RETAIL LUXURY BRANDS IN CHINA CONSUMER MARKETS ppt

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RETA I LLuxury brands in ChinaCONSUMER M A R K E T S© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.Contents Introduction 2Key findings from TNS 4Luxury brands and the retail sector in China 10Profiling the Chinese consumer 14Strategies for luxury brands 18The challenges ahead 24Tax and regulatory issues 28KPMG contacts 32© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.IntroductionChina has experienced a relentless surge in consumer buying power since the 1990s. The Chinese consumer has become wealthier and more accepting of Western retail formats – with international supermarket chains, department stores and mass retailers paving the way for luxury retailers. Luxury brand companies have been investing in the Chinese market, with Louis Vuitton, Bally, Gucci and Ferragamo among the first wave of retailers to open outlets in China more than 10 years ago.1 But now, with consumer spending power increasing and the loosening of government restrictions, foreign luxury brands face pressure to strengthen their commitment to the mainland or risk losing ground to their rivals.Luxury is a constantly evolving and subjective concept, and not easy to define. But more often than not, the word is used to define an inessential but desirable item or a state of extreme comfort or indulgence. What sets luxury brands apart is that they command a premium without clear functional advantages over their counterparts. Yet consumers are willing to pay the significant price difference because they have a unique set of characteristics including premium quality, craftsmanship, recognisability, exclusivity and reputation.2Luxury brands not only convey a standard of excellence, but act as social codes indicating access to the rare, exclusive and desirable.3 This makes the luxury market a particularly interesting one because it represents consumption at its most hedonistic and seemingly irrational – purchasing for the personal pleasure it provides despite the financial cost.1 “Luxe biz takes off in Chinese market”, Footwear News, Vol 61 (17), 20052 “The mass marketing of luxury”, Business Horizons, Vol 41 (6), 19983 Kapferer, J.N.: Reinventing the Brand, 20012Luxury brands in China© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.Nick DebnamHead of Consumer Markets, Asia PacificKPMG in China and Hong Kong SARGeorge SvinosHead of Retail, Asia PacificKPMG in AustraliaThe luxury brands currently operating in China are largely of European origin and span across various retail sectors such as fashion apparel and accessories, footwear, perfume and cosmetics, jewellery, automotive, and liquor. In this report we profile the patterns of luxury consumption in China and explore some of the trends and challenges facing luxury brands, including the complexities of valuation and classification, which can have important tax and regulatory implications. The report includes some excellent primary research from TNS, which highlights how attitudes towards luxury brands vary within this huge and diverse country.We would like to extend warm thanks to the Australian Centre for Retail Studies at Monash University and TNS in China for their efforts in researching and compiling this collaborative report.Luxury brands in China3© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.In October 2006 TNS surveyed more than 830 people across China on their attitudes and spending habits towards luxury brands. The respondents were identified by age and place of abode. All respondents were between 20 and 45 years of age and resided in first or second tier cities, earning a minimum of RMB 3,000 per month. Almost two-thirds of the respondents were married and 77 percent were educated to college or university level.Key findings from TNSAbout TNSTNS Shanghai28th Floor, Finance Square333 Jiujiang RoadShanghai 200001ChinaTel: +86 (21) 6360 0808ContactsPaul ZhouDirector Paul.zhou@tns-global.comSandy ChenAssociate Research DirectorSandy.zhan.chen@tns-global.comTNS is one of the world’s leading market research companies, providing custom research and analysis, political and social polling, consumer panel, media intelligence and TV and radio audience measurement services. TNS provides market measurement, analysis and insight through a global network of operating companies in 70 countries. TNS’ strategic goal is to be recognised as the global leader in delivering value added information and insights that help their clients to make more effective decisions. "TNS is the sixth sense of business". 4Luxury brands in China© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.The survey shows that attitudes to luxury brands among China’s aspiring middle class are overwhelmingly positive. For example:• The majority of respondents regard owners of luxury brands as being successful and having good taste• Fewer than 2 percent of respondents regard owners of luxury brands as “superficial”• Over half of respondents said they longed to buy luxury goods, even if they could not afford them at present.Figure 1: Attitudes to luxury brandsNegative Positiven Strongly agree n AgreeFigure 2: Attitudes towards people who own luxury brandsNegative Positiven Average n Shanghai n Beijing n Guangzhou n Tier II citiesPercentPercentLuxury brands in China5© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.Owning luxury goods demonstrates my success and social statusI appreciate the superior quality of luxurious brands, not simply the pursuit of famous brand namesI long for luxury goods but I can’t afford them right nowI own luxury goods because of work necessitiesI own luxury goods to reward myselfLuxury goods give me confidenceI own luxury goods because they are popular in my social circleI don’t like to show off, so I would not buy any luxury goodsI am practical and not willing to pay the premium claimed by luxury goods0 10 20 30 40 50 60 70 80They are successfulThey have good tasteThey are fashionableThey are showing off, flashyNouveau richeThey are wasting moneyThey are superficial0 10 20 30 40 50 60 70 80Figure 3: I own luxury goods to reward myself (by income)Monthly income level0n Strongly agree n Agree20 40 60 80Above RMB 10,000RMB 7,000 - 9,999RMB 3,000 - 6,999Figure 4: Attitudes positive in second tier citiesPercentOwing luxury goods demonstrates my success and social statusI own luxury goods because they are popular in my social circle0 10 20 30 40 50 60 70n Shanghai n Beijing n Guangzhou n Tier II citiesAttitudes towards luxury goods are equally positive among different age and income segments. However higher income consumers claim they are more likely to buy luxury goods as a means of self-reward.Respondents in Shanghai were, in many respects, the most cynical in their attitudes to luxury and the least likely to own luxury brands as a status symbol.6Luxury brands in China© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.The outlook remains positive for luxury consumption in China. Consumers show a strong intention to purchase luxury products in the next 12 months, with the appetite for luxury goods relatively similar among the three largest cities and second tier cities.The research from TNS confirms that attitudes towards credit among Chinese consumers are still somewhat conservative. The willingness to purchase luxury goods on credit is still low, the exception being for bigger-ticket items such as jewellery.Figure 5: Intention to purchase luxury products in the next 12 monthsn Average n Shanghai n Beijing n Guangzhou n Tier II citiesFigure 6: Willingness to purchase luxury items on creditPercentn Average n Shanghai n Beijing n Guangzhou n Tier II citiesClothesBags and footwearWatches Pens Comestics and perfumeJewellery01020304050PercentClothesBags and footwearWatches PensComestics and perfumeJewelleryn Average n Shanghai n Beijing n Guangzhou n Tier II cities0102030405060Luxury brands in China7© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.While most purchases were made domestically, in most product categories at least 30 percent of shoppers had made luxury purchases in Hong Kong, Macau or Taiwan. Shoppers proved more inclined to buy clothes, watches and jewellery in a branded store, but to buy accessories and cosmetics in a department store. Figure 7: Location of luxury purchases in past yearPercentage of responsesClothes Bags and footwearWatches Pens Comestics and perfume020604080100Jewelleryn Chinese mainland n Hong Kong/Macau/Taiwan n Southeast Asia n Japan/Korea n Europe n U.S./Canada8Luxury brands in China© 2007 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.[...]... independent member irms afiliated with KPMG International, a Swiss cooperative All rights reserved 9 10 Luxury brands in China Luxury brands and the retail sector in China Foreign companies share a growing interest in tapping into China s luxury market Statistics show not only that the number of wealthy people is growing fast in China, but that their willingness to spend on big-ticket items is also... reserved Luxury brands in China Domestic luxury brands In the past few years, local Chinese brands, once fragmented and backward, have been evolving rapidly Local brands in China have been quick to pick up successful retail strategies from foreign entrants, establishing themselves in good locations and growing at a rapid pace And, while most Chinese brands have yet to gain global visibility, within China. .. of the KPMG network of independent member irms afiliated with KPMG International, a Swiss cooperative All rights reserved 17 Luxury brands in China Source: ACRS 18 Strategies for luxury brands For certain luxury brands, China has already outstripped both Japan and Hong Kong as the largest single market in Asia Pacific.37 But the growing presence of luxury brands in China is bringing with it greater competition... stores in China. 45 • Rapid expansion Most of the world’s leading luxury brands are rapidly expanding their China operations That push is now extending to smaller Chinese cities such as Qingdao, a northern resort town and Chengdu in Sichuan province Many of the brands active in China s luxury market have plans to expand with boutiques in second and third tier cities.46 Generally, the path for luxury brands. .. success factors for luxury goods companies looking to expand in China? , 2006 © 2007 KPMG, a Hong Kong partnership and a member irm of the KPMG network of independent member irms afiliated with KPMG International, a Swiss cooperative All rights reserved Luxury brands in China • Promoting a culture of luxury For luxury brands in China, the focus should not just be on selling products Luxury brands need to... mainland China over the next few years • Store formats Most Western luxury brands have made the choice to not alter their formats when operating in China as they believed that even minor adaptations could seriously damage the parent company’s brand and global positioning In China this has been working as Chinese shoppers are embracing international retail concepts Luxury brands are operating mega-store... among aspiring young shoppers As China is developing, such strategies are not yet central to their success, but as the market becomes more mature and competition intensifies, more luxury brands in China may consider this approach • Local lines Some luxury brands operating in China are seeking a local relevance, creating products that are specifically tailored towards or centred around Chinese consumers... Luxury brands in China Source: ACRS 14 Profiling the Chinese consumer While hard work and plain living have been revered virtues of the Chinese people for generations, there has been a growth in demand for foreign-branded or imported goods.19 But running counter to the growing habit of consumption in China is the traditional propensity to save Though luxury consumption is growing, for most the dominant... genuine products.24 Studies suggest that people in Hong Kong are becoming more discerning when it comes to buying genuine clothing brands, accessories and electrical goods, despite the ready availability of fake goods.25 Luxury brands will be hoping that a similar change in attitudes occurs, over time, on the mainland • Shopping for pleasure “Mall culture” has arrived in China and shopping is increasingly... consumption market by 2015” SinoCast China Business Daily News, 12 February 2006 , 50 In the lap of luxury Beijing Review, 2 June 2005 , © 2007 KPMG, a Hong Kong partnership and a member irm of the KPMG network of independent member irms afiliated with KPMG International, a Swiss cooperative All rights reserved 23 24 Luxury brands in China The challenges ahead Luxury retailing in China clearly presents tremendous . percent of all luxury spending in China was dictated by men. Today, women in China are starting to gain economic independence and are reaching a point where. for Retail Studies at Monash University and TNS in China for their efforts in researching and compiling this collaborative report. Luxury brands in China 3©
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