Wealthy Chinese consumers like cruising, have gone off Korean cosmetics, visit Japan but prefer France. How do we know? We asked them.
The Chinese are confident. Economic growth exceeding 6%, high share and property prices, plus 7% annual wage increases all underpin luxury goods spending.
So to find out how the wealthy spend their money we asked 2,000 wealthier consumers with annual income exceeding 150,000 renminbi ($24,000) across China over 70 questions about products and brands, focusing on women (60% of the sample) and 18-34 year-old millennials.
We conducted the survey around the 2018 Chinese New Year, from 16 to 25 February. The results don’t represent the whole country, but this cohort intends to keep on spending.
We found that 91% of respondents buy for themselves, not for others, and about two-thirds of purchases are on foreign luxury, not local brands. They cite quality as their top reason for buying but like the status that products give them.
The key reason for not buying luxury is that some wealthy people prefer property; otherwise only their children or their health take priority. The American ‘guilt factor’ at splurging on branded goods is not evident in China. And if the rich got even richer, they’d spend on holidays or jewellery.
The respondents claim to purchase luxury products three to five times a year, often during a group outing with family and friends. Western luxury consumption tends to be a solitary experience or with just the spouse.
Italian and French brands are preferred, followed by American, just ahead of local Chinese labels. Hong Kong remains the go-to destination for China’s luxury purchases, but our sample also puts France ahead of their home country with Japan close behind. The appeal of buying abroad is not just the experience or price; it reduces the risk of counterfeits.
But the Chinese have increasing reasons to shop at home. The price gap has narrowed, partly because of currency weakness, and internet buying is easy. Also better border checks are deterring bulk-buying abroad or purchasing for others. And having travelled overseas, the Chinese can now spot fake goods at home.
China’s favourite luxury drinks are champagne, cognac and baijiu but Western coffee shops are moving into that rapidly growing market. Our survey found 53% use them because they like coffee but 29% see them as meeting places.
Political tensions between Beijing and Seoul seem to have soured demand for South Korean cosmetics, which were rated last, behind French, Japanese, US and Chinese brands. Even so, 38% were willing to seek cosmetic surgery with half choosing to go to Korea.
Nearly 90% of our respondents have passports and 71% have already travelled abroad. Some 45% plan three to five trips a year but safety is now more important than shopping. Japan has overtaken Hong Kong in popularity, probably picking up tourists avoiding Korea. Switzerland, France and the UK were liked most - Vietnam, Spain and India liked least.
China is now the world’s largest market for smartphones but sales fell in 2017 after eight years of growth and with 72% of our survey having bought a smartphone last year, only 39% plan to purchase one in 2018. Consumers increasingly prefer luxuries such as watches, drones, cars, smart home-components that control speakers, locks, thermostats and lighting.
Disclosure and disclaimer
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Erwan Rambourg
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