Page 292 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
and purchasing power. In 2016, the growth of local grew more than 50 percent globally in 2016. According
luxury purchases exceeded that of tourist purchases by to a report by KPMG, 45 percent of China’s online luxury
5 percentage points, the first time that has happened shoppers now buy most of their high-end goods online.
since 2001. Growth rates had historically been strong in Half of China’s domestic luxury consumption will be
China—19 percent from 2007 through 2014. But since generated online by 2020, KPMG predicts. Luxury retailers
2014, China has seen a more modest performance. can adapt to this changing landscape by integrating their
However, in 2016, at constant exchange rates, the market offline and online sales channels and figuring how to best
grew 4 percent, the first sign of revitalization in three connect with consumers through digital technology.
years (D’Arpizio et al.). Today’s global consumers are making full use of social
media, mobile search and payment apps for most of what
Luxury goods sales to Chinese shoppers, who make they buy, both offline and online. No longer content to
up roughly a third of global consumption, will shrink shop exclusively in physical stores, consumers want a
for the first time in modern history in 2016, according seamless, digital-enabled, multi-channel experience that
to Bain. The consultancy estimated luxury goods sales requires a different type of engagement by brands, he
in Hong Kong fell 15 percent for the full year 2016. The said (News Desk).
drop can be partly explained by Hong Kong’s U.S. dollar-
linked currency, which appreciated in line with the Consultancy Bain & Co said in a report that the
U.S. dollar’s 6.6 percent gain against the yuan. Claudia Mainland China market witnessed a “re-localization”
D’Arpizio, a Milan-based partner with Bain, said that trend in 2016 when the growth rate for local luxury sales
luxury brands could no longer rely on “low-hanging fruit”, exceeded that of overseas purchases by Chinese tourists
adding that the downturn would likely force a wave of by 5 percentage points, the first time that has occurred
consolidation, with a few brands likely to emerge as since 2001. In January 2017, Burberry said its China
winners while others may fold. Following years of retail fiscal third quarter sales increased by a high single-digit
expansion across China, top labels such as Gucci and percentage. This month Swatch Group also spoke of“very
Louis Vuitton closed some boutiques in smaller inland good growth” in mainland sales for the three months
cities in 2016, in a bid to trim back their retail network ending January in its watches and jewelry segment, with
and restore scarcity value. CLSA Analyst Mariana Kou a substantial improvement in operating margins. LVMH
said their channel checks point to an upswing across the also highlighted its “better momentum” after a tough
luxury goods sector in the third quarter. “Brands are now 2015 in its wines and spirits segment. Fitch said the
focusing more on entry-level products,” said Kou adding: recovery, partly driven by Chinese consumers bringing
“As consumers look for lower-price-point products, they home some of their overseas spending, was bolstered
are also reassessing the savings from tax refunds and by a weaker yuan, jitters over terrorist attacks abroad,
the costs of travelling. Hence, we are increasingly seeing the narrowing gap between domestic and international
some purchases shifting back to Asia.”Richemont’s Piaget prices, and Beijing’s stricter approach on taxing overseas
recently launched a lower priced sports line to tap into purchases. The yuan depreciated nearly 7 percent against
shifting spending habits, while Prada has been focusing the U.S. dollar in 2016, its biggest such loss since 1994
on HK$1,000 to HK$2,000 bags. Discounts will become and the worst performing major Asian currency that year.
more prevalent in China going forward due to the growth A less valuable yuan reduces its buying power in overseas
in outlet malls (Ge). markets (Paton).
Despite being battered by sluggish consumer spending The outlet mall segment is seeing growing, bolstering
and rising online shopping, luxury brands should look luxury goods sales in China. Benoît-Etienne Domenget,
to China for fresh strategies and solutions, according to CEO of Swiss-based Sommet Education, which runs a
Alibaba Group President Michael Evans. “One only has luxury brand management course at Glion Institute of
to look at China today to glimpse the future,” Evans said. Higher Education, said outlets in China are expanding
“The country is leapfrogging brick-and-mortar retail. their presence to third-tier cities after experiencing
Shopping is not only happening online, it’s happening slumping sales at main street boutiques over the last few
principally on mobile.” But Evans maintained that the years. “The growth is a result of the country’s changing
Chinese market, representing one third of the total global economy and a rising middle class and upper middle
luxury market, is “too big to ignore”. And while offline class, who are nurturing their taste with a wider range
luxury sales have stagnated in recent years, online sales of luxury brands and entering into the high fashion
292
and purchasing power. In 2016, the growth of local grew more than 50 percent globally in 2016. According
luxury purchases exceeded that of tourist purchases by to a report by KPMG, 45 percent of China’s online luxury
5 percentage points, the first time that has happened shoppers now buy most of their high-end goods online.
since 2001. Growth rates had historically been strong in Half of China’s domestic luxury consumption will be
China—19 percent from 2007 through 2014. But since generated online by 2020, KPMG predicts. Luxury retailers
2014, China has seen a more modest performance. can adapt to this changing landscape by integrating their
However, in 2016, at constant exchange rates, the market offline and online sales channels and figuring how to best
grew 4 percent, the first sign of revitalization in three connect with consumers through digital technology.
years (D’Arpizio et al.). Today’s global consumers are making full use of social
media, mobile search and payment apps for most of what
Luxury goods sales to Chinese shoppers, who make they buy, both offline and online. No longer content to
up roughly a third of global consumption, will shrink shop exclusively in physical stores, consumers want a
for the first time in modern history in 2016, according seamless, digital-enabled, multi-channel experience that
to Bain. The consultancy estimated luxury goods sales requires a different type of engagement by brands, he
in Hong Kong fell 15 percent for the full year 2016. The said (News Desk).
drop can be partly explained by Hong Kong’s U.S. dollar-
linked currency, which appreciated in line with the Consultancy Bain & Co said in a report that the
U.S. dollar’s 6.6 percent gain against the yuan. Claudia Mainland China market witnessed a “re-localization”
D’Arpizio, a Milan-based partner with Bain, said that trend in 2016 when the growth rate for local luxury sales
luxury brands could no longer rely on “low-hanging fruit”, exceeded that of overseas purchases by Chinese tourists
adding that the downturn would likely force a wave of by 5 percentage points, the first time that has occurred
consolidation, with a few brands likely to emerge as since 2001. In January 2017, Burberry said its China
winners while others may fold. Following years of retail fiscal third quarter sales increased by a high single-digit
expansion across China, top labels such as Gucci and percentage. This month Swatch Group also spoke of“very
Louis Vuitton closed some boutiques in smaller inland good growth” in mainland sales for the three months
cities in 2016, in a bid to trim back their retail network ending January in its watches and jewelry segment, with
and restore scarcity value. CLSA Analyst Mariana Kou a substantial improvement in operating margins. LVMH
said their channel checks point to an upswing across the also highlighted its “better momentum” after a tough
luxury goods sector in the third quarter. “Brands are now 2015 in its wines and spirits segment. Fitch said the
focusing more on entry-level products,” said Kou adding: recovery, partly driven by Chinese consumers bringing
“As consumers look for lower-price-point products, they home some of their overseas spending, was bolstered
are also reassessing the savings from tax refunds and by a weaker yuan, jitters over terrorist attacks abroad,
the costs of travelling. Hence, we are increasingly seeing the narrowing gap between domestic and international
some purchases shifting back to Asia.”Richemont’s Piaget prices, and Beijing’s stricter approach on taxing overseas
recently launched a lower priced sports line to tap into purchases. The yuan depreciated nearly 7 percent against
shifting spending habits, while Prada has been focusing the U.S. dollar in 2016, its biggest such loss since 1994
on HK$1,000 to HK$2,000 bags. Discounts will become and the worst performing major Asian currency that year.
more prevalent in China going forward due to the growth A less valuable yuan reduces its buying power in overseas
in outlet malls (Ge). markets (Paton).
Despite being battered by sluggish consumer spending The outlet mall segment is seeing growing, bolstering
and rising online shopping, luxury brands should look luxury goods sales in China. Benoît-Etienne Domenget,
to China for fresh strategies and solutions, according to CEO of Swiss-based Sommet Education, which runs a
Alibaba Group President Michael Evans. “One only has luxury brand management course at Glion Institute of
to look at China today to glimpse the future,” Evans said. Higher Education, said outlets in China are expanding
“The country is leapfrogging brick-and-mortar retail. their presence to third-tier cities after experiencing
Shopping is not only happening online, it’s happening slumping sales at main street boutiques over the last few
principally on mobile.” But Evans maintained that the years. “The growth is a result of the country’s changing
Chinese market, representing one third of the total global economy and a rising middle class and upper middle
luxury market, is “too big to ignore”. And while offline class, who are nurturing their taste with a wider range
luxury sales have stagnated in recent years, online sales of luxury brands and entering into the high fashion
292
