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    ‘Bling Dynasty’ Author Erwan Rambourg Tells Why The Reign Of China’s Luxury Shoppers Has Just Begun

    According to a new book, China's current luxury slowdown won't stop Chinese consumers from dominating the global market over the next decade.
    Jing Daily
    Jing DailyAuthor
      Published   in Finance

    Although China’s ongoing anti-corruption campaign continues to put a dent in luxury sales, Chinese consumers are more important than ever for brands as they remain on track to dominate the industry over the next decade by an enormous margin.

    That’s the argument that author Erwan Rambourg makes in his new aptly named book The Bling Dynasty, which predicts that Chinese consumers will make up 50 percent of all global luxury sales by the year 2025 and takes an in-depth look at the key trends driving their buying behavior. Rambourg, a managing director at HSBC in Hong Kong with eight years of luxury marketing experience for companies including LVMH and Richemont, believes that worries about the China luxury slowdown are overblown as incomes rise and Chinese consumers increasingly travel abroad to shop.

    In order to learn more about the book, we caught up with Rambourg for an interview on why he’s so confident about the future of the Chinese luxury market and what brands need to do to stay ahead with their most important group of customers.

    In your book, you argue that despite China’s ongoing anti-corruption campaign, Chinese consumers are on the cusp of dominating the global luxury market. What are the main factors contributing to this trend?#

    Chinese consumers represent about 35 percent of luxury sales today and indeed I argue they will account for at least half of the market in 10 years’ time.

    The anti-corruption campaign, which started in the autumn of 2012, translated into a steep slowdown in 2013, notably on high-end watch sales and the bigger brands (Rolex, Cartier, Omega); the slowdown on spirits (baijiu, Cognac) taking more time as distribution of those products is a lot more widespread in smaller cities in China. Now that we’re in November 2014, two years later, it’s fair to consider that the bulk of the clean-out is broadly behind us and there are even signs of a slight pick-up in watch demand in China now as growth has become the reflection of true underlying sales driven by personal gifting and self-purchasing, not corporate gifting. In other words, the re-set has occurred in my view. To be fair, outside of watches and spirits, corporate gifting for most luxury sub-sectors was only accounting for a very small portion of overall sales.

    There are many factors explaining the strong growth prospects of Chinese luxury sales, of which:

    • The immense wave of middle-class consumers starting to be able to afford the products.
    • The emergence of the female consumer: women are taking over after Chinese consumption of luxury was dominated for so long by male-driven purchases.
    • The social and cultural need to fit in and stand out: many observers write that luxury consumption is discretionary; I believe with wealthier Chinese individuals, it is almost compulsory.

    But above all, I believe the main driver for future growth of luxury sales to the Chinese is travel. Seventy-five percent of purchases are made outside of the mainland, but oddly enough, this may just be the very beginning given that only 4 percent of mainlanders hold passports (around 50 million people). Outbound travel is in its infancy and the soaring numbers ahead will be very supportive to luxury sales worldwide.

    We’ve recently been reading a lot about how Chinese consumers are turning away from ostentatious, logo-heavy styles. Does this mean that “bling” is on its way out in China?#

    With travel, blogs, and forums, Chinese consumers are becoming more sophisticated and discerning and while there remains a keen appetite for brands, displaying social status and wealth will indeed come in more subtle ways than a few years ago. In handbags, there has been a shift from plastic/canvas to leather, and yes, from logo-heavy to logo-light or logo-less products. The search for more discretion has made many brands re-think their product assortments and has also influenced the design of the products themselves. Watches have become thinner, handbags less loud.

    But think of it as an evolution, not a revolution. It would be wrong to think that logos are dead. The recent Louis Vuitton monogram campaign, a highlight for the upcoming Holiday season, for which the brand worked with six different talents (some of the world’s most celebrated designers, architects, artists, fashion gurus) to re-interpret its legacy range of monogram is proof that many consumers will still want to carry products that enable immediate social recognition.

    Beyond the logo debate, what will drive sales, in my view, is the shift of focus from Chinese towards other holistic experiences, better food, health, travel, and so on, which means they are developing a value-for-money approach which will put pressure on the traditional European luxury brands.

    As China’s domestic luxury market slows, it’s difficult to discern how much it’s slowing due to the government’s anti-graft policies and how much is due to other factors. What do you see as the main causes?#

    I would attribute the slowdown in China’s domestic luxury market to three elements:

    • First, the anti-corruption campaign, notably as far as watches are concerned. Think about watch demand as being on an artificial cliff. Tackling corruption made that demand fall from the cliff. For the first few months of 2014, demand was flatish, pedestrian, as if walking on the beach after having fallen from the cliff. It’s now time for demand to go hiking back up gradually. Growth rates were boosted by gifting, property prices, and excess liquidity. It is now bound to be lower, yet healthier and more sustainable.
    • Second, the law of big numbers. Many managers 10 years ago were dreaming about China as the new Eldorado for luxury, but it was irrelevant in the figures then. More than 35 percent growth every year—rates that were seen for the industry three to four years ago—was simply not sustainable. The Chinese has discovered luxury brands 10 years ago and now represent 35 percent of global sales. This happened in a very short period of time. Future growth cannot be as explosive as the base is much higher now.
    • Third, incremental growth with Chinese consumers will take place abroad—not at home—and that’s obviously unhelpful for China sales. In the book, I detail six key reason Chinese should continue to purchase incrementally outside of China with the simple acronym T-R-A-V-E-L (Time – Regulation – Affordability – Validation – Experience – Legitimacy), and they are all-powerful reasons that are unlikely to change in the short term.

    One of your chapters discusses the development of Chinese luxury brands. Although there aren’t many now, will they pose more competition for foreign labels in the future?#

    Brands of Chinese origin suffer from Chinese citizens having a negative perception of products made by Chinese corporations and feeling that purchasing imported products is a status enhancer. Besides, the history of China and examples like the implementation of the 1966 policy of “Destroying the four Olds” (Old Customs, Old Culture, Old Habits, Old Ideas) meant that many crafts have been eliminated. Chinese brands can be successful but there will need to be time and patience and dedicated management teams to overcome hurdles. One of the insights uncovered while interviewing Chinese consumers is the more immediate threat that Korean-origin brands as well as value-for-money American brands may eventually pose to the traditional Western brands.

    Which luxury brands have the most promising outlook for China growth in the coming years?#

    In “soft luxury,” i.e. handbags and accessories, I believe value-for-money propositions—whether American or Korean, for instance—have become credible alternatives to the traditional European brands. Within the latter, those having genuinely embraced digital marketing and having really understood the complexity of selling goods to an Asian consumer, who is much younger and much more “plugged in” than her Western peers, should outperform. Here, Burberry continues to stand out. The issue though for “soft luxury” is that barriers to entry are very low. The China market was dominated by two brands—Louis Vuitton and Gucci—10 years ago. Today, many consumers will know of 10 or 20. Ten years from now, the space will be significantly more crowded.

    In “hard luxury,” the prospects of watches remain positive despite the anti-graft hit as women are starting to purchase for themselves and, taking the long-term view, barriers to entry for made-in-Switzerland products are very high. The up-and-coming category and the one I find the most exciting for the long run is high-end jewelry as Chinese consumption becomes more female-driven and self-purchasing habits develop on top of the traditional consumption for the big events of life (weddings, births, etc.) for which the well established Hong Kong and China jewelers selling gold and jade (Chow Tai Fook, Luk Fook) should remain dominant. Barriers to entry in jewelry are theoretically low but a piece of jewelry, unlike a handbag, is an investment and demands from the consumer a significant amount of trust. The Patek ad “You never actually own a Patek Philippe. You merely look after it for the next generation” absolutely nails it. Today, there are only a handful of trusted “imported high-end jewelry” brands in China, of which Cartier, Tiffany, Bulgari, Van Cleef & Arpels, Chopard, and one or two more. This is a very promising sector.

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