMB 1,000 to RMB 3,000. In general, high-end
Italy, United Arab Emirates, as major overseas watch markets for
watches dominate the China watch market.
Chinese consumers, had witnessed an equitably quick growth phase. The off-shoring of Chinese watch purchasing activities was the key reason for such growth, in the meanwhile, the domestic
function was replaced by many others products, such as mobile phone. In turn, emphasis was
watch buying power from locals was also on the rise.
shifted to decorative and other functions. In 2012, watch imports bounced back, and watches were seen more as a fashion accessory rather than a timekeeping device. It therefore marked a new era
Despite a short-term slow-down of watch import to and
of the China watch market in which non timekeeping features are highly valued by consumers.
consumption outflow, in a longer time horizon, the future acceleration is still obvious and strong. The current market reality is not a result of diminishing purchase power but a lack of consumer confidence. Along with changes in society’s wealth Table 2-1
The Export Destination of Swiss Watches in 1st Quarter, 2013
watch consumption will continue to be unleashed.
Switzerland is the major exporter of high-end watches to China and serves as a Ordinary consumers have also joined the consumer club for highwind vane for China watch import. In recent years, Swiss watch export to China end watches. For the richer urban middle-class and white collar stayed at a stable rate, indicating domestic watch market development. In 2012, sector, spending a couple of thousand RMB on a watch is no however, due to political and industrial restructuring, the gift market was under longer an impossible luxury dream. Based on these trends, the stringent government scrutiny. Although export in 2012 was almost the same as market chill over imported watches is only a temporary reaction to short-term market changes. Chinese consumers’ purchasing zeal in sales. The slowdown in 2012 not only impacted import volume, it also spilled should never be underestimated. Moreover, with changes on tariff, Graph 2-2 Swiss Watch Export to China, Value and the Growth Rate (2002-1st Quarter, 2013)
3. Chinese Import Watches are Under Systematic Restructuring; Tier-2 and Tier-3 Cities Become Major Drivers
2.Chinese High-end Watch Market is More Fashionable and More Popularized. Well-known Brands Will Define the Market Landscape practices in advertising, forcing these “noble” 1) Fashionization
brands to give consideration to popular
Fashion brands have entered into the Traditionally being male-oriented consumer products that display solemn, prudent, and self-restrained characteristics, highend watches are now undergoing a major
watch-making business and will be the
new media, and reaching out to 2nd tier, 3rd
dominating force in the China high-end
tier, and even 4th tier cities.
watch market. Traditional professional
Ordinary People as Consumers
“fashionization” revolution for the following
watch makers will respond by gearing
reasons.
towards the watch investment and
Luxury watches have good investment
collection areas and making super-
value and demonstrate certain social status.
The clocking/time keeping function was
deluxe watches. Undoubtedly its
With more reasonable pricing and ever-
rendered obsolete by the trend of wearing
market share will be significantly
growing purchasing power, consumers are
impacted on by fashion brands.
likely to spend a few thousand on medium
watches as accessories. Different outfits r e q u i r e d i ff e r e n t m a t c h i n g w a t c h e s . Therefore high-end watch brands have been induced to reconsider customers’ needs in formulating a new market strategy. As a result, the decorative value of watches is becoming more important and is being more closely attended to by manufacturers. Fashion brands entering into the watch market gives a big push for its “fashionization”. Arriving in China early, fashion brands have better established brand recognition, sales channels and consumer loyalty. Once production of fashion watches starts, they can quickly achieve economy of scale, and rapidly carve out an expansive fashion-brand watch market. The third “fashionization” driver is the fast growth of the female high-end watch consumer market. Naturally, females tend to wear watches as accessories and are keen for styles with precious stones such as jewels and diamonds.
level watches. As a result, mass consumers are becoming part of the high-end watch
2) Popularization High-end watches as luxury goods have long been perceived as an article of wealth and status, possessed only by a handful. This norm has been revolutionized. With watches becoming an embodiment of quality of life, it is going through an unprecedented wave of popularization. Media Targeting the Mass Many high-end watch brands had little recognition in the market. Such mysterious character greatly hindered the enlargement of their market base and the attraction of new consumers. Especially in the face of heated competition from popular fashion brands, many high-end watches desire to become “widely known yet only owned by few” in building a larger market base. Such shift in market strategy compels new
consumer group. On average, this consumer group owns less than three watches per capita and seldom buys from the same brand. Currently, the contribution from this
Table 2-2 Chinese Mainland High-end Watch Markets by Import Volume
group to the overall market is very limited, but the sheer size renders it a target group for potential purchases. More Accessible Sales Channels The cost of retailing remains high, and most of the premium locations had been taken by dominating fashion brands. Such a situation imposes challenges for high-end watch brands to carve out physical space. At a time when operating a sizable network of retail stores is a necessity, high-end watch brands build into mid-sized cities. A more direct cause for popularized sales channels is the fast development of Ecommerce. Many high-end watch brands have set up online stores, a more interactive and effective means to engage consumers.
Graph 2-4 Hong Kong Watch Import from Switzerland, Value and Growth Rate (2006 - 1st Quarter, 2013)
B. City Index for Chinese Watch Market Development
Hong Kong The Hub for World Watches
1. Chinese High-end Watch Retail Stores
As the world’s largest watch exporter Switzerland’s major export destination, Hong Kong sits on top of the total export value chart, followed by the United States, Mainland China, France, etc. Since 2009, the trend has been quite noticeable. In 2009, Swiss watches exported to Hong Kong reached CHF 0.2
year.
Shanghai: Highest Demand Center for High-end Watches in Mainland China In Mainland China, it is still the tier-1 cities dominating high-end watch imports. Shanghai, Beijing and Guangdong enveloped almost all the market share. Among the Top 3, Shanghai championed import volume six years in a row. This is due on one hand to many watch brands having set up corporate headquarters in Shanghai; on the other, to the strong consumption circle for Southern China that is centered upon Shanghai. In 2011, Shanghai’s high-end watches dropped 10.5% year-on-year. Yet still, it is 37 times larger than the Beijing market.
Guangdong: Traditional Gateway of Watch Import
for 86.7% of the market share. In 2012, 1,725 high-end watches went through customs and recorded a 4% increase. In the first quarter of 2013, Guangdong surpassed Beijing and achieved the second position with 390 imports. The reason for this could be explained as Shanghai and Beijing targeting high-end watches whereas Guangdong focuses on mid to low end ones, therefore it is much less impacted by externality and sales cycles.
Beijing: High-end Watches as Gifts
suffered a sales loss. Nevertheless, Beijing owns an irreplaceable role of leading watch consumption and as the strategic leverage to entry into the Northern China market.
Up-and-coming Tier-2, Tier-3 Cities Expansion of Direct Retailers for Imported Watches We also take note of another fact that more and more tier-2 and tier-3 city trading companies have started to participate in the circulation of high-end watches. The companies develop direct import channels with foreign high-end watch brands and grow rapidly. Liaoning, Hebei, Zhejiang are champions in this category. In the past two years these regions have observed sharp growth – some have even achieved 10% annual growth rate, rendering them
Graph 2-5 The Saturation of Watch Retail Stores by Chinese Cities
The Fortune Character Institute studied 50 watch brands owning retail
more and more brands prefer to have Beijing to locate flagship stores
stores in China. As of April 30, 2013, there were about 6,693 stores,
customer experience centers and after-sale product care shops. The
the most popular locations for high-end watches.
goal is to cover the vast landmass of Central East and Northeast China. boutique and experience stores). Beijing, Shanghai, Liaoning, Guangdong
Noticeably, Shenyang is positioned number 3 with 253 stores, revealing
and Zhejiang have the highest saturation rate. In terms of location, Beijing
the maturity of the city as a luxury goods consumption center, and local
sits on top of the list with 627 stores, followed by Shanghai with 579.
consumer’s special enthusiasm towards watches.
Southern China is losing its advantage to the North in recent years as
2. City Development Index for Watches The City Development Index for the Chinese Watch Market was concluded
for brand reputation is particularly high.
in these areas. Consumers tend to have
watch consumption places Shenyang number 3
based on meeting various criteria, and it is considered a comprehensive
Some of the most popular brands include
extreme purchasing behavivours – they
on the China watch city list.
summery of the development of the China watch market, indicating consumer
Rolex, Patek Philippe, Piaget and Omega.
either don’t buy any or they buy watches in
purchasing power by location.
It is common to own multiple extremely
big quantities under impluse but rarely wear
Dalian: Dalian has the highest percentage of
expensive watches in these two regions
them.
wealthy individuals from the Northeast among
1) The North-South Split
and the per capita watch ownership is also noticeably high.
It is evident in Table 2-3 that Northern China has higher demand for high-end watches, and reasons can be drawn from the following:
whom many own properties in the city and are 3) The Development of Chinese Watch
attuned to new consumption trends. As a result,
Market in Different Cities
watch brands choose Dalian as a hot retail
In Eastern China, customers desire watches
location.
with higher investment value and special
Beijing: as the political, financial and cultural
Northern Chinese have a higher tendency to make consumption decisions
design features. Other than the usual
capital, Beijing is home to ample watch brands
Chengdu: as the economic center of the West,
based on peer pressure and influence of other consumers, especially for
popular brands such as Patek Philippe
and surpasses Shanghai as the most developed
Chengdu has a burgeoning consumer group
products with a higher unit price.
and Vacheron Constantin, fashion brands
watch city. In recent years, watch brands have
including Cartier and Chanel are keenly
been competing head to head in Beijing central
as the leisure capital, Chengdu residents
Northern Chinese are more straightforward than Southern Chinese, and the
sought after. Customers in Eastern China
business districs. Most premium retail locations
value happiness in life and see luxury goods
accumulation of wealth often comes from natural resources such as mineral
have a high average education backgroud,
have been occupied and the market saturation
as a source of leisure. Such values have been
and show the highest watch ownership
is conspicuously high. Moreover, watch
translated into their watch consumption as well.
across the country.
purchasing is more for business gifting than
Chongqing: being the economic center of
self-usage.
the Southwest, Chongqing has a vibrant
spending. Beijing, as the center for politics and culture, cultivates a well-developed
In Southern China, especially Guangdong
gift market, which in turn drives up luxury consumption in Beijing and its
region, consumers are not as brand
neighboring areas. A luxury watch is one of the most well regarded gift options.
consumption culture. The local rich have an Shanghai: headquarter to many watch brands,
unquenchable high demand for watches. The
Shanghai owns the most mature market
future for market expansion is bright.
to high-end watch consumption, and people
environment and consumer consumption
only mention prices when showing off their
behavior. Naturally, it becomes the heated
newly purchased watch. In addition to some
estate development projects. Their favourable business attraction conditions
vastly expensive watches, customers in
high-end media base. But in recent years,
into promoting high-end service industry and
encourage famous watch brands to proceed with expansion in the North,
the South also tend to own a few cheaper
a slowing-down is observed due to ashift in
luxury goods consumption, as a restult, a large
therefore stimulating the development of the watch market.
watches.
marketing strategy, and more brands have
amount of Tianjian’s consumption power flows
started to use Shanghai as a location to
out to Beijing. However, with the establishmenet
Southwest regions exhi bi t low watch
maintain brand image as well as to provide
of Florence Town Outlets and its related service
consuming zeal and have very limited
post-sale customer service.
facilities, Tianjin generates evergrowing interest
the channels faciliating watch market development have widened.
government in Tianjin does not much effort
brand consciousness. Most purchasing 2) Regional Discrepancies for High-end Watch Consumption
from watch brands and remains a top 10
decisions are based upon word of mouth,
Shenyang: the historical capital of heavy
consequently people tend to pay for second
industry and transportation hub, consumers here
As China is so vast, customers in different regions exhibit diverse educational
and third tier watches and have a much
backgrounds and economic development degrees, therefore have different
lower watch ownership.
consumption behaviors.
Table 2-3 City Development Index for Chinese Watch Market
Tianjin: being nextdoor to Beijing, local
In comparison with Southern cities, Northern cities have more abundant real
location for watchmakers. Harbin: fewer retail stores than Shenyang and
lavish spending to gain “face”. Consequently,
a relatively smaller consumer base, Harbin is a
watches with higher unit prices and made of
strong contender for the next watch capital.
Central and Northwest China have the least
special material draw more interest. Brand
The wealthy populations from the North and Northeast of China favour
enthusiasm for high-end watches. A lot
is a big deal – Rolex, Patek Philippe, Piaget
Kunming: a city where tourism makes up the
watches with a higher unit price and are made of unique material. Demand
has to do with the scarcity of retail stores
and Omega are all top-ranking choices. Stable
highest percentage in GDP, watch stores in
Kunming target mainly tourists. Besides watch
business gifting. It is in fact one of the most
Changsha: recently the rising number of
Fuzhou: as the capital city of Fujian, Fuzhou
not as well off as other mining business driven
sales, brand exhibition is also a central function,
focused markets for watch brands.
billionaires from Changsha have become
consolidates business groups of numerous cities.
cities. Luxury goods are not as recognized, but
the target for luxury watch brands. They
Business gifting is the major purchasing purpose
business people from surrounding cities tend to
Taiyuan: Shanxi merchants are fond of buying
demonstrate superior purchasing power and
and as a result, jewellery, watches and precious
buy them for gifts. Watch fits in almost as cash
watches, however purchasing patterns are
thrive to match peers in Shanghai and Hong
metal watches become top picks.
equivalent in terms of business gifting.
Guangzhou: one of the most populous frontline
unpredictable. Watches are not considered a
Kong.
cities in mainland China, Guangzhou has a
social status symbol, and other factors such
Xiamen: Xiamen is a burgeoning economy with
Hohhot: as the center of Inner Mongolia, Hohhot
disproportionately underdeveloped high-end
as price and design hold more attention from
Changchun: culture capital with a relatively
fewer high-end watch retail stores. Consumers are
does not generate high consumption power for
watch market. The consumption in prosperous
consumers.
less-developed economy. The buying power
more rational and knowledgeable about brands.
luxury goods. Entrepreneurs made their fortune
for watches is however high, especially among
more so than any other city. The local buying power pales in comparison.
neighboring areas such as Foshan, Dongguan,
Therefore it amasses a sizable number of serious
through local natural resources and would choose
Shunde, and Zhongshan is lost to Hong Kong
Wuhan: a transportation hub connecting
middle and low classes. Consumption is driven
collectors and watch fans. Consumers tend to go
to go to Beijing and Hong Kong for shopping.
and Shenzhen, making much less contribution
nine provinces, Wuhan is going through an
by the symbolic value of watches in local
to easily-accessible Hong Kong to get their luxury
Spliting purchasing purposes between personal
to local watch sales.
urban transformation. Due to its geographic
culture.
watches.
use and business gifting, consumers in general
Hefei: as the capital of Anhui, Hefei economy is
advantage, watch brands will choose to open
pay less attention to the investment and collection
Hangzhou:
stores even in the face of low consumer
Jinan: deeply influenced by Confucianism, the
economy, capital of e-commerce, and one of the
awareness and an under-developed business
local purchasing behavior is pragmatic and low-
most fast-growing commercial cities in China.
environment and supporting services.
key, presents low zeal and sensitivity toward luxury
Hangzhou relies on its geographic convenience
value of watches.
brands and yields to a basic brand recognition.
to Shanghai and Zhejiang and has become the
Suzhou: being one of the most economically
Based on the measurement of material and cost-
backyard of wealthy classes from East China;
developed cities, Suzhou has the most
effectiveness, watches priced between RMB 40,000
tourism consumption fuels sales of high-end
sophisticated consumer group. Comparing
and 60,000 are the most popular.
watches.
to other tier-2 cities Suzhou is favored by
4) Tier-2 and Tier-3 Cities Will Be Where Marketing Wars Are Fought; Tier-4 Cities Also Present Opportunity
foreigners and business people. All together
Urumqi: as an important bridge to Europe, the
From a geographic perspective, watch brands
Shenzhen: a big portion of consumption power
it adds commercial dymanics to the city. The
abundant natural resources breed Urumqi’s
are penetrating into tier-2 cities and compete in
crosses the strait to Hong Kong, but its unique
effect of sphere marketing is not as obvious
wealthy class. Therefore it expected that watch
these markets ferociously. It makes great sense
geographic location and economic power
and advertising is how local consumers obtain
brands become aggressive in this area and
because tier-1 cities have gone through years of
position Shenzhen as one of the targeted cities
luxury goods information. The population tend
have seen some sales records exceeding those
development and thus consumption behaviors
for its strong local consumption.
to be very receptive to new and fashion brands.
in tier-1 cities.
have matured and the market saturation rate
Nanjing: another acient capital for six dynasties,
Ningbo: lack of watch retail stores, Ningbo
is high. In tier-2 cities, the room for economic
Xi’An: the acient Chinese capital for six dynasties
as the capital city for highly developed Jiangsu
wealthy populations choose to shop in Shanghai
growth is enormous, and consumers have
is rich in history and culture. Xi’An has been
Province, the tourism economy ushers in
or Hong Kong.
limited exposure to high-end watches. Marketing
off the radar for watch brands. In fact, Xi’An is
sizable tourist consumption. However, the
viewed by the wealthy from Inner Mongolia and
consumers are more conservative and there
Wenzhou: there is average high purchasing
Yulin District as an ideal location for real estate
lacks a business environment for luxury goods.
power across the population. Consumers are
investment, the potential of its consumption
Many buyers travel to Shanghai to shop.
open to novel products and ideas, which makes
Luxury brands start off as non-professional watch
this a popular location for watch brands.
brands but are making big strides in the industry.
power is yet to be explored.
channels are yet to be built. Therefore, tier-2 cities are logically the priority markets for watch brands.
Nanning: a key city of the Southwest, Nanning’s Zhengzhou: located in Central China, Zhengzhou
Unlike professional watchmakers, luxury brands Qingdao: vibrant local consumer group, Qingdao
have a weaker network in tier-3 as well as tier-4
has a low-profile and humble values shared
so, local economic development and consumer
leads the fashion trends of Shandong Penninsula.
cities, therefore rely predominantly on tier-1 cities.
among the wealthy class. Zhengzhou’s watch
awareness are fairly low, cheaper fashion
Qingdao people see purchasing as part of lifestyle
Leveraging existing advantages in media relations
consumption is higher compared with other
brands dominate the market.
and their openness encourages them to go with
goods, and usage is more personal than
new watch brands and cutting-edge designs.
Graph 2-6 The Geographic Breakdown of Watch Retail Stores
and channels, luxury brands tread the watch business with ease.
C. Watch Consumption in the Minds of Wealthy Chinese
1. Wealthy Chinese Believe High-end Watches Should Cost 30,000 RMB and Above
2. Wealthy Chinese on Average Own 6 Watches
Graph 2-8 Number of Watches among Wealthy Chinese Graph 2-7 Price Point for High-end Watch in the Opinion of Wealthy Chinese
To professionals, a high-end watch means technique, craftsmanship, history and cultural heritage. Among ordinary consumers however, high-end watches are judged by brand awareness, price, style, material and technique. Ordinary consumers begin by comparing brand names and prices. As a result, some popular top brands release cheaper models as high-end yet affordable options for consumers. When price becomes the defining factor for high-end watch purchasing, 11% of Chinese consumers feel comfortable having 10,000 RMB as their budget for watch purchasing, compared with the 41% of wealthy Chinese who set their budgets at 30,000 RMB, 31% at 100,000 RMB, 14% at 200,000 RMB and 3% at 500,000 RMB. Although the psychological threshold is 300,000 RMB, most Chinese consumers pay between 3,000 and 30,000 RMB for watches, creating an obvious gap between expectation and actual spending. Advertising plays a major role in creating brand value. Many tier-2 brands benefit tremendously from big advertising spending and broad advertisement coverage, and have created high customer perception values, which help them win market share. On the other hand, several reputable highend brands are faced with falling popularity.
Table 2-4 Watch Brands Most Favoured by Wealthy Chinese
As revealed by Fortune Character Institute, wealthy Chinese on average own six watches – 52%
3. Strong Desire to Continue to Purchase
4. Brand as Defining Factors in Watch Purchase
Graph 2-9 Willingness to Buy More Watches
Although the per capita watch ownership is already high, the room for further growth remains huge. 64% of wealthy Chinese express continuous interest in buying more watches when they see new models; 27% think it depends on the circumstance, and only 9% indicated that they would not buy any more. Geographically, tier-2 and tier-3 cities have the highest potential to
Graph 2-11 Influencers for Watch Purchase Decisions
Consumers of both genders emphasize brand awareness; 41% male and 31% female take brand name as primary concern for purchasing. Brand popularity, however, is ironically built on shallow understanding of brand values. Most rich populations cannot tell the differences between brands.
Based on demand from consumers with various asset values, The Fortune Character Institute developed “Watch Desire Curve�, which fully exhibits watch consumption inclination for each different wealth class. Graph 2-10 demonstrates that consumers with 10 million RMB assets have the strongest desire to buy luxury watches. Being a rising group in society, they have a
consumers consider factors such as style (27%) and material (19%). It therefore follows that female consumers favour watches with artistic designs as well as appealing brand names, especially those from fashion brands such as stylish quartz watches.
the need for high-end watches drops, until assets reach the RMB 100 million benchmark when the collection and investment purposes bring buying levels back up high.
Graph 2-12 Defining Factors for Watch Buying
Graph 2-10 Wealthy Chinese’ Watch Desire Curve
The Fortune Character Institute survey indicates that wealthy consumers favour limited edition watches, and see investment and business gifting as the main purposes. The more expensive the
Watches engineer new functions to carve out a
watch, the more likely it is purchased for business gifting. Less wealthy consumers, on the other
unique selling point and a niche market. Although
hand, want to make every penny count. To show off wealth on a limited budget, they go for watches
brands emphasize special techniques, rare materials
at lower prices and use them predominantly to ensure wealth status.
and special memorial meanings, as a matter of fact, a crocodile watch strap is not be that comfortable,
5. Matching Outfit as Major Reason to Wear Watch
and not many consumers would use moon phase watches to differentiate days and nights. In terms of brand history and values, sometimes it is simply a marketing tactic.
6. Watch Consumption Pattern Differs by Wealth Level and Brand Appetite is Crystalized Graph 2-13 Watch Purchase Purposes
Graph 2-14 Watch Wearing Purposes
Matching outfit: as an essential element
have room for a 20-30% value increment, and
representing personal success, watches are
therefore have a high return on investment.
Practical Function: to keep time and match
worn for decorative purpose more than for
For that reason, many consumers see watch
time keeping and collecting.
buying as a way to preserve and increase
Techniques and Heritage: craftsmanship
For those who own more than 50 million RMB personal assets, Patek Phillippe, Rolex and Jaeger Le Coultre are most popular and customization is
value. As a result, they focus especially on
adds aesthetic value and collection value to
high value brands and limited edition models.
watches.
keeper has been replaced by many other
These consumers are open to high price
devices. Although it might not be the sole
watches as long as they have proportionate
Business Gift: China has an enormous gift
reason to motivate watch purchase, watch
growth value.
consumption market. At the high-end, watch
keeping function of a watch.
Watches as an investment vehicle depend on
huge embedded value, a watch displays
the following factors:
taste and status, hence it is affectionately adopted as a cash equivalent.
heritage of high-end watches embody great
Preserve Value and Appreciation: high-end
aesthetic and artistic values. Therefore they
watches normally appreciate overtime at a
attract lots of collectors. Those buyers tend
20-30% annual rate.
to source from a diversity of channels to
Additional Functions: with technology
Chinese Rich’s Watch Consumption Mindset
Unit:RMB Below 10 million
10-50 million 50-100 million
Consumption Mindset Favor fashion brands and cheaper models of popular brands
equipped with high-tech gadgets suited Light Size with Huge Value: a portable article
for navigation, aviation, and nighttime use,
motivated by high price.
with values as much as millions, easy to
ability of accommodating extreme conditions
store and inherent.
such as underwater, high pressure, and extreme temperature.
Above 100 million
Favored Brands
Omega, Les Longines, and Radar
Brand rules, favor special material
Rolex, Cartier, and Chanel
Brand rules, favor investment
Patek Phillippe, Rolex and Jaeger
value
Le Coulter
Brand rules, favor customization
Customized Professional Watches
breakthroughs, high-end watches are often
collect single designs, and are not so much
Investment: on average, high-end watches
desired. Professional watches with high collection value are the target for this consumer group.
Wealth Level
is a top choice. Portable in size but with
Collection: the material,craftsmanship and
favour fashion brands and cheaper models of popular brands, especially Omega, Les Longines, and Radar. Consumers with personal assets between 10 million and 50 million are more brand sensitive, and they usually prefer watches made of special material, especially from Rolex, Cartier, and Chanel.
Time- keeping:the watch’s role as time-
users still value the conventional time-
With the accumulation of wealth, Chinese show different watch brand consumption patterns toward. Individuals with a net worth below 10 million RMB
Data Source: Fortune Character Institute
Table 2-5 Watch Consumption Criteria by Different Wealth Class
7. Most Purchase Takes Place Overseas
8. Unsatisfied Customer with High-end Watch Services
Most High-end Watch Purchase Happen Overseas
Purchase agency, 1%
Second-hand market or swap between friends 2% E-commerce 1% Retails store in mainland china, 37%
Buying overseas, 59%
Graph 2-16 Wealthy Chinese’ Complaints about High-end Watch Services
Graph 2-17 Watch Owners’ Complaints by Asset Level
Graph 2-18 A Gender Analysis of Consumer Complaint
Graph 2-19 A City Analysis of Consumer Complaints
Data Source: Fortune Character Institute
Graph 2-15 Chinese Consumers’ Purchase Channels
Domestic
potential. Many famous brands have tested selling high-end watches online and achieved
Fashion brands’ retail stores in China re-set
promising results. Such e-commerce trialing is
the market as in the past, high-end watches
still in the piloting phase, but has a long way
were only available in oversea markets. Many
to go.
customers became aware of the high-end watches from this channel. Consequently retail
Professional Purchase Agency
store in China has become the predominant channels for purchasing and its impact is ever
Due to price differences and different product
growing
launch times on each market, professional purchase agency emerged several years ago
Overseas
and developed rapidly. But with retail stores opening and many brands releasing new
Overseas purchasing is conventionally the
models in different markets at the same time,
primary channel for buying high-end watches,
purchase agencies are losing their advantage.
especially super-expensive ones. Even though
Tariff reduction that leads to a narrowing price
access is made easy via retail stores in China,
difference will also negatively impact the
the vast price difference draws many customers
agency’s business, even its existence.
to oversea markets. Second-hand Market or Barter with Friends E-Commerce The appreciation of high-end watches makes it E-Commerce entered the luxury industry
possible to trade used watches on second-hand
at an unprecedented pace. However, due
luxury goods markets, particularly the special
to problems such as counterfeiting and poor
edition and special material designs. Luggage
customer service, it has not yet taken over
and watches occupy the major traffic on the
conventional sales channels. But there is great
second-hand market.
Customer service of high-end watch brands
in practice only have maintenance centers in
is one of the areas that puts off the wealthy
disclosure is across the board. As some parts
tier-1 cities, customers in these regions tend
Chinese consumer. So what makes wealthy
require replacement from overseas, some high-
to be more patient therefore grumble less. The
Chinese unsatisfied? From The Fortune
end brands fail to explain to consumers the
fact that they have very inconvenient access
Character Institute survey results, complaints
detail of the replacing procedure.
to repair facility sometimes can become a
are summarized in three major areas: long
contending issue.
repair time (32%), high repair cost (23%)
As for gender, females have a natural tendency
and intransient parts cost (20%). In a way it
to be more sensitive about details, therefore
With 10 years of operation in the Chinese
accentuates the gap to achieve better customer
are prone to delicate attitude differences when
market and a growing consumption power, high-
relations management.
service is delivered, which in turn increases
end watches need to penetrate into lower tier
the chance of satisfaction. On the other hand,
cities together with their customer services.
Notably, the wealthier the consumer, the fewer
males are less patient and therefore complain
Service is key to maintaining brand loyalty after
complaints he/she holds against service quality,
more about long waiting time for repair.
all. Once removed, loyalty is virtually impossible
but the more about repair time. By and large
to regain. Apparently, high-end watch brands
time means money to those highly wealthy
Tier-2 and Tier-3 cities have fewer retail stores
have a long way to go in managing service and
individuals and waiting time can lead to breaking
and consequently many fewer customer service
customer relations.
loyalty with a brand. In additional, regardless
centers. Given the reality that high-end brands
D. Media Relations for High-end Watches in China
Due to size limitations, the majority of professional watch brands have very limited media spending and are strictly confined to only a handful high-end magazines. In contrast, fashion brands tend to be more generous with marketing expenditure, and opt for multidimensional platforms, including outdoor media, newspaper and TV commercials. Magazines are the principal media vehicle, accounting for 37% of the overall budget, down from 39% in 2011, it is still firmly leading the marketing effort. Outdoor media comes second as a brand marketing tool, accounting for 28% of the budget, a slight decrease from 2011. At airport and department stores, these outdoor interfaces are still keenly adopted by watch brands. In 2012, newspapers lost attractiveness
Table 2-6 Top 10 Watch Brands with Most Media Popularity
and accounted for only 11%. The creation of supplements and special issues didn’t effectively meet the goal. Most mainstream newspapers specializing in disseminating
1. High-end Watch Media Channels and Percentage Analysis
timely information are now under severe threat from internet and new media. TV as the predominant conventional media has been boosted to 13% through watch brands’ innovational efforts. TV commercials and media sponsorship are common practices. Some brands push for brand micro-movies in order to spread the brand culture. Internet and new media witnessed the biggest increase in watch advertising, at 6% and 5% respectively. Although it is still not at the same level as conventional media, the trend is unmistakable. Many brands express willingness to continue adding more internet and new media commercials, while mobile
Graph 2-20 High-end Watch Media Channels
media is also in consideration.
Table 2-7 Top 10 Watch Brands with Most Active Weibo Account
2. The Value of Magazines for Watches enormous upfront capital and resources.
running into professional misconduct and other
factors make it hard for watch brands to decide
not considered high-end magazines, and their
One major measure for resource quality is
problems.
their advertising choices.
readers may not be luxury goods shoppers.
the ability to host high-end events, in other words, to attract high wealth individuals to
Many third-party research agencies conduct
attend events.
Environment
Professional watch magazines are fewer in
Like all luxury goods, high-end watches pay
objectiveness of the reports. Similarly, PR
To determine the class of a magazine, one
number and have smaller circulations. And
special attention to a magazine’s characteristics
agencies tend to rely on publicly available
foremost indicator is the readership. There is
yet, they are favourable to watch brands.
and advertising environment, especially
empirical data to measure publication
a recent tendency for all magazines to try to
Whilst appealing to the maturity of dedicated
content and design, as well as to competitor’s
circulation size. Unfortunately, these numbers
claim that they cover wealthy populations, but
watch fans and professionals, they send out
advertising strategies. Magazines in return
are not accurate, and the number of invitation
as a matter of fact, their ability to deliver to the
a ripple effect to impact more consumers.
overlook the quality of the content and in putting
only subscriptions is estimated based on a
Therefore, high-end watch magazines tend
so much emphasis on visual effect, render
by their interview features and PR events.
to be an essential target for high-end watch
themselves a product catalogue.
Whether the magazine is able to access to
analysis on those media data. However, strong
end
personal preference has compromised the
brands.
wealthy icons and conduct quality interviews, Due to this emphasis on magazine characteristics,
3. Criteria for Choosing Magazines
Table 2-8 An Analysis of Magazine Value for Watches
and whether they have the capacity to organize
many Chinese magazines mistakenly think
Tier-2 and tier-3 cities are undoubtedly the most
exclusive events for a large group of wealthy
a good overall look is the guarantee of
attractive markets for high-end watch brands,
individuals would indicate their influence
When high-end watch brands make advertising
more advertising revenue. Following this
both in terms of marketing and for sales. The
among wealthy consumers. The interview test
decisions, the overall look of magazines is
understanding magazines keep issuing
PR events are also influencing factors. Few
might be achieved in short-time by leveraging
advertising, further squeezing the space for
regions therefore become an important criterion
the magazine network, but the latter can only
high-end magazines to exist and grow.
in advertisement placement. As a result,
happen when a solid readership of wealthy
magazines thrive to increase their circulations in
populations is established.
common misunderstandings are as follows. Another down side of this over-emphasis on
tier-2 and tier-3 cities. The constraints stemming
Currently, magazines on the market can
and readership, thereby attracting the most
overall look is homogeneity. The next contending
from professional teams and client resources
be categorized as popular, high-end and
competition and thus have a fragmented
point will be to create a differentiating reading
professional.
brand representation.
When deciding which magazines to choose for
experience for high-end readers. Based
5. Shifting Trends in High-end Watch Advertising
advertisement placement, watch brands often
on analysis above, it can be concluded that
Magazine circulation is also combined with
Popular magazines include public magazines
Magazines targeting the rich rely on
first consider the popularity of the magazine.
magazines with feature content and unique
PR events. Watch brands tend to combine
and channel magazines; subject-wise, they
databases for distribution, which can
To catch the attention of advertisers, many
features have more competitive edge to grow.
magazine advertising and PR events to ensure
encompass news and lifestyle information.
be broken down to two categories: one
magazines choose to collaborate with foreign
marketing communications in tier-2 and tier-3
Since fashion brands entered the watch
Fashion magazines attract substantial
for internal circulation at banks, brands,
media partners or pay huge fees to broadcast
cities.
industry, watch brands had adopted a more
numbers of young readers, therefore
associations and clubs. The data accuracy
their own brands. That way, the magazine
have been the top-pick for high-end watch
is an extremely valuable feature, although
can improve its brand image and attract more
High-end watches are definitely luxury and
advertising. As sophistication grows, high-
the lack of professional operations know-
advertisers.
can only be afforded by affluent consumers.
end watch brands hope to have more
how needs to be tackled to unleash its
targeted and effective advertising plans.
real impact. The other is invitation-only
Many high-end watch brands have established
this group of consumers through its magazine
subscriptions that magazines have for
global partnerships with world renowned
advertising strategy. The irony is only a handful
High-end magazines are normally distributed
readers and wealthy individuals. Not many
magazines. Regardless of their success in
of magazines had made their way onto the
Fashion magazines target the urban white
to upper-class population directly via
magazines like this exist in China, since
China, watch brands are often keen to establish
reading table of this high-end population, and
collar sector who follow fashion and trends,
In recognizing the sales contributions made
channels, by invitation or as a gift. High-end
consolidating advantages of both a DM
such partnerships. Working with international
the gap between actual circulation and the
however, they are not necessarily the wealthy
by tier-2 and tier-3 cities and their growing
channel magazines enjoy the most publicity
magazine and a luxury magazine requires
magazines is also an effective way to avoid
group. To that extent, fashion magazines are
potentials, many forward-looking brands have
advertising campaigns
grassroots – facing advertising campaign, in
4. Misunderstanding of Magazine Advertising
the hope of covering more consumers and educating potential clients and young buyers.
Therefore high-end watch brands tend to target tier-3 cities
E. High-end Watches’ PR Practices in China 1. The Characteristics of Event Goers
PR events help promote a brand in one way or another. Such promotion value can be achieved
One of the most important promotion
by the following.
approaches, the PR event hasn’t unleashed its full potential. In fact, given the consumer
Media broadcasting by event invitees. The
behavior of high-end watch buyers, the
multiplier to calculate impact group by event
importance of PR events cannot be stressed
attendee is normally 2 to 20, in some rare
enough. These consumer behaviors are also
cases, it can reach as high as 100-200. For
seen in other luxury products.
example, if an event was attended by 100 wealthy Chinese, there will be 10,000 to 20,000 businessmen who learn about this event and the brand being marketed. Three
Greatly influenced by social circles, on many
supporting methods can boost the impact:
occasions a purchase decision is made
direct emailing, text messaging and phone
simply because consumers make a referral or
call. All will enhance customers’ impression
recommendation.
with the brand. Event marketing. Media will capture PR events with good themes and voluntarily
In the digital age, consumers are faced with
amplify its impact via media channels.
more information and options therefore it
Events can also convert customers from
is harder for them to make decisions. With
passive information receivers to active
spared a large chunk of advertising budget
toward foreign media, first and foremost in
return hasn’t been good. Accordingly, high-end
an increasing opportunity cost, they hope
information seekers, uncovering a more
to invest in tier-2 and tier-3 markets and had
luxury goods and fashion media sphere.
watch brands turn to luxury media, especially
to have more direct interaction with product
direct marketing effect than advertising.
received some returns. However, there are
Consumers in tier-2 and tier-3 cities tend to
print publications. Magazines are still an
manufacturers and service providers.
other challenges.
trust nationwide media with international news.
important information source among wealthy
Circle Broadcasting.From a consumer behaviors standpoint, high-end watch buyers
This calibre of media does not normally go to
populations. As a result of this trend, magazines
1) Tier-2 and tier-3 cities lack quality media
tier-2 and tier-3 cities, and hence is less seen
obtaining access to wealthy consumers has
platforms. Chinese media in tier-2 and tier-
by consumers with cash power. The Fortune
becoming quite important, and they tend to keep
3 cities are much less developed than those
Character Institute survey revealed only 3%
their wealthy readers close via massive PR
Most high-end watch buyers are less sensitive
circle are talking about, and are they prone
in tier-1 cities, especially high-end media
of billionaires would visit a post stand to buy
events. In summary, magazines’ effectiveness
to prices. They tend to make spot purchase due
to taking advice. Effective PR events can
such as luxury magazines. The lack of a high-
magazines, so it is a bit unrealistic to assume
in reader engagement and outreach is more
to desire and impulse, falling prey at PR events.
identify a specific consumer class and
end advertising arena means that high-end
increased circulation would result in bigger
advanced than other media forms.
watches and other luxury goods are taking their
readerships among the rich.
time entering tier-2 and tier-3 markets. Their
Sensitivity
are easily influenced by peers. They pay attention to what other people in their
design product experience activities for 2. The Value of PR Events for High-end
them. Through them, the brand will reach
Watches
further to more potential consumers.
choices are either going without advertising or compromising their requirement of a quality advertising environment.
PR events are a common brand promotion
2) Product Sales
Currently, high-end watch brands focus on the
approach amongst luxury watch brands and
advertising influence of fashion magazines.
they also help to enhance product sales and
It is another misunderstanding popularly
2) Major high-end media from tier-1 cities have
But the readers are young and less affluent.
customer service.
held that PR events equal a boost in sales.
difficulty pushing circulation in tier-2 and tier-
Although high-end watch brands set aside more
3 cities. A basic rule of thumb is favourability
budget for fashion magazine advertising, the
Not every PR event is suited for selling 1) Brand Promotion
products. Furthermore, after factoring in brand recognition, product type and price, PR events
will have diverse impact on sales. PR events
has proved successful. PR events not only serve existing clients and enhance loyalty, they also
that can enhance sales have the following
create an occasion for old and new clients to compare notes of their product and service
features:
are mostly from the same social class and have similar personal assets. Similarity facilitates peer-influence and purchasing. The opposite will do the contrary and reduce purchasing.
sales function. Many brands hesitate to make clear that product sale is the major objective of a PR event. In fact, wealthy people appreciate
3. The Myths around High-end Watches PR Events
the directness and like to attend events where the goal is straightforward and beyond “social”.
cities. A more rational strategy would be: event spending should be channeled to where the sales originate,
Event in its very nature is a sales promotion
sales purposes in an event invitation.
Product price goes up each year. On one hand, it is due to the increased cost of production, human resources and tariff. On the other hand,
In effect, any event can have some sort of
4. A Geographic Analysis of High-end Watch’s PR Events
experiences of products and services. Successful
brand promotion value. In an era where
sales promotion events tend to be relaxing and
information is overflowing, brand popularity
provide consumers with enough private space
does not decide sales potential single-handedly.
After consulting more than 10 PR companies
to feel the products and develop activities to
Customers need more interaction with products
and surveying over 30 brands about more than
a more handsome balance sheet and market
enhance those experiences.
and service. In order to serve that need, many
200 activities, The Fortune Character Institute
evaluation of the brands.
brands deem events as more important than
has arrived at the conclusion that over 70%
advertising for brand promotion.
of events are hosted in Beijing and Shanghai.
Graph 2-21 Type of PR Events of High-end Watch Brands
The common pros and cons of PR event formats are as follows： 1) Forum/Summit and Speech: attract a larger crowd, suited for brand promotion and service of
follow-ups. The completeness of the elements
lower-end consumers; not suited for sales or entertaining high-end clientele.
would maximize the impact of anon consumers and might lead to purchasing behaviours.
2) Banquet: widely attended, suited for brand promotion and service of existing customers; not suited for sales; often has a theme and watch brands attend as sponsors.
3) Customer Service 3) Cocktail Party: medium-sized crowd, a more relaxed environment, suited for sales and brand PR events have become the most effective customer outreach method, especially for luxury
promotion and service of existing customers; it is currently the most popularly adopted form for
brands doesn’t necessarily enlarge client often invites the same group of people. Even in the case of co-hosting, brands will reach out
Furthermore, many brands are very effective
high requirements for the venue.
in enhancing existing client relations while developing new customers - an approach which
5) Sales Event: only suitable for sales, often takes the form of a sales events at retail stores.
Another commonly adopted tactic is limiting
end watches.
availability. Commemorative editions for special events and limited editions with unique materials
5. High-end Watch’s Brand Strategy in China
or techniques are two common methods. It is worth pointing out that limited editions
to clients who have the track record of most
are mostly created for marketing purposes,
frequent attendance, but these people might not
there is no genuine limitation on material or
be the future consumers.
craftsmanship. Highlighting history and culture, and telling the
press events. 4) Tasting and Experience Event: the most ideal combination for brand promotion and sales; has
second-to-none marketing locations for highdatabase. When a brand organises events, it
story has been the foundation for luxury goods
brands. Many high-end watch brands had made successful attempts and achieved good results.
happy about a preserved and increasing value,
Without a doubt, Beijing and Shanghai are the
customer care cycle which includes sending invitation, event participation and post event
brands; in order to keep owners of the products
record in tier-2/3 cities
to build brand awareness and boost brand sales. Very often, brands are associated with
In order to adapt to the vast Chinese market,
This is a popularly strategy amongst brands.
royal families, noble classes, and historical
many brands release models with Chinese
In fact, brand events in tier-1 cities are
events.
elements and have received positive market
independent from consumers in tier-2 and tier-3
feedback and sales record.
F. Chinese Domestic Watches’ Opportunities and Challenges 1. Chinese Consumers Lack Confidence toward Domestic Watch Brands The Fortune Character Institute survey showed that over 73% of Chinese consumers do not believe China can develop domestic high-end watch brands. The ratio has dropped 11% compared to 2012. On one hand, there is a long held belief that high-end watches are the Swiss made ones. On the other, Chinese domestic watch brands lag far behind in international competition in terms of scale and craftsmanship. Despite the pessimistic outlook, Chinese domestic watchmakers are not giving up and have made great strides into opening up the high-end market. Many old watch brands are seeking re-birth via innovation and brand re-building. Experts in this area are making audacious attempts to explore the unknown, thriving to carve a market position for Chinese watch brands. Graph 2-22 Chinese Consumers’ Confidence toward Domestic Watch Brands
3. Buying Domestic Watches When high-end watch brands are ruling the market, domestic brands are facing tough battles to win market share. The Fortune Character Institute survey indicates that 67% of wealthy Chinese had never bought watches from domestic brands, 21% had bought somewhere between 1 to 5 watches. The rest are uncertain and had zero domestic watch brand experiences. Almost none had bought more than 5 watches. It shows domestic brands lag much behind international peers in covering Chinese rich population, in particular Swiss made top watches. To change the market landscape, domestic watches have a long way to go: Graph 2-24 Wealthy Chinese Buying Record of Domestic Watches
a) Consumer Psychology: traditionally, Chinese consumers see luxury products as imported
2. The Market Condition to Breed Chinese Domestic High-end Watch Brands
goods. The same applies to watches, where top-notch clocks and watches are products of Switzerland. Given its long history, the mindset
First of all, China is the biggest market for watches, Chinese consumers pay the bill for high-end watch consumption worldwide. Therefore the vastly growing space is a tremendous opportunity for domestic watch brands to transform and upgrade.
b) Media Channels: brand promotion needs allies in media. Premium media tend to favour international watch brands and it will cost
Secondly, consumers and industry professionals have deep-seated
domestic brands more to secure a position on media channels. c) Sales Channels: “who owns the channels owns the market”. Today, even the biggest brand has to follow this logic, and compete
Thirdly, over years of hard work, international watch brands have built their share of market and their professional teams, therefore all existing infrastructure and best practices can be adopted. Graph 2-23 Favourable Conditions for Chinese Domestic High-end Watch Brands
When evaluating favourable conditions to breed Chinese domestic high-end
Lastly, retail business is under transformation. E-commerce and
watch brands, the primary factors are: a huge consumption base (31%), the
experience stores will lead the future of the industry. Channel
national brand sentiment held by consumers and industry professionals (26%),
revolution also entails opportunities for domestic brands, since they
talents trained by international watch brands (14%) and opportunities forged with new channels created by a retail upgrade.
rapidly.
its presence down to tier-2 and tier-3 cities.
Table 2-9 The Most High Potential Chinese Watch Brands
As of now, domestic brands are weak in brand
d) Professional Team and Management: the overall professionalism in luxury industry is lower than
awareness and have far fewer retail stores
consumer products. The question of “how to build and cultivate a professional team” ought to be
thus business channels. One of the biggest
addressed by Chinese domestic watchmakers to achieve excellence.
challenges in front of them is to compete for channels on a level playing field with
For domestic watch brands, the road ahead will be full of challenges, but the prospect of creating
international brands.
domestic high-end watch brands will eventually pay back all the hard work.
CHAPTER 3
China Fine Wine Report 2013
Graph 3-1 Country of Origin of Chinese Imported Fine Wine in 2012
grew by only 8%, and the increase of import value was about 10%. In the long run, however, the market is poised to expand.
Wall, Weilong, Harvest and Tonghua. The top three players, Great Wall, Changyu and Dynasty, hold about 52% of market share, with aggregate assets of 38% of the industry total as well as sales
Graph 3-2 Import Volume and Annual Growth Rate for Fine Wine (2002 - 1st Quarter, 2013)
The Fortune Character Institute research shows that in the last 10 years, per capita fine wine consumption was on a steady increase, from 0.25 litres in 2002 to 1.31 litres in 2012, recording a
proportion of alcohol consumption in China. Graph 3-4 Chinese Domestic Fine Wine Production and Annual Growth Rate ( 2002-2012 )
Fortune Character Institute research shows that most Chinese wealthy populations who consume
misled. Therefore, there is still huge room for the market to grow. Brand is normally the key criteria for wine purchasing and collection. For instance, the top five French fine wine brands are the popular choices for the Chinese rich, compared to other less known vineyards. Apart from brands, according to 24% of Chinese buyers, the manufacturing year is the second most important indicator, as already evident in the ungrounded zeal over 1982 Château Lafite. Not surprisingly, 17% of wealthy Chinese rely on word of mouth and friends’
As far as channels are concerned, retail stores are prominent places of purchase (31%). The more
With the wine market booming, it is expected that more direct sales will come into the picture. Online commerce, mobile commerce and event onsite selling count for about 23% of overall wine sales. Graph 3-3 Chinese Per Capita Fine Wine Consumption Increases Steadily (2002-2012)
In addition, the social function of red wines is obvious as 15% wine sales occurred among friends.
Future Trends for Chinese Fine Wine Market 1. Consumption of High-End Fine Wines is No Longer off Limits for The Mass
Fine Wines Beyond Brand Value and Gain More Bargaining Power in Fine Wine Sales
fine wine etiquette, with a lack of a consulting environment targeting fine wine training. The wine, in the form of vineyard purchase, building
Like many high-end products, due to high
Currently, the distributors of high-end fine
fine wine cellars and using it for business
prices and limited production, many top-
wines are caught up in an awkward position:
social activities. None can achieve sustainable
notch fine wines used to be exclusive, and
most consumers understand wine brands
success without professional guidance and
were only afforded by the extremely wealthy
better than the distributors do. As a result,
advice. People now working in the fine wine
consumers. However, now most high-end fine
distributors have next to zero bargaining power
industry are currently unable to fulfill those
wines are affordable to the middle class. With
in the supply chain. But in effect, the market
the popularization of fine wine culture and a
demands professional fine wine distributors who are qualified to perform a consultative
growth. It might not be an exaggeration to say
role to influence consumer’s decisions and
Graph 3-5 Main Channels for Wealthy Chinese’ Fine Wine Purchase
standardized, attracting more consumers into
make honest, informed recommendations. The
the fine wine league and ultimately converting
professional consulting service is important to
them into loyal consumers, which, in turn, will
distributors.
stimulate further development of the Chinese Aside from traditional sales channels, with the
“With the global market looking to China, winning in China means controlling tier-2 and tier-3 cities.” Currently, all fine wine dealers are tapping into tier-2 and tier-3, even tire-4 cities in one way or another. The reason is simple, as capital cities and direct administrative cities make the core of tierunderdeveloped. To fill the void, high-end fine wines place great emphasis on the vast growth potential, especially towards cities like Wenzhou, Shenyang, Taiyuan which are existing active are spending more marketing dollars in tier-2 and tier-3 cities.
more.
5. Fake Fine Wines Will Lose Market Share
growth of e-commerce, online platforms are
2. The Polarization in Chinese HighEnd Fine Wine Market As of now, high-end fine wine sales on the
accounting for major sales. The convenience
In high-end fine wine consumption, some
and speed of e-commerce has made it an
selective channels are saturated with fake
appealing complement to brick-and-mortar
fine wine by as much as 90%, some have
stores.
even reached 100%. The abundance of fake
Chinese market are dominated by French brands. Nevertheless, new world options from Chile and Australia are gaining popularity through competitive pricing and premium quality. Same if not better taste, larger production, and more effective market promotion will enhance
fine wine has negatively impacted the healthy
4. Vocational Training for Fine Wine Experts Will Be Industrialized and Standardized, Carving out an Emerging Market for High-End Fine Wine Consultants
development of high-end fine wines, not to mention the profitability of fine wine brands and distributors. With the professionalization of channels and polarization in the fine wine
their competitiveness. It is expected that in the following years, the high-quality, high-end
training and consulting services will educate been incorporated into the lifestyle of wealthy
consumers to be more discriminating toward
a rapid growth period, repeating the market-
Chinese consumers. Undoubtedly, this will drive
fake products.
entry success that the celebrated French
the demand for fine wine knowledge training.
vineyards recorded years ago. Consequently,
Note:
the monopoly advantage that French vineyards
The term “fine wine” in this report is broadly
have been enjoying will diminish.
social skills for the business elite, especially among the wealthy class. Although scaled
3. With Distributors Becoming More Knowledgable, They Will Select Table 3-1 City Development Index of Fine Wine in China
Table 3-2 City Potential Development Index of Fine Wine in China
This category should include red wines, white
training schools are available, the curriculum is confined to basic fine wine knowledge and
in this report refers to wine in general.
A.Burgeoning Global Tourism Retail, Chinese Consumers Become the Center Force 1. Burgeoning Global Tourism Retail
CHAPTER 4 Graph 4-1 Sale’s Record of World Largest Duty Free Groups ( 2011-2012 )
According to The Fortune Character Institute’s projection, the global duty-free business has created a $50 billion market, within which the top 25 players account for 75% of the total sales. In 2012,
China Duty-Free Report 2013
China Duty Free Group (CDFG) registered a sales record of 657,000 million Euros, and a 33.16% year on year increase placed it at number 14 on the list. This is followed closely by Sunrise Duty
3. Fortune Character Institute Project Continuing Consumption Increase of Chinese Consumers Overseas
2. Chinese Consumers Become the Largest Consumer Body in Global Tourism Retail each domestic airport: in 2012, 21 Chinese
The Fortune Character Institute predicts the trend of Chinese buying overseas will continue as
airports recorded an aggregated passenger
the number of outbound tourists continues to rise. This is because: 1) the price gaps for high-end
volume of 500 million, Beijing Capital Airport had
goods remains, which have been a major cause stimulating Chinese consumers to do shopping
the largest number with 8.193 million, followed by Guangzhou Baiyun International Airport at 4.831 million, and the third and fourth place
shopping experience more; c) macro-economic factors, a stronger RMB gives Chinese tourists
were taken by two Shanghai airports, PVG
more consumption power.
and SHA. In short, the surge of overseas and for the development of China’s duty-free business. In fact, Chinese consumers constituted the largest consumer group in the global travel retail market, holding up half of the European luxury market. Based on data disclosed by The Graph 4-2 Chinese Tourists Overseas and the Annual Grown Rate ( 2006-2012 )
Financial Times, annual spending of Chinese consumers in Britain was £300 million, equal to 2.78 billion RMB. At Heathrow Airport in London, Chinese passengers only account for 1% of total passengers, but make a 25% contribution to duty-free sales. On non-weekend days, three quarters of customers at Burberry’s Hackney outlet store were Chinese. Based on UK China Visa Alliance’s estimate, Chinese visitors’ visa
decrease in sales to Japanese passengers.
denial equaled a loss of about £1.2 billion retail
In terms of number of passengers, Chinese
revenue in the UK.
passengers reached 1.4 million and with 1.3 million Japanese. Clearly, Chinese tourists
The same is happening elsewhere. In 2012,
have become the main buyers at Lotto Duty-
the per capita spending of Chinese passengers
Free shops. In Singapore, according to data
at Incheon Airport was $116, trumps Japanese
from Singapore Tourism Bureau, in 2011, the
tourists who on average spend $70. Despite
per capita spending by Chinese tourist was
making up only 8% of total visitors, Chinese
$1,081, rising from $377 in 2002, recording
tourists generated 25% of the duty-free revenue.
an outstanding three-fold increase. At Dubai
Graph 4-3 Passengers at Major Chinese Airports ( 2011-2012 )
Airport, Chinese passengers on average
stable growth of China’s macro-economy, more
free group, Lotto Duty-Free Group made total
spend $1,370 to $2,500 on wine purchase,
aboard. 2010 marked a record 50 million
and more wealthy Chinese are in the mood
sales of 1.6 trillion KRW (equal to about 8.7
in addition to three or more Hermes scarves.
tourists, since then the growth rate has
for overseas travel, as a result, the number of
billion RMB), increased by 6.67% since the
Needless to say, Chinese consumers have
stabilized at 20%. In 2012, 83 million Chinese
tourists going abroad have been increasing.
previous year. Sales to Chinese passengers
become the driving force of global travel
travelers crossed the borders. Awakening to the
With regard to the numbers of passengers at
increased by 80% in contrast with a 30%
retail.
Each year, there are more Chinese going
B. Four Characteristics of Chinese Shoppers Overseas 2. Buying Luxury Goods At Retail Stores and Duty-Free Shops
1. Luxury Consumption Moved to Foreign Market Place Fortune Character Institute research reveals that in 2012, Chinese consumers broke the “1+1+1” luxury good consumption pattern as seen in 2011, and most purchase decisions were made in foreign marketplaces. Aside from Hong Kong and Macau (26%), Europe captured 23% of the total purchasing power,
Graph 4-4 Where Chinese Purchased Luxury Goods in 2013
Graph 4-7 Where to Buy Luxury Goods for Different Asset Classes
followed by US at 10% and Japan with a
In general, domestic shopping malls, overseas retail stores and duty-free stores are the top three
diminishing share of 3%. In 2013, the trend
favourite sites for Chinese consumers. Being price sensitive, the order and its percentages are:
goes on but the changes are: Hong Kong
duty-free store 33%, overseas retail store 22%, domestic shopping mall 21%. Of course, given the
and Macau recorded an increased 44%
fast development of online retailing, 11% consumers use professional purchase agents and 8% do
Chinese customers, Europe observed a 8%
online shopping.
decline, and US sold luxury goods to 5% more Chinese consumers. At the same time,
Consumers with assets of RMB 10-50 million, tend to favour duty-free stores (30%), overseas retail
in 2013 high net worth Chinese individuals
stores (32%) and domestic shopping malls (17%). But for people with assets in excess of 50 million
were more inclined to “travel and buy”,
RMB, especially billionairs, 39% of buyers would make in-person visits to stores aboard, with only
especially billionaires (51%). Much to the
26% to duty-free stores and 15% to domestic shopping malls. In addition, 13% of purchases are
surprise of many, for the first time Beijing
made at events.
overtook Shanghai and became the most
3. Leather Goods, Jewellery and Watches Are Hot Commodities for Oversea Chinese Shoppers
favoured luxury goods purchase destination in China.
Graph 4-5 Domestic Hot Cities for Luxury Purchase in 2013
Overseas Chinese consumption concentrates o n l e a t h e r w a r e , w a t c h e s a n d j e w e l l e r y. Purchase category differs with asset size, ordinary consumers prefer perfume, leather goods and apparel, whereas the wealthy tend to purchase jewellery and watches. As would be expected with the noteable price difference, ordinary consumers like to buy branded bags and luggage in various styles, while higher net worth individuals prefer limited edition and customized products.
Graph 4-6 Luxury Goods Purchase Propensity per Asset Class Graph 4-8 Categories of Buying Overseas per Different Asset Classes
4. When Buying Overseas, Ordinary Consumers are more Price Sensitive and Wealthy Consumers Place Emphasis on Individualized Purchase Experience and High-quality Service
travel. However, overseas buying is expected to drop to 20%. That is because of the progress made in logistics, informationization and integration in the global economy. Eventually, Chinese will only go on a shopping trip for products not available at domestic stores, particularly the customized, limited edition and more exclusive designer brands.
2. Tourism Consumption and Cultural Experience Consumption are Themes for the Future The surge of Chinese outbound tourists drives tourism consumption. To visit the original birth places of luxury goods and experience the culture will become a very appealing idea for Chinese consumers.
3. The Predominant Channel is Buying From the Store At present, retail stores and duty-free shops prevail in luxury consumption channels. In the future, they will be gradually replaced by direct purchase from foreign companies, since wealthy Chinese seek the satisfaction derived from high quality experiences at the place of origination. Graph 4-9 Reasons for Buying Overseas by Different Asset Classes
Many market research agencies are under the impression that the fundamental driver for Chinese disposable income vary by asset classes. Ordinary consumers are naturally more price sensitive therefore follow the “buy more” mentality; on the other hand, wealthy consumers care more about personalised shopping experience and high-quality service, which is more sophisticated than a mere sales transaction. The domestic market thus far has miserably failed to meet this demand.
D. The Developing Chinese Duty-Free Market 1. The Duty-Free Market in China Expands Each Year
C. Three Future Trends in Chinese Oversea Consumption 1. Preference for Buying Overseas will Soon Ease Chinese consumers have gone through three phases of luxury goods purchase. Phase I started with the “Reform and Open Up” era until the mid 90s, during which time 80% of luxury purchases were made overseas. The reason is simple: back then the Chinese luxury market was premature and there was not much space for international luxury brands, apart from within department stores and forced to shop overseas as the only alternative. Phase II started in the mid 90s and has continued until now, during which time the percentage of luxury overseas consumption has dropped. The luxury market in China caught up quickly and many
Graph 4-10 Chinese Duty-Free Market, Sales Revenue and Annaul Growth Rate ( 2008-2015 )
luxury brands entered the Chinese market. Besides opening retail stores in tier-1 cities like Beijing, Shanghai, Guangzhou and Shenzhen, the luxury brands also endeavored to tap into tier-2 and tier-
As indicated by The Fortune Character Institute , the retail sales of the Chinese duty-free market is
3 cities to expand sales channels. Today, it is not a dream for domestic consumers to buy favoured
about RMB 16.8 billion, making a 27% year on year growth and a compounded growth rate of 22%. In 2015, China’s duty-free market will exceed ¥30 billion and become the world’s second largest
60% breakdown between buying overseas and buying at home, matching the trend of international
duty-free consumption destination.
2. Three Duty-Free Models
Council-designated franchise company to run
Supervision and Administration Commission
duty-free business across China. Now it has
is the acting investor. It owns seven duty-free
There are three operating models in the
retail locations in Beijing, Shanghai, Xiamen,
stores at Shenzhen border ports and airports.
Chinese duty-free sector. Firstly, the duty-free
Dalian and Qingdao, and covers 29 provinces,
stores at the ports and at downtown locations,
cities, and special administrative regions at
which are the most common form worldwide
over 200 duty free stores located in airports, on
for duty-free business. Secondly, the off-island
planes, at borders, on outbound cargo ships,
Hainan Duty-Free Corporation was approved
duty free store. In March 2011, the Chinese
at transporation hubs, inside the city, at train
in 2011 by the State Council. Its business
government announced a tax exemption policy
stations, and on international cruises.
operates primariy in Hainan province and the
for Hainan Island, and agreed to launch pilot
In 2012, the operating revenue of China Duty-
major business is managing state-approved off-
programs inside the city of Sanya and at Haikou
Free Group made 5.135 billion RMB, growing
island duty free goods and constructing duty-
Airport. This type of duty-free is only seen in
by 33.16% since 2011, and also had a gross
free stores.
Hainan Island (China), Okinawa Island (Japan),
profit margin of 44.08%, increased by 2.87%.
Cheju Island (Korea) and Taiwan. Lastly is the
Among all store locations, the store inside the
duty free foreign currency shopping center, a
city of Sanya generated operating revenue of
very unique type of duty free shopping which
2.037 billion RMB and recorded a 102.66% year
Sunrise Duty-Free was incorporated in the
only exists in China, the Phillipines, and a
on year growth.
British Virgin Islands in 1999 and owns 10-year
handful of other countries.
exclusive rights for duty-free business at Beijing and Shanghai airports.
Port and Downtown Duty-Free Stores:
Corporation
Five Companies in China
Hainan Off-Island Duty-Free Store Zhuhai Special Economic Zone Duty-Free
There are five players in port and downtown
Corporation was established in 1980 and is
Today, there are two off-island duty-free stores
duty-free store businesses in China, namely
reponsbile for managing duty-free business
in Hainan, and one of them is in the city of
China Duty-Free Group, Zhuhai Special
at Zhuhai port. It owns six stores including
Sanya, owned by China Duty-Free Group. In,
Economic Zone Duty-Free Corporation,
Gongbei Port Duty-free Store, the largest
2012 the store made 2.037 billion GBP sales
Shenzhen Special Economic Zone Duty-Free
individual store per square footage.
revenue; in the first half of 2013, it sold 1.843
Corporation, Hainan Duty-Free Corporation and
million items worth ¥1.48 billion. The other
Sunrise Duty-Free Group.
store is located inside Hainan Meilan Airport, Free Corporation
managed by Hainan Duty-Free Corporation. The sales revenue for 2012 is 0.36 billion RMB.
Shenzhen Special Economic Zone Duty-
In the first half of 2013, Hainan Meilan Airport
China Duty-Free Group was established in
Free Corporation was approved by the State
Duty-Free store sold 504,000 items worth 286
1984, and is the only state-owned, State
Council in 1980, Shenzhen State-owned Asset
million RMB.
Two years into implementation, the off-island
watches, apparel, leather goods, luggage,
duty free policy had improved sales of duty-free
sunglasses, travel goods, etc, which are from
by the environment. As in most cases, Chinese
top luxury brands including Gucci, Armani,
buyers do not necessarily know what they want
2013 recorded that 2.347 million items have
Mont Blanc and Dior, as well as fashion brands
and often make irrational purchase decisions.
been sold, increasing 22.63% from the same
such as CK and Guess. In addition, the product
period last year. The total sales revenue was
categories offered at Chinese stores are
Against this backdrop, the model of Chinese
1.77 billion RMB, achieving a 50% increase
incomplete, limiting the choice of merchandise,
city duty-free stores becomes a “luxury
from last year. The total number of buyers
model and size, which can
be a strong
supermarket”, where many supporting services
reached 589,000, with a 4.62% increase
discouragement for consumers. Most shop
such as brand content education, merchandise
compared with 2011.
visitors are tourists, who tend to be very cost
introduction, and in-store entertainment are
sensitive and care about cost-effectiveness of
omitted. The distributors stand no good chance
Foreign Currency Duty-Free Shopping
the purchase. To satisfy their needs, duty-free
of changing these shortfalls at the enterprise
Center- China National Service Corporation
stores are pressured to offer a mix of high-end
level, it requires regulation support from the
for Chinese Personnel Working Abroad
brands and fashion brands, very different from
government, effort from relevant cities, and the
the norm of international duty-free operation.
improved consumption capability of Chinese
China National Service Corporation for Chinese
To some extent, it has had a negative impact
consumers.
Personnel Working Abroad (CNSC) is the
on the brand image of luxury goods, especially
primary operator of Foreign Currency Duty-
those targeting the high-end consumer class.
Free Shopping Centers. Different from other duty-free stores, its policy requires that it can only sell to customers who are Chinese citizens
The majority of duty-free shoppers are price
over 16 years old and who have returned to
In accordance with international business rules,
sensitive. Also, duty-free as a business format
China within 180 days from an overseas trip
when luxury goods retail directly faces the
is under strict government regulation. Although
(Hongkong and Macau not included). A passport
customer, it is on a highly individualized “one-
the policy has been amended to allow more
and valid visa is required at point of purchase,
on-one” model. Aside from the merchandise
flexibility and openness, overall, the steps
and the transaction and delivery is completed
itself, consumers form their perceptions of the
and pace are prudent, which restricts duty-
on the spot. CNSC currently operates 12 such
brand upon the store ambiance, service quality
free from expanding into broader geographic
shopping centers across China.
etc. that create a holistic shopping experience
areas. Outlets, on the other hand, enjoy greater
for consumers. Privacy and exclusive privilege
integration with urban planning, commercial
3. Two Major Issues Concerning Chinese Duty-Free
are highly regarded by consumers. If a store
real estate and specific tourism projects.
does not have enough sales staff to attend all
Meanwhile, the customer base is much broader
Problem 1: Operating Problem of Duty Free
limiting the number of customers per period of
limitation to customer status, outlet stores can
Companies
time. Such an approach would include lining
serve consumers from all social strata.
than border-crossing passengers. Without any
people up outside the store, or even closing Brands International duty-free stores in general source
the store temporarily to assure the quality
Another remarkable trend is online luxury
of service. Especially in the Sanya duty-free
business, which has fast developed into a
shop at the height of tourism seasons, it is a
key channel for luxury retail. It is a typical flat
common that customers have to wait in line to
organizational structure, where consumers are
be served. Needless to say, it has a negative
freed from consumption locations. After sale
their sales channel. In the Chinese duty-free
impact on the buying experience, and is even
service and customer experiences remain a
shops, one will often find perfume, jewellery,
more negative when the customers don't have
challenge, but in comparison with duty-free, it
operates on a lower budget and has much more major sales channels, the future for online retail is uncertain. Problem 2: Policy Direction for the Duty-Free Sector Duty-free business in China is strictly state owned and does not allow foreign participation. It eliminates competition from overseas and, consumer dollars. However, the policy restriction is not beneficial to free market competition, neither does it provide incentives to domestic duty-free groups to seek improvements in their management and operation. The duty-free policy has remained static for decades, without to a changing reality. Some common practices in other global markets, such as in-border duty free stores, purchase tax rebate, and city-center duty-free stores for nationals, have not yet been adopted and implemented in China.
Table 4-1 Most Favoured Brands at Chinese Duty-Free Stores
CHAPTER 5 China Second-hand Luxury Market Report 2013
3. Market Began Mapping Out to Tier-2 and Tier-3 Cities The slowing down of economic development in 2013 didn’t affect the development of the secondhand luxury market. According to The Fortune Character Institute study, the number of second-hand goods stores increased from 512 in 2012 to 823 in 2013 at a rate of 37.8%. What’s worth noticing is that, the newly opened stores were not limited to Beijing, Shanghai and Guangzhou, in fact they started to expand to tier-2 cities such as Changsha, Hangzhou and Chengdu. “Tier-1 cities are leading, Tier-2 and Tier-3 cities are developing”. This explains the new market
purchase them. But, in these cases, these products are non tradable because these people won’t actually sell them.
layout for the second-hand luxury market. This is because the luxury market in tier-1 cities was is
A. Overview of 2013 China Second-hand Luxury Market 1. 300 Billion RMB Market Size and 3 Billion RMB Industry Scale
mature and consumers are more rational. Second-hand luxury goods stores are opening mostly in tier-1 cities for their open-minded consumer attitude. However, China is at the stage of “Channel is King,” which means whoever has the most market share has the control of the market. Since the tier-2 and tier-3 cities have just started their secondhand luxury market development, right now is the prime time to quickly win over those customers.
goods, Chinese consumers represent the major
4. Counterfeit Products are Swamping the Market
part of global luxury consumption. Because a high proportion of the products acquired are
According to The Fortune Character Institute, counterfeit products widely exist in the second-hand
sent out as gifts, the result is a large quantity
luxury market. Sellers purchase them (they don’t produce counterfeit goods themselves) from
of unused second-hand luxury products in
manufacturers and dealers then sell them with consentience.
the market. According to a study conducted
5. “The Value of Luxury Goods Won’t Go Down” is Just a Marketing Stunt The price of a second-hand luxury product is an important indicator of whether a product holds its value. Even though luxury brands increase their retail prices more than once every year, they keep on telling people that buying their product is like an investment. In fact, maintaining product value only exists in certain products from certain brands.
by The Fortune Character Institute, the total value of second-hand luxury products was
In the second-hand luxury market, the price of
approximately 300 billion RMB and the number
unused luxury products is usually 20% to 50%
is still increasing at a high rate of 20%.
less than the original, with an extreme low of 70%. In all of the thousand second-hand luxury
But due to current consumer attitudes and
products The Fortune Character Institute has
Graph 5-1 The Willingness to Buy Second-hand Luxury Goods in Beijing, Shanghai and Guangzhou
under-developed market conditions, until the first half of 2013, the trading value of the second-hand luxury market was only about 3
studied, none had a price that is higher than retail price.
2.Beijing Leading Industry Developments, Tier-1 Cities Developed Faster Than Tier-2/3 Cities
billion RMB. Because the market base is rather
Every once in a while, luxury brands have
small, the growth rate of the second-hand luxury
Fortune Character Institute found out that the willingness to buy second-hand luxury goods
market is faster than the luxury goods business,
was strongest in tier-1 cities, with Beijing on the top and Shanghai came second. 60% of the
increasing at a rate of 30% per year. Most of the
interviewed Beijing customers expressed the need to cash their luxury goods. The reason is that
edition products would maintain their values.
second-hand luxury companies were running on
many companies in Beijing send out luxury goods as gifts, but people receiving them couldn’t use
But for the luxury brands, these are not really
a small scale and on the edge of bankrupt. The
them due to anti-bribery policy concerns and therefore may sell them in the second-hand market.
“limited” or “special”, meaning the number
entire business model is lacking in creativity and
But things are different in Guangzhou. Although it is also a tier-1 city, people showed less desire
of the products is not small enough to keep
limited or special edition products released on Table 5-1 Top 10 brands plagued by Counterfeit products in China
core competence.
the market. Most consumers would think these
their market price. This works the same in the conditions and consumer attitudes.
second-hand market.
Statistics showed that consumers from tier-2 and tier-3 cities were less willing to participate in
The ones that can maintain or increase their
second-hand luxury goods trading. The wealthy class consumers think it will tarnish their social
value are the very rare editions in very rare luxury brands. These products are usually in the
status and the middle class are sensitive to price. The latter considered second-hand luxury goods “still too expensive” and would rather choose counterfeit goods or products from unknown brands.
Table 5-2 Product Value of Luxury Brands
hand of their “big clients” because only they can
3. Second-hand Luxury Goods Welcomed by People with Less Education
general, active trade parties in the market were the ones with less money. This means, second-hand luxury market size was expanding. 80% of active customers were occasional buyers. However, these people have less income and their purchasing power is largely determined by the overall economic growth. Unstableness and price sensitivity make
B. 4 Changes of China’s Second-hand Luxury Goods Consumers in 2013 1. Young “Late 80s” Generation Became the Main Buyers for Second-hand Luxury Goods
them turn to counterfeit products easily. Secondhand luxury goods sellers have had to lower the prices to cater to these customers. This has led to unethical business activities such as counterfeit product trading in the second-hand market. Right now counterfeit goods consist of more than 80% of the products on the market, says The Fortune Character Institute, and this will hurt the China luxury market.
Graph 5-4 The Willingness to Trade Second-hand Luxury Goods in Different Education Level in 2013
The Fortune Character Institute states that the main trading parties in the second-hand luxury market have either bachelor’s degrees or master’s degrees. Better educated consumers (undergraduate and graduate level) tend to trade in the second-hand luxury market, because they were more open to different shopping styles and willing to try something new. In addition, their careers are rising and the need for self-marketing and business gift exchange is great. Interestingly, in 2013, more people with less education started to consume second-hand luxury goods, and the willingness to buy and sell increased to 25% and 44% respectively.
4. Males, for the First Time, Became More Enthusiastic about Second-hand Luxury Goods. In the past it was always been females that was the most active consumers of second-hand luxury goods. However in 2013, The Fortune Character Institute found that more male consumers are interested in participating in second-hand luxury goods trading: their willingness to buy and sell is 25% Graph 5-2 The Willingness to Buy Second-hand Luxury Goods at Different Age Groups in 2013
According to The Fortune Character Institute, the “late 80s generation” (age
Graph 5- 3 The Willingness to Trade Second-hand Luxury Goods in Different Assets Groups in 2013
quality goods.
from 21 to 30) and “late 70s generation” (age from 31 to 40) are the main demographic groups that are buying second-hand luxury goods. And since 2013, the “late 80s generation” became more powerful than the latter one.
2. Second-hand Luxury Goods Welcomed by General Public and Less-wealthy Consumers
In this age group, 27% of them showed willingness to buy from secondhand stores and 50% of them wanted to sell. Apart from the slow economic
The Fortune Character Institute discovered that among the group with
increase, this was also caused by the fact that young consumers are more
less than 10 million RMB assets and the group with 10 to 50 million RMB
sensitive to price and they value “fashion” more than “luxury”. Second-
assets, willingness to sell second-hand goods increased dramatically by 48% and 50% respectively. At the same time, their willingness to buy
careers have hit the sweet spot, they had more desire for luxury brands and
second-hand luxury goods dropped to 29% and 21% respectively. In
leather and luxury cars.
C. 4 Common Mistakes in Second-hand Luxury Business Management 1. “Trade” rather than “Service” Currently most second-hand luxury goods sellers The Fortune Character Institute states that the main trading parties in the second-hand luxury market have either bachelor’s degrees or master’s degrees. Better educated consumers (undergraduate
mistake. From the whole luxury industry’s point
and graduate level) tend to trade in the second-hand luxury market, because they were more open to
of view, it is not hard to see that the second-hand
different shopping styles and willing to try something new. In addition, their careers are rising and the need for self-marketing and business gift exchange is great. Interestingly, in 2013, more people with less
hand market. But the second-hand market value
education started to consume second-hand luxury goods, and the willingness to buy and sell increased
is also not as good as the service market. As
to 25% and 44% respectively.
early as 2011, The Fortune Character Institute had emphasized the importance of service in
4. Males, for the First Time, Became More Enthusiastic about Second-hand Luxury Goods.
the second-hand market. But until 2013, most second-hand luxury goods sellers were still doing “trading”. It’s like going to fight a big enterprise
In the past it was always been females that was the most active consumers of second-hand luxury
without armour. Today, international luxury brands
goods. However in 2013, The Fortune Character Institute found that more male consumers are
haven’t had an integrated service system in China
interested in participating in second-hand luxury goods trading: their willingness to buy and sell is 25%
yet, therefore they need a platform that connects those unused luxury goods from consumers and
leather and luxury cars.
their service channels. Smart second-hand luxury goods sellers would want to be at that meeting point. “Service” will have more opportunities than just “trade”.
2. Make “Second-hand” “New” Right now, most second-hand luxury goods stores are trying to make their items “new” and assume they will have bigger selling point than “second-handed”. Wrong again. If they make the products new, then they are directly competing with luxury brand retail stores. In which case, if their products are sold at a lower price, luxury brands will “strike back”. Making old luxury goods Graph 5-5 The Willingness to Trade Second-hand Luxury Goods in Different Gender Groups in 2013
new is the worst choice for store owners.
3. “Selling” not “Branding”
for them to get professional support. In addition, there are not enough luxury brands management
Although there is a lot of pressure on the second-
Popular brands in the second-hand luxury
hand luxury market, it is actually the best time
market are, without doubt, the most well-known
to start. Because market entrance is low and
and recognized brands in China. Good market
courses in colleges. 3. Counterfeited Goods
reputation will attract lots of potential clients brands could win a substantial amount of market
therefore increasing its brand value in the
Counterfeit goods are the biggest obstacle in
share.
second-hand market. Some other brands might
the development of the second-hand luxury
perform very well at first-hand market but only
market. Second-hand luxury goods sellers only
Nowadays there are two main selling channels
few costumers would recognize and love them.
aim for money and costumers don’t have enough
in the second-hand luxury market, i.e. stores and
They get the cold shoulder from the second-
knowledge or a mature consumer attitude.
online stores. Physical stores would have the
hand market where the majority of customers’
These are the main reasons for the existence of
huge advantage of giving people the opportunity
purchases are not a spontaneous.
counterfeit products in the second-hand luxury
to experience, whereas online stores could break limitations of location and time. If these two channels are combined, the industrial chain
market.
D. Obstacles in China’s Second-hand Luxury Market
4. Lack of Industrial Standards
1. Shortage of Supply
The rising second-hand luxury market is chaotic.
would be more completed and consumers would be better satisfied. A single selling channel has disadvantages, and problems such as how to
One of the reasons is that there are not industry
identify the authenticity of the product, how to keep
The second-hand luxury market is a typical selling
standards. Although some second-hand luxury
supply sufficient, how to ensure service quality
market, just like that of new luxury products.
companies might consider themselves as being
and how to enforce the shopping experience. That
Supply, especially new (unused) second-hand
models for the industry, they are immature
is why combining both channels is so important,
supply, is the key to winning in the second-hand
too. These “models” might not be good for the
as they could complement each other to reach
luxury market.
development of industry standards.
But, as most of the second-hand luxury sellers At present, second-hand luxury goods owners
lack the experience of working for rich people and
don’t invest enough on branding and the
big clients, their capability to integrate second-
marketing efforts are merely “sales promotion”.
hand supply is low. Most of them still use buyers to
1. Comprehensive luxury goods
collect end of line luxury goods, they then sell the
service will be the only choice for
products to other organizations, and sometimes
future successful second-hand luxury
they even sell counterfeit goods, which would be
companies.
a big obstacle for future development of the China
2. E-commerce will be the main trading
4. If the First-hand Market Does Well, So Should the Second-hand Market. “Second-hand” is always the “invisible”
second-hand luxury market.
market form, the performance of the secondhand luxury market will in some way affect
platform for second-hand luxury goods,
2. Lack of Professionals
3. Luxury brands will enter the secondhand market. And the re-circulation in the
Luxury industry is a new industry so it is lacking
hand luxury market themselves.
second-hand market will increase sales in the
professional staff and after-sales staff. Most
4. “C2C” (consumer-to-consumer)
first-hand market. However the value of the
second-hand luxury goods sellers don’t have
business model will have bigger market
second-hand market is not determined by the
good relationships with luxury brands, so it is hard
opportunities.
Talent is commonly believed to be a key driving force in economic development. As a result, talent development seems to draw the most attention when the economy is evaluated. For the first time, The Fortune Character Institute studied the China luxury market from a human resources perspective, and launched 2013 Human Resources Report to China Luxury Industry through collaboration with DHR . There is no doubt that the luxury industry offers one of the highest salary rates. According to the Human Resources Report to China Luxury Market, 50% of industry practitioners have an average monthly salary of 5,000 to 10,000 RMB, who are mostly experienced in-store sales staff. Similarly, 26% has an average monthly salary of 10,000 to 20,000 RMB, and this group is likely
Table 6-1 Average Annual Salaries by Occupations in Chinese Luxury Industry
to include store managers or junior operations managers. Those that have an average monthly salary of more than 30,000 RMB are at director level or above, who make up 3% of total employees. Also mentioned in the report is that although few, top management of major brands in China (known as the “golden collar”) are on
CHAPTER 6 Human Resources Report to China Luxury Industry 2013
average being paid for 150,000 RMB per month or 1.5 million to 2 million RMB per year. They also receive bonus or commission depending on performance. The report believes that professional buyers, store managers, customer service managers, maintenance and professional market best potential for generating a pay rise. The study has concluded that luxury industry
Table 6-2 Top 5 Jobs in Luxury Industry with Best Potentials for Salary Increase
practitioners are on average quite young (born in the 70’s or 80’s). Most of them have an excellent
either take up employment opportunities or to start their own businesses in luxury industry.
education background and make the luxury industry a talent intensive sector. For example,
The sense of honour that comes with working in the luxury industry or being associated with luxury
over 80% of store staff have bachelor degrees
brands is one of the key reasons why industry practitioners choose to work for luxury brands. In the
or above. It is worth mentioning that the luxury
meanwhile, other opportunities that luxury brands might offer such as travel and training are also very
industry is the most attractive to graduates from
appealing to practitioners.
Graph6-1 Background of People inDifferent Luxury Positions
Graph 6-3 General Perception of Scarcity of Luxury Industry Talent Resources
Graph 6-4 Common Recruitment Approaches for Luxury Brands
Graph 6-5 Effectiveness Ranking of Recruitment Approaches in Luxury Industry
Graph 6-6 Key Employment Accesses in Luxury Industry
Graph 6-7 Industry Practitioners’ Perception v.s. Public Impression of Luxury Market
Graph 6-8 Intention to Leave Among Luxury Practitioners
Graph 6-2 Key Reasons Why Jobs in Luxury Industry are Appealing (Rate 1 to 10)
Riding on the fast booming of luxury industry in China since 2008, the market need for talent has been growing equally fast and has reached an average increase of 30% each year. Currently, the Chinese luxury market involves approximately 140,000 practitioners covering different functions such as brand management, retail, design, manufacturing, customer service, public relations, media etc. In addition, there are also around 350,000 people from other industries who work very closely with luxury industry. This group covers logistics, property management, education, tourism, hospitality and hotels, conferencing services and some other areas. Talent recruitment is a big challenge for the luxury industry in China, and 57% of luxury brands agree that the current talent resources are not going to meet the demands of their business expansion. The Fortune Character Institute estimates that current vacancies in luxury markets include 3,000 for managerial shop assistants. Due to the lack of talent in luxury industry, hiring from competitors through headhunters has become candidates for their vacancies, especially for senior positions such as store managers and above. Compared with the high service fees paid to headhunters, internal referrals seem to be a more effective brand by recommendation of other employees.
Despite the common admiration of the luxury industry, some of industry
Most industry training is done internally by senior management, and this makes up 47% of total training.
practitioners think differently. 45% of them do not feel the industry itself is
This is largely due to the relatively low training budget within the industry. 37% of training hse been
at all special, and there is another 28% who feel the psychological contract
outsourced to training organizations, most of which are not specialized in luxury subjects. Colleges
formed when they had just joined has been broken and also describe the
and universities are only playing a minor role (only 5%) in terms of providing training for luxury brands. Therefore, human resources training services for luxury brands can expect a promising future.
The survey has shown that 61% of luxury industry practitioners would not consider job changing within the coming year, compared with 29% who show the opposite interest as well as another 10% who are unsure. The overall turnover rate of the luxury industry is comparatively low. The main with their working environment, salary, welfare and career opportunities. The HR functions in the luxury industry, on the other hand, hold a different opinion, and they think the turnover rate is still higher than they expected.
Graph 6-9 Key Reason for Luxury Industry Employee Turnover
However, the turnover is still quite low in comparison with FMCG industries, especially the in-store client serving businesses. The reasons for job changing in the luxury industry vary. According to the Graph 6-12 Key Training Resources for Luxury Brands
study, the biggest motivation seems to be better opportunities given, making up 32% of total. Personal reasons such as getting married and pursuing further studies are ranked number two, followed by dissatisfaction with employment packages, which is the major reason for turnover among senior staff. There are also other factors including disappointment in company performance and employee relationships. The frequent poaching of talent from competitor companies has become one of the biggest reasons for the fast growth of salaries in luxury industry. The more known the brand is, the higher the turnover rate is. Some
Graph 6-10 Key Reasons for Luxury Industry Employee Turnover by Positions
employees at top brands see their job as only a platform, and would leave common view of high industry turnover with the HR functions as mentioned above. Offering a competitive salary is a key approach for maintaining staff in the luxury industry. Apart from that, employee management, including training is also frequently adopted by luxury brands. However, this is largely luxury brands has only recently been introduced. Sales related knowledge and skills including consumer psychology and customer service are the most in-demand training topics. Graph 6-11 Demand for Skill Enhancement by Employees’ Positions
Graph 6-13 Luxury Brands’ Annual Budget for Staff Trainings
Table 6-3 Best Employers in China Luxury Market (Top10 )
Table6-4 Most Popular Luxury Employer ( Top10 )
Table6-5 Luxury Brands with The Best Staff Performance (Top 20)
Table6-6 Renowned Trainers in China Luxury Market ( Top 10 )
2
9
10 7
8 TOP10 CEOs of chinese Luxury Industry in 2013
6
4
5 3 1
Luxury Industry 2013 People Award
Luxury Industry 2013 Award of Professional
TOP Star Favored by Luxury Brands
Luxury Industry 2013 Award of Innovation
Luxury Industry 2013 Award of Artist
TOP Chinese Designer