The luxury goods market in China is growing fast, says Shaun Rein in CNBC, but retailers often focus on the wrong kind of customers. The rich grab a visa and shop in Milan and Hong Kong. Aspiring young buyers still want their Gucci bags, but have to buy it at home.
China might take over Japan soon as the major luxury market, as it grows annually 20 to USD 13 billion in 2010, but the rich Chinese buy outside the country, warns Shaun Rein:
One, there’s more prestige in buying a Bulgari bag in Milan than in Beijing. Two, prices are also 30 percent cheaper abroad because of taxes and tariffs. Even billionaires don’t want to waste money.
Only 40 percent of the $13 billion worth of luxury items sold to the Chinese last year were transacted in the country. That explains why Chinese tourists in France are now the highest per capita spenders there.
So, who can the luxury brands sell to?
The aspiring class – often younger people under the age of 30 who cannot afford to travel abroad and who still live at home rent-free, or those who live in second and third tier cities where it is hard to get visas to go abroad.
It is common for 25-year-old secretaries making $600 a month to save two months’ salary to buy $2,000 Gucci bags or drop $200 on a La Mer facial cream. Wealthy mining tycoons in fourth tier towns often cannot get visas, so they buy in China.
Many luxury brands are likely to fail in China as they only stock products that the elite buy when they should also be offering entry-level products for the younger, aspiring class.