Bosses of the world’s luxury groups may be sanguine about the prosperity of their customers but Chinese shoppers are becoming savvier about where to spend their millions
If you can keep your head when all about you are losing theirs, then you might well be the immaculately groomed boss of a global luxury business.
Fears over the health of China’s economy have caused global stock markets to tumble and traders to turn more ashen-faced than usual.
Chinese consumers were estimated to account for more than 30pc of the €230bn (£167bn) luxury purchases by the end of this year, according to recent research by Bain & Company.
But the luxury sector’s sages are unconcerned by the skirmishes of financial markets and have placed their faith in the belief that there is a never-ending supply of aspiration that fuels their sales.
Titans of luxury define their market into four categories. There is the top tier of crème de la crème shopper who has so much wealth that they are unaffected by day-to-day market slides and generally detached from the realities of economy; a second tier made up of those who are wealthy and so loyal to their luxurious lifestyles that they would only consider a halt to spending if something desperate personally affected them; the third are those who can afford luxury purchases once in a while and the fourth tier of shopper can treat themselves to discounted luxurious items, entry level products like purses or lower-luxury brands such as Coach and Michael Kors.
While a Coach coat can easily cost more than £1,500, it is not deemed to be a luxury brand by those who typically embrace Hermes.
Retail investors make up around 85pc of the Chinese stock market, but are typically those in the third or fourth tier of luxury shoppers, or are even counted as lower-middle classes.
But despite the dent in the spending power of the world’s most voracious shoppers, not everyone is feeling the pain.
“My typical customer will not be betting their house on the stock market. They might have three or four houses already and maybe some of the money left over might be invested but it will not be their fortune,” one luxury boss told me recently on the condition of anonymity.
As Laurence-Anne Parent, a managing director for consultants Advancy, told industry bosses on Wednesday at the World Retail Congress in Rome: “Everyone was saying that China was going to be a disaster this year but it’s not been that bad. There are more and more billionaires and they’re getting richer. If you take all the billionaires in China together, their wealth grew by €200bn in the first half of this year.”
Arguably this would put a large portion of China’s shoppers into the first and second categories of luxury consumers.
However, despite bullishness on the top-tier of billionaires, life in China for Western retailers has become much more difficult. The country’s anti-bribery crackdown has already caused a slide in sales at Pernod Ricard, maker of premium cognac Martell, and flashy watch brands like Cartier and Tag Heuer.
And shares in luxury groups Kering, LVMH, Richemont and Burberry have already been pushed lower by the recent move by the Chinese central bank to devalue the renminbi, which has added to troubles, as it makes luxury imports more expensive.
Western retailers have already been forced to drop prices in the country. European luxury brands have historically been able to charge 50pc more for the same handbags in China as in Europe, which has previously accounted for their flourishing growth.
In addition, many brands are closing or relocating from the main cities like Shanghai and Beijing, whose inhabitants are showing a fondness for travelling and are saving their pay cheques for shopping trips abroad. Chinese visitors tend to plan upcoming shopping trips two to three months in advance, according to research by Walpole, and research online price differences between luxury goods bought in their home markets and abroad.
This kind of shopping arbitrage has led to the rise of third-party selling agents, known as “Daigou”, which is fuelling the practice of savvy shoppers placing orders abroad. Two-thirds of the billions spent by Chinese consumers on personal luxury items was made outside the country as high import costs can make the same Hermes Birkin or Cartier watch almost 30pc cheaper than in Europe.
The booming daigou market was valued at $12bn last year and sites such as 65daigou and OnlyLady have made the practice credible. But the daigou market is just one area of digital shopping market which is transforming the luxury market.
Chinese shoppers are turning to social media to create trends using the app known as “little red book”, a play on chairman Mao’s original book of quotations, or WeChat, which lets customers buy goods directly through their messaging apps. The WeChat service already has more than 450m active users in the world and during Chinese New Year over 2bn people linked bank accounts with the service in just two days.
The potential for luxury brands to harness this evolving Chinese social commerce has been demonstrated by the recent move by LVMH to hire former Apple and Beats executive Ian Rogers as its chief digital officer.
While investors will be carefully watching the share prices of Kering, Richemont and Burberry, the best indicator of China’s luxury spending power will be in two months’ time on Singles Day, a national day for people who are single. Last year’s celebrations on November 11 saw $5.7bn of spending in just one day – more than triple what America saw on Cyber Monday. It will be up to luxury brands to defy economic jitters by beefing up their digital powers.
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This article was written by Ashley Armstrong Retail Correspondent from The Daily Telegraph and was legally licensed through the NewsCred publisher network.