With commentators around the world weighing in on what 2012 will hold for the luxury industry in China and the country's still-booming art auction market, it pays to take a step back and look at some of the major trends that took shape in 2011. From new consumption patterns in the fashion world to shifting tastes for wine and spirits and auction-buying habits among China's new generation of art and jewelry collectors, 2011 was a year of change for China and for Chinese consumers. With all eyes on what effect a slowing property market and tighter credit could have on spending by the country's emerging middle class as well as its estimated 960,000 millionaires next year -- whether they'll cut back or actually spend more on portable assets like art, gold and diamonds, and fine wine -- we can glean some clues to what we might see in these eight trends that took shape this year.
Brands are now more conscious of netizen perceptions in China
Conspicuous consumption may be very slowly going the way of the dodo among China’s more sophisticated luxury consumers as disdain towards overt extravagance grows in major urban centers, but that hasn’t stopped some from flaunting their wealth online in a blatant attempt at fame or notoriety. This summer, scandal broke when a young woman, Guo Meimei, who claimed to work as general manager of the Red Cross Society of China, posted photos of her many luxury handbags and cars on Sina Weibo. A firestorm of criticism, both of Guo and the Red Cross, soon ensued, despite the quick denial by the Red Cross of China, and admission by Guo herself, that she had ever been an employee.
With public disdain for conspicuous consumption, Netizen wariness about the “rich second generation” and princelings, and government involvement in banning certain advertisements coming to a head in China, the effect on the luxury industry has been palpable in 2011. In the year ahead, we expect the adoption of “low-key luxury” to gain pace, particularly in economic and political power centers like Beijing and Shanghai.
This progression is perhaps natural, and not terribly surprising, since lower-key luxury has been the name of the game in developed markets like Europe and North America since the financial crisis of 2008. Some of China’s more sophisticated shoppers have gone this direction anyway, in response to the growing ubiquity of Louis Vuitton and Gucci over the past several years. As Richemont Group CEO Geoffroy de la Bourdonnaye said this February, many of China’s wealthier consumers are “now looking for the brands that are not necessarily on the top of the radar screen.” Look for the wealthiest Chinese consumers to turn to less visible, but still very much luxurious, brands in 2012 for this very reason.
See Jing Daily Coverage: "Online Scandals: Good Or Bad For Luxury Brands In China?" (August 30)
A bottle of 2007 Romanee-Conti currently costs around 110,390 yuan (US$17,370) in China
Since the beginning of this year, Jing Daily has kept a close eye on one wine trend that could have earth-shaking effects on the global wine market in the year ahead: a shift among wealthy Chinese wine collectors (and drinkers) from Bordeaux to Burgundy. For years, the high-end wine market in China has been the domain of French wineries, with the country accounting for around 55 percent of China’s wine imports. And arguably no French wine-growing region has achieved the level of success in China seen by Bordeaux, with top-tier regional winemakers like Château Lafite achieving such ubiquity on the tables and in the cellars of the wealthy that China is joked to have more bottles of 1982 Lafite circulating around than have ever been produced.
Over the course of this year's spring and autumn auctions in Hong Kong, though, a clear sea change has become apparent, perhaps due to a sort of “Lafite bubble,” perhaps due to rampant counterfeiting of top Bordeaux, or possibly just due to changing tastes. Following the Bordeaux-heavy October 2 auction at Sotheby’s Hong Kong that became the auction house’s first since 2009 to fail to sell out, and (as a counterpoint) last month’s massively successful, Burgundy-weighted Acker Merrall & Condit sale, which took in a grand total of US$14.5 million and became the city’s biggest wine auction of the year, speculation that Burgundy in general, and top-tier labels like Domaine de la Romanée-Conti specifically, is China’s “next big thing” -- and will continue to gain popularity in 2012 -- has hit fever pitch.
See Jing Daily Coverage: "Recent Record-Breaking Sales Underline China’s New Thirst For Romanée-Conti" (December 13)
Bentley recorded record sales in China this year
Though demand for luxury cars is showing signs of slowing somewhat in China at the mid- to premium range, the ultra-luxury segment seems to be largely unscathed, particularly for limited-edition models. As Jing Daily noted earlier this year, Aston Martin sold all five of the One-77s the automaker had set aside at the Shanghai Auto Show before doors opened to the public. Since then, other automakers like Bentley have dug in their heels in China, particularly in second- and third-tier cities, with Bentley launching dealerships in cities like Xi’an, Wenzhou, and Zhengzhou.
For its part, Rolls-Royce recently unveiled a China-only “Year of the Dragon” edition Continental, featuring hand-embroidered dragon headrests and inlaid gold accents. In October, British ultra-luxury automaker Lotus made its debut in the China market, launching its inaugural showroom on Beijing’s Gongti Bei Lu. But perhaps nowhere in inland Chinese has seen such an influx of ultra-luxury automakers as Chongqing. This year alone, Lamborghini and Brabus opened dealerships in the sprawling municipality, following the lead of relative “early adopters” such as Ferrari and Maserati, with Aston Martin and Rolls-Royce opening soon after. Now we’ll have to see if the wide-scale dealership expansions seen in 2011 sowed the seeds of success or overcapacity in 2012.
See Jing Daily Coverage: "Bentley’s Global Sales Boost Driven By China Buyers" (July 1)
Screenshot of Coach's "pop-up" online flagship on Tmall
In a recent report, the Boston Consulting Group predicted that China would become the world’s largest e-commerce market in 2015, the same year McKinsey expects the country to become the world’s largest luxury market, and it’s this confluence of e-commerce and luxury that may prove to be one of the most heavily contested yet most critical segments. This year, dozens of online retailers crowded into China's nascent high-end e-commerce market, including domestic media portals like Sina and new upstarts like Shangpin, along with international players like Yoox. According to the research firm Analysys International, the luxury online retail market in China may achieve annual turnover of 16 billion yuan (US$2.5 billion) in 2011, with Analysys projecting that figure could rise to 20 billion yuan (US$3.1 billion) annually within the next two years.
But with dozens of luxury-focused online retailers to choose from, many of which are very well capitalized, the industry may be in dire need of a shakeout. In the year ahead, we expect to see many e-commerce platforms that have recently gotten into the luxury realm retreat back to their “bread-and-butter” low- to mid-range sales. At the same time, we expect to see domestic players like Taobao’s T-Mall and international players like Yoox, and its more niche sub-brand thecorner, consolidate their positions in the industry via better selection, authenticity guarantees, and online exclusives. While these industry “growing pains” may be tough for recent entrants to the luxury space, a shakeout will likely be ultimately good for Chinese consumers themselves, as market leaders are likely going to have to continue to increase service offerings (such as thecorner’s courier service, which lets customers try on their purchases while a deliveryman waits) and stocking better inventory while still aggressively competing on price.
See Jing Daily Coverage: "Storm Clouds Loom Over China’s Red-Hot Luxury E-Commerce Market" (October 17)
Since their emergence on the global auction scene in 2008-2009, China's new generation of art, antique, wine and jewelry collectors has become one of the most powerful group of buyers on the planet, showing up at auctions in Beijing, Hong Kong, London and New York to snap up some of the best lots, disregarding estimates and fueling dozens of world record sales. Coming off a whirlwind 2010, during which new Chinese collectors all but pushed the formerly dominant Western collectors of Chinese contemporary art completely out of the market and turned their attention to blue-chip Chinese artists like Zhang Xiaogang, Liu Ye, Zeng Fanzhi and Yue Minjun, this year's spring auctions in Hong Kong proved wildly successful. As the year drew to a close, autumn auctions by the likes of Sotheby's and Christie's in Hong Kong continued to record strong sales, but after months of tightening credit and a property slowdown, the newest of the new Chinese collectors showed a more cautious and discerning streak, mostly buying the best pieces by top-tier Chinese contemporary artists and traditional Chinese paintings.
Though many commentators were quick to conclude that fewer high-profile sales this autumn in Hong Kong indicated a slowdown in the Chinese contemporary art market, an ArtTactic survey published in November indicated that confidence in the market among domestic collectors remains far higher than that seen among American and European collectors. For well-known pieces by blue-chip Chinese artists like Zeng Fanzhi, Zhang Xiaogang, Zhou Chunya and Liu Ye, sales remained strong in 2011, but the more selective buying of Chinese collectors in the second half of the year indicates that the market is maturing quickly -- a trend that is, by all measures, good for its development. In the year ahead, look for the buying trends among new Chinese collectors to remain broadly blue-chip focused at the highest end (US$200,000-1 million+), with the wealthiest buyers still fixated on the best lots by the artists singled out in ArtTactic's long-term longevity ranking. Collectors just getting started in the market will likely purchase more works by the artists championed by domestic Chinese auction houses like Beijing Poly and China Guardian, the likes of Shi Chong and Ye Yongqing, who have little international exposure or notoriety.
In the year ahead, we expect to see the Chinese art market and, in particular, the Hong Kong auction market continue to gain strength as more wealthy Chinese look for more stable investment options and look to art, wine, gold and jewelry in the face of a strengthening yuan, few alternative investment options, a struggling real estate market and higher inflation.
See Jing Daily Coverage: “Chinese Collectors Are Basically Looking At Chinese Art” (October 24)
China's high luxury taxes, which tack an additional 30-40 percent onto the price of high-end goods, have been instrumental in the growth of Hong Kong's luxury market, as mainland Chinese have flocked to the former British colony to enjoy tax-free shopping, better inventory and customer service, and the newest collections for years. But in 2011, pushback against Beijing's high punitive luxury taxes hit fever pitch, with high-powered businesspeople like Wang Jianlin -- chairman of the Dalian Wanda Group -- assailing the central government's failure to spur domestic consumption and, in Wang's words, lead Chinese consumers to "“sit on airplanes to deliver jobs and tax money to foreign countries.”
With high luxury taxes making everything from imported clothing to electronics around 45 percent more expensive in mainland China than in Hong Kong and 51 percent higher than in the U.S., public support for tax reform remains high. Still, according to analysts cited by China Daily this October, part of the reason Beijing continues to drag its feet comes down to sheer bureaucratic inefficiency. While the Ministry of Commerce strongly supports tariff cuts to spur more Chinese consumers to shop domestically rather than jetting off to Hong Kong, New York or Paris for their luxury shopping sprees, the Ministry of Finance opposes the cuts. And in typically opaque fashion, the latest details announced by Shen Danyang, spokesman for the Ministry of Commerce, were that “it’s unclear whether the two ministries have reached a consensus.”
Despite these bureaucratic hangups, the massive spending seen among mainland Chinese tourist-shoppers in Hong Kong and Macau, and further afield in New York, Paris and London in 2011 might finally make things click in Beijing in 2012. This past summer, the Chinese resort island of Hainan -- the country's southernmost province -- enacted a new duty-free program for luxury goods that has been, by most standards, a success, with the Sanya Duty-Free Store receiving more than 1.3 million visitors in its first 100 days alone. By the end of the year, we saw Kunming, in southwest China's Yunnan province, enact a similar pilot program in the hopes of rivaling Hong Kong or Macau for the duty-free shopper yuan.
Considering Sanya and Kunming are no real match for Hong Kong's highly developed luxury market, unless major changes to the luxury tax code are announced and put in place in 2012, look for mainland Chinese shoppers to continue looking elsewhere for their high-end goods -- online, overseas, or second-hand.
See Jing Daily Coverage: "China’s Luxury Tax Reduction: Will It Actually Boost Domestic Consumption?" (June 17)
In a year that saw major brands like Samsonite, Prada, and jeweler Chow Tai Fook line up to list on the Hong Kong stock exchange to fuel greater expansion in the mainland China market, by the second half of 2011 IPOs in the city began to falter, leading many other interested companies to go into "wait-and-see" mode. Following a nearly year-long tear of IPOs that saw brands like L’Occitane and the Chinese cosmetics powerhouse SaSa International successfully list in Hong Kong, Prada's IPO proved the largest of 2011, with the Italian luxury powerhouse raising about US$2.5 billion after listing in June, but disappointing listings by the Hong Kong-based jewelry giant Chow Tai Fook raising a little more than US$2 billion in its IPO -- which had been expected to raise upwards of US$3.5 billion -- have made some other companies more gun-shy.
Still, earlier this month, New York-based Coach unveiled its secondary listing in Hong Kong, and in the months ahead analysts expect major brands like Britain’s Aston Martin and Burberry, Italy’s Ducati, and possibly even LVMH listing there, in the hopes of raising expansion capital to chase the mainland's emerging inland wealth. Though examples like Chow Tai Fook's unspectacular IPO mean the city is far from a sure thing for brands looking to tap mainland Chinese money, Prada's successful listing and interest among some of Europe's top luxury automotive and jewelry brands indicates that interest remains high, and will likely remain so in 2012.
See Jing Daily Coverage: "More Luxury Brands Rolling Dice With Hong Kong IPOs, But Who’ll Benefit Most?" (November 14)
One year after overtaking French travelers to account for the world’s fourth largest spending on international tourism, outbound Chinese tourists continue to head overseas (and spend) in record numbers. According to World Tourism Organization estimates, international Chinese tourists — led by the country’s burgeoning middle class — should number 100 million by 2020, up from only 31 million in 2005. As the UN organization added in a study last year, China has recorded growth of around 22 percent per year in overseas trips, making it the world’s fastest-growing market in terms of expenditure on overseas travel for the last decade. This growth has made mainland Chinese tourists among the most coveted international tourist demographics in major destinations like Australia — which expects a $9 billion windfall from these travelers per year by 2020 — as well as New York, London and Paris, where individual travelers and tour groups currently contribute millions per year to the local economy.
In response, demand for Mandarin-speaking staff not only in top destinations like Paris or New York, but also in cities like Madrid, saw a boom in 2011. With more mainland Chinese tourists set to take their second, third or even fourth overseas trip in 2012, we can expect their demands to continue deepening into the experiential realm, and expect to see specific packages like French wine tours, Japanese skiing tours, and New York or Los Angeles real estate tours to increase in number. Though many, if not most, mainland Chinese new to overseas travel will likely stick to the traditional tour-bus itinerary, donning brightly colored hats and following flag-toting guides around the Louvre, look for more worldly travelers to travel independently, seek out more individualized travel "experiences," and head to destinations off the beaten path.
See Jing Daily Coverage: "2011 Chinese Outbound Tourism Spending Expected To Reach $55 Billion" (December 20)