Professional Documents
Culture Documents
March 2011
Li & Fung Research Centre
In this issue:
I. Overview p.3
II. Solid fundamentals of China’s luxury
p.6
market
III. Distinctive features and developments of
p.12
China’s luxury market
IV. Competitive landscape and movements
p.20
of luxury players in China
V. Appendix p.29
2
I. Overview
3
Luxury sales in China grew strongly in 2010
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00% Source: Hurun, June 2010
2007 2008 2009 2010
[3] The Luxury Living Index in 2010 compares the annual price changes of a basket of 58 luxury
goods and services, including properties, automobiles, watches, jewelry, tobacco, education,
clubhouse and traveling from 1 June 2009 to 1 June 2010.
5
II. Solid fundamentals of China’s
luxury market
6
Impressive growth of household disposable income
14.00
CAGR (2000 - 2009) (%)
12.00
10.00
8.00
6.00
4.00
% of
10 20 20 20 20 10 10
Population 7
Number of wealthy households in China has reached a critical mass;
burgeoning middle class is another force to be reckoned with
[4] The Hurun Wealth Report takes into account all private wealth, including privately-held businesses,
private residences and art collections, in addition to investable assets. The report refers to statistics
from December 2009.
8
Number of wealthy households in China has reached a critical mass;
burgeoning middle class is another force to be reckoned with (cont’d)
• Merrill Lynch and Capgemini reported that there were 477,000 high
net worth individuals (HNWIs)[5] in China in 2009, up by 31.0% yoy.
[5] HNWIs are defined as those having investable assets of US$1 million or more, excluding primary
residence, collectibles, consumables and consumer durables.
[6] According to the definition provided by the NBS, middle class is a group of people with annual
income of between 60,000 yuan and 500,000 yuan.
9
Trend of trading up continues
% % %
To reward myself 54 46 62
To pamper myself, treat myself well 44 27 62
For formal occasions 42 41 43
To reflect my personality 40 37 43
To enhance my self-confidence 36 37 35
To enjoy luxurious, high quality lifestyle 35 38 31
11
III. Distinctive features and developments
of China’s luxury market
12
China’s wealthy are generally younger
13
China’s luxury market is predominately male-driven
• Men have a lion’s share of the country’s wealth. According to Forbes and
China Construction Bank, male accounted for 76.9% of the high net worth
individuals[7] in China in 2010.
23.10%
Male
Female
• China has a long tradition of gift-giving. Apart from personal use on a regular basis,
gifting is also an important driver for luxury consumption in China.
• According to a survey by Albatross and Ruder Finn, 29% of the respondents[8] said
they bought luxuries as gifts for family and friends, and 28% bought luxuries in
China for business gifting.
• Business gifting is more popular in China than Hong Kong and Taiwan.
Exhibit 5 Percentage of luxury shoppers in China, Hong Kong and Taiwan who purchased luxuries for business gifting, 2010
0% 5% 10% 15% 20% 25% 30% 35% 40%
[8] The 2010 China Luxury Forecast surveyed 1,100 luxury consumers in Shanghai, Beijing, Guangzhou, Taiwan and
Hong Kong and 17 second-tier cities in Mainland China between March and April 2010. The average income of those 15
surveyed was approximately 250,000 yuan.
Brand matters most in luxury purchase decisions;
strong preference for foreign brands
16
Mainland tourists are keen to shop for luxuries
abroad
17
Online retailing is winning appeal
18
Online retailing is winning appeal (cont’d)
• Some companies are trying to tap the huge potential. For example,
powered by Italy-based online luxury retail operator YOOX Group,
Emporio Armani launched its online store in China in November 2010,
becoming the first foreign luxury company to go online in China.
19
IV. Competitive landscape and
movements of luxury players in China
20
Foreign players dominate China’s luxury market
21
Many luxury companies operate a portfolio of
brands to enhance bargaining power
• Many luxury companies operate a portfolio of brands. Effective portfolio
management help companies achieve synergies in areas such as logistics
and other back-end management tasks, it can also increase luxury
companies’ bargaining power, especially towards landlords.
• Examples:
– The LVMH Group owns Louis Vuitton, Marc Jacobs, Kenzo, Loewe, Fendi,
Givenchy, Donna Karan, etc.
– The PPR Group owns Gucci, Bottega Veneta, Yves Saint Laurent, Balenciaga,
Boucheron, Sergio Rossi, etc.
– Richemonts owns Alfred Dunhill, Cartier, Piaget, Montblanc, Chloé, etc.
– Trinity owns 2 international brands, including Cerruti 1881 and Kent & Curwen,
and operates the retail licenses for 4 brands across Asia-Pacific, including Altea,
D’urban, Gieves & Hawkes, Intermezzo
– Ports Design Ltd engages in retailing business under the brand names PORTS
and BMW Lifestyle. It was also granted the retail distribution license for Armani,
Ferrari and Vivienne Tam in China.
22
Retailing network of luxury retailers
23
Opening flagship stores in prime locations
• High-end department stores and specialty stores are the major distribution
channels for luxury products in China.
• In recent years, many brands have sought to build highly visible flagship
stores in China’s key cities to showcase their products to luxury consumers.
– LVMH built two flagship stores in Huai Hai Road and Pudong in
Shanghai in April 2010.
– Jaeger-LeCoultre also opened its largest flagship store in China,
located in Huai Hai Middle Road of Shanghai in 2010.
– Other companies such as Hermès and Armani are also actively
acquiring properties for building flagship stores.
• Competition for prime retail locations in China is getting fierce as more and
more luxury retailers embark on aggressive expansion and store
enlargement plans.
24
Opening flagship stores in prime locations (cont’d)
• Many luxury retailers are competing hard for super-sized and quality
retail space in China in order to maximize visibility and offer more
product lines within a single store. This undoubtedly has driven up
retail rentals for prime shopping locations.
• Unlike super brands which often receive more favorable terms from
landlords, many lesser-known luxury brands now face more frequent
lease terms reviews and even relocation as super brands take up
prime spaces. Today, some second- and third-tier luxury brands
have sought to enter multi-brand stores to stay in the game.
25
Increasing direct ownership
27
Launch of “made-for-China” luxury goods to cater
to the taste of Chinese consumers
• Some luxury brands have launched new product line or created new
brands specifically for Chinese consumers.
– Hermès launched a new brand “Shang Xia” tailoring to its Chinese
clientele. The brand offers a wide range of “affordable luxury goods”
exclusive in China.
– In 2010, BMW introduced a limited edition “M3 Tiger” to commemorate
the year of Tiger in the Chinese calendar.
– Chloé introduced a limited edition bag in red in 2010 to celebrate its 5th
year anniversary of entering China.
28
V. Appendix
29
Appendix: Sales locations of selected luxury retailers in China (as of 31st of January
2011)
Salvatore Ferragamo
Ermenegildo Zegna
Brooks Brothers
Louis Vuitton
Gianni Versace
Cerruti 1881
Longchamp
Burberry
Givenchy
Armani
Dunhill
D'Urban
Tod's
Lanvin
Canali
Prada
Gucci
Altea
Rank City
1 Shenzhen 深圳 3 2 2 2 4 2 5 3 1 3 1 1 6 1 2 1 2 1
2 Shanghai 上海 10 10 9 4 5 10 11 7 9 2 7 4 4 3 8 2 4 3 3 6 2
3 Beijing 北京 1 9 7 4 6 5 7 15 3 6 3 8 3 4 5 4 3 3 8 2
4 Guangzhou 廣州 5 3 2 1 3 2 2 2 1 2 1 3 1 1 2
5 Tianjin 天津 3 1 1 1 1 1 2 1 2 2 1 1 1 1 1 1 2 1
6 Dalian 大連 2 1 2 2 2 2 2 1 1 2 1 2 1 1 1 1 2 1
7 Qingdao 青島 2 1 2 1 3 1 1 1 1 1 1 1 1 1
8 Suzhou 蘇州 3 1 1 2 1 3 1 2 1 1 3 1 1 1 3 1 1 2 1
9 Hangzhou 杭州 3 2 2 1 3 3 1 1 1 1 1 2 3 2
10 Shenyang 瀋陽 3 2 1 2 2 2 4 2 3 1 2 1 1 1 2 1 2 1 2 2
11 Dongguan 東莞
12 Changsha 長沙 3 2 2 2 1 1 1 1 1
13 Wuxi 無錫 1 1 1 1 1 1 1 1 1 1 1 1 1
14 Wuhan 武漢 3 1 1 2 2 1 2 2 1 1 1 2 1 1 1
15 Xiamen 廈門 1 1 3 2 2 2 1 2 2 1 1
16 Ningbo 寧波 1 1 2 2 2 1 1 1 1 1
17 Nanjing 南京 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1
18 Hefei 合肥 5 1 1 1
19 Chengdu 成都 4 2 2 3 2 1 4 1 3 1 2 1 2 1 3 1 2 1 2
20 Foshan 佛山 1
21 Dongying 東營
22 Jinan 濟南 1 1 1 1 1 1 1 1
23 Changchun 長春 1 1 1 1 1 1 1 1 1 1 1 1 1
24 Ordos 鄂爾多斯
25 Zhuhai 珠海
26 Yantai 煙臺 1 1 1 1
27 Changzhou 常州 1 1 1 1 1
28 Zhongshan 中山
29 Hohhot 呼和浩特 2 1 1 1 1 1 1
30 Fuzhou 福州 1 1 1 2 1 2 1 2 1 1
Salvatore Ferragamo
Ermenegildo Zegna
Brooks Brothers
Louis Vuitton
Gianni Versace
Cerruti 1881
Longchamp
Burberry
Givenchy
Armani
Dunhill
D'Urban
Tod's
Lanvin
Canali
Prada
Gucci
Altea
Rank City
31 Nanchang 南昌 2 1 1 1 1 1 1
32 Xi'an 西安 3 1 1 2 2 2 2 2 1 2 1 3 1 1 1 1
33 Baotou 包頭 1
34 Zhengzhou 鄭州 1 2 1 2 1 1 1 1 1 1 1
35 Chongqing 重慶 4 1 1 1 4 1 1 1 1 1
36 Nantong 南通 1
37 Shijiazhuang 石家莊 2 1 1 2 1 1 1 1 1
38 Wenzhou 溫州 1 1 2 2 1 1 1
39 Harbin 哈爾濱 4 1 2 1 4 2 3 2 1 3 1 4 1 2
40 Daqing 大慶
41 Zibo 淄博
42 Yangzhou 揚州
43 Ma'anshan 馬鞍山
44 Shaoxing 紹興 1
45 Nanning 南寧 2 1 1 1 1 1 1 1
46 Urumuqi 烏魯木齊 1 1 1 1 1 1 1 1 1 1
47 Kunming 昆明 3 1 1 1 1 3 1 1 1 1 1 1 1 1 2 1
48 Kelamayi 克拉瑪依
49 Zhenjiang 鎮江 1
50 Xuzhou 徐州 1 1
51 Tangshan 唐山 1 1 1
52 Taiyuan 太原 1 1 1 1 1 1 1 1 1
53 Zhoushan 舟山
54 Huizhou 惠州
55 Taizhou 台州 1
56 Weihai 威海
57 Jiaxing 嘉興
58 Anshan 鞍山
59 Taizhou 泰州
60 Yinchuan 銀川 1
71 Huzhou 湖州 1 1 1
72 Haikou 海口 1 1
Salvatore Ferragamo
Ermenegildo Zegna
Brooks Brothers
Louis Vuitton
Gianni Versace
Cerruti 1881
Longchamp
Burberry
Givenchy
Armani
Dunhill
D'Urban
Tod's
Lanvin
Canali
Prada
Gucci
Altea
Rank City
75 Lanzhou 蘭州 2 1 1 1
87 Guiyang 貴陽 1 1 1 1 1 1 1 1 1
96 Zhanjiang 湛江 1
97 Xiangtan 湘潭 1
104 Handan 邯鄲 1 1 1 1 1 1
113 Changde 常德 1
116 Sanya 三亞 1 1 1 1
123 Dandong 丹東 1 1 1 1
133 Yichang 宜昌 1
139 Chenzhou 郴州 1
153 Huainan 淮南 1
173 Kunshan 昆山 1 1
-- Shangyu 上虞 2 1 1 1
-- Hengyang 衡陽 1
-- Manzhouli 滿洲里 1
-- Jiangyin 江陰 1
-- Yueyang 岳陽 1
Zhangjiagang 張 家
港
-- 1 1
-- Yiwu 義烏 1 1 1 1 1