Luxury groups should be disclosing their sales by nationality, not by region. I know, it sounds a bit counter-intuitive but when you’re trying to gauge the scale of emerging markets, don’t look at those markets, look at their citizens because increasingly, luxury consumers, especially the Chinese, are purchasing the goods outside of their domestic market. As I describe in “The Bling Dynasty”, luxury is driven by the Chinese, not by China. As a result, drivers to look for to assess future sales growth are more linked to what stimulates outbound travel and necessarily by GDP-type measures. Of course, a strong GDP will correlate positively to outbound tourisms but there are many more factors at play.
Here’s looking at a simple acronym T-R-A-V-E-L to explain why Chinese and others are buying abroad:
Time – Regulation – Affordability – Validation – Experience – Legitimacy
Time: What do you lack all year round when you are trying to make a living and prove your social status? Time! Travel, whether for business or pleasure, gives you that time to reflect on the future and, why not, treat yourself to a gift. Most people are keener to spend during holidays or business trips, whether on a restaurant meal, a watch or a bag.
Regulation: Until recently, there were no direct flights between the mainland and Taiwan, due to regulation, not logistical reasons. Chinese nationals had to go via Hong Kong if they wanted to spend some time in Taipei. Even today, there are quotas, and only inhabitants from certain cities can apply. Regardless, Chinese inbound travellers flying in from the mainland have gone from nil to close to 3 million in the seven years from 2007 to 2013. Many Western markets have proven to be difficult for mainlanders to travel to. The United States is one of many examples of this, but it’s now finally on the map for Chinese tourists. A memorandum of understanding was signed in 2008 between China and the United States to facilitate group leisure travel.
Affordability: In the luxury sector, it’s become a no‐brainer for mainlanders to buy abroad. Hong Kong is a great city and the harbour is beautiful but mainlanders have also come because it’s a very convenient hub to shop in. It takes just under two hours on the train from Guangzhou, and what consumers are after costs 20% to 30% less in Hong Kong. Buying an iPad in the United States to benefit from a weaker dollar or buying a Swiss‐made watch in Hong Kong rather than in Mainland China to benefit from the absence of the value‐added tax (VAT) and to avoid consumption and import tax are more common than before. Mainland Chinese purchases probably account for more than 60% of handbags and 80% of watches sold in Hong Kong. Indeed, the price for a return flight to Hong Kong from the mainland is more than offset by more favorable tax and duties on high‐end watches.
Validation: Beyond the shopping experience, purchasing luxury goods abroad can enhance a traveller’s apparent status. This gives the Chinese customer a sense of belonging to an international yet more exclusive and sophisticated group of customers. When posting a picture on Weibo, users may want to think about how to frame it: Level 1 could be to post a picture of a Prada leather handbag: not bad. Level 2 would be posting a picture of you holding it: better! Level 3, the ultimate, really, would be to have the Milan Duomo behind you on the picture you post: ‘You were there, how cool!’
Experience: It is not uncommon to find in Hong Kong the rare designs of Swiss watches or LV handbags that cannot necessarily be found on the mainland. Product collections can be wider abroad. The product assortment and the service that goes with it (i.e., knowledgeable staff) are other reasons to shop outside the mainland. There are countless stories about luxury store staff members in China leaving to work for KFC for a 5% pay rise. One thing is for sure, though. Interview any luxury brand manager who is responsible for developing China sales and ask what the main challenges are. Invariably, you will get the same answer: “I struggle to recruit and retain the appropriate staff for my brand”.
Legitimacy: Another reason mainland tourists prefer to shop abroad is for the assurance that they are buying authentic, high‐quality products. With the prevalence of counterfeit goods in China, Chinese consumers can feel more assured that the products they purchase are what they claim to be when they purchase those items abroad. Purchasing products in their country of origin is extremely reassuring.
The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun by Erwan Rambourg; ISBN: 978-1-118-95029-6. Copyright © 2014 by Erwan Rambourg. Reprinted with permission of Wiley.