Chinese opportunities for European luxury goods.

03 march 2005

Article by: Ce.cn Although European brands of luxury goods penetrated the Hong Kong market many years ago, consumers in Mainland China did not know them until recent years. There is immense growth potential for European luxury goods in China. Now, products sold to Chinese consumers already take up 12 percent in the total sales volume of European luxury goods producers. On the whole, European luxury goods producers sell their products to Chinese consumers through two approaches. Firstly, they sell goods to Chinese citizens when they travel abroad; secondly, they sell goods to them in China. At present, the first approach accounts for about 83 percent in the Chinese consumers' total purchase volume. This is because Hong Kong and Europe imposes low or zero tariffs on luxury goods. As a result, the price of these products is lower in Hong Kong and Europe than in China. Meanwhile, many Chinese tourists hope to bring some distinctive commodities from abroad or Hong Kong as presents; therefore, the majority of them are accustomed to shopping on their trips. Considering that the Chinese government further loosens the restrictions on outbound travels and that the maximum amount of currencies that Chinese residents are allowed to carry on outbound trips doubled recently, in the next few years, more tourists from Mainland China will be traveling abroad and their purchasing power will enhance significantly. That will benefit European luxury goods producers. These enterprises have started to invest heavily in China. It can be predicted that more Chinese consumers will get to know these brands and purchase products under them. The present situation of Chinese consumers is very similar to what it was like fifteen years ago in Japan - The Japanese are the biggest buyer for the European luxury goods industry, and their purchase accounts for 41 percent in the total sales revenue of the industry - Therefore, the Chinese are very likely to replace the Japanese to become the largest impetus of the industry in ten years. After the country got out of shortage economy ten years ago, Chinese consumers are becoming increasingly demanding on commodities. The Chinese are similar to what the Japanese were like in 1990 in that they are spending more on showy goods and they like commodities of established and famous brands. Purchase by Chinese consumers is expected to account for 20 percent in the industry in 2008 and catch up with that by the Japanese in 2015. Of course, not all enterprises can seize the opportunity and profit from it. As they came to China early and operate well, Swatch and LVMH Groups have benefited greatly from the Chinese consumers. Swatch is not well known to Chinese consumers, but its Omega and Rado watches are highly famous, especially among male consumers. Swatch got into the Chinese market with its Rado brand in 1974, and it has gradually built its dominant position since then. Even today, when competition is intensify, its position stands firm. The Omega brand alone has taken up a share of 20 percent in China's watch market. LVMH got into China in 1992, and it has established its leadership in Hong Kong and Taiwan. Its Louis Vuitton holds a market share of 47 percent in Hong Kong and 37 percent in Taiwan. Given its established visibility in Mainland China, the huge investment made by its owners in marketing and public relations, its experience and retail networks, as well as its strategy of keeping the balance between growth and enhanced brand image, obviously Louis Vuitton's position in the China market will further enhance. Even if they do not hold early comers' advantages, many enterprises are still wiling to invest heavily in China. The reason is simple: After realizing the importance of the Chinese market, they do not want to remain at a disadvantage in future competition. In the past few months, four commercial centers specializing luxury goods opened for business in Shanghai, five in Beijing, and three in Guangzhou and Shenzhen respectively. To some extent, going to China is not what enterprises need to do for their development any more; it is essential for the survival in the future. Considering China's huge population and a younger population structure, many European enterprises are certain that they can find buyers for their luxury goods here. Article by: Ce.cn