The purchasing power of China’s top-tier ultra-rich consumers has continued to soar in 2016. According to a joint report released by Swiss investment bank UBS and auditing firm PricewaterhouseCoopers on October 26, the number of Chinese billionaires has increased 25 percent to 637. By comparison, there are 537 and 342 billionaires in the United States and Europe, respectively.
The study revealed that over the past decade, China’s stable economic and political environment, rising property prices, and government-backed infrastructure spending are all major factors that have contributed to the rapid surge in the number of billionaires in the country.
Though China now has more billionaires than the U.S., the combined wealth of all Chinese billionaires still largely falls behind that of Americans. Mark Haefele, UBS Chief Investment Officer, noted that the execution of economic policies under President Xi Jinping will be crucial in determining if China can continue its expansion at the current rate. Within the next four years, China is likely to beat the United States at the wealth concentration level, Haefele added.
More billionaires in China will lead to more luxury consumption, which is certainly uplifting news for luxury brands.
The appetite of China’s ultra-rich for luxury goods is also much higher than that of America’s ultra-rich. A recent study released by Agility, a marketing research firm, showed that nearly 90 percent of ultra-rich consumers from China wanted to buy luxury goods in the future, whereas only 45 percent of them from the United States aspired to do so.
The rise of Chinese billionaires along with the hype interest that this group has shown towards luxury goods represents a golden opportunity for brands to capitalize on their purchasing power. But, it also poses challenges for brands as it is critical to target them effectively in today’s overcrowded consumer market.
To truly grasp the needs, mindset, and behavior of China’s ultra-rich when it comes to luxury consumption, brands need to first go back and attempt to understand the economic, cultural and societal background of these individuals. The majority of China’s billionaires are self-made, the first generation of big wealth. They benefit from the country’s economic development in accumulating their wealth. Some traditional mindsets and attitudes such as diligence and eagerness for success are deeply ingrained in these people.
However, it is also believed that the ultra-rich population stands at the top of the ongoing conceptual and behavioral transformation of Chinese luxury consumers, whose perception of luxury and spending habits are evolving quickly along with the industry in recent years. After years of immersion in the luxury world, the definition of luxury for Chinese ultra-rich people has greatly broadened. They are now more drawn to experiences beyond material satisfaction and their approach towards luxury not only includes luxury goods but also high-end lifestyles, luxury travel, wellness, education, art and more.
Another aspect that brands should be aware of when targeting ultra-rich Chinese is how this group continues to view luxury goods as a means of building and enhancing their relationship, or guanxi in Mandarin, with others. A 2017 Hurun report pointed out that China’s luxury gifting culture, which was inhibited by Xi’s anti-corruption campaign since 2013, has recovered over the past two years. 60 percent of surveyed ultra-rich consumers said they sent luxury goods as gifts more frequently in 2016 as compared to the last three years.
The luxury gifting activity among ultra-rich Chinese is no longer related to corrupt behaviors. Fashionable design, high-quality craftsmanship, and on-trend are only several motivations behind this behavior. For luxury brands, it is necessary to come up with appropriate marketing and targeting strategies to address this rising need.