Luxury Market in China Essay

mainland mainland china is positioned to stimulate the homos large-scalest prodigality groceryplace in five geezerhood and a study by Datamonitor describe mainland Chinas opulence goods market was worth $9. 4billion by the end of 2009, which accounted for 27. 5% of the gentlemans gentlemans prodigality goods market. 1 They as well predict that by 2015, Chinas market leave alone be valued at $14. 6billion. The main driver of this increment in the prodigality gods market is the extreme riches creation that China has experiences in the past ten historic period as its GDP has magnanimous 10% annu anyy on average, which is three time much than the orbiculate GDP.Investment Week quotes a recent World Wealth cross by Merrill Lynch Cap Gemini stating that at that place ar 477,000 Chinese millionaires and China is in like manner leading the world with the number of billionaires (Investment week. 2) The combination of the lurch product of the Chinese providence cr eating such great(p) private wealth and the political and cordial evolution China has gone through and through oer the end 30 years has created a tidal wave of fortune for prodigality retailers.Politically, China has gone through numerous changes over the last 30 years that has primed the economy and citizens for a surge in individualism and the pride in the ability to afford and grease ones palms luxury goods. In 1976 Mao Zedong passed away and in 1979 the One Child insurance policy was introduced and applied by Chinas wise leader, Deng Xiaoping. Chinas population was growing at an alarming rate and in auberge to curb this growth rate, Chinese were limited to having one child per household.Fast-forward thirty years and these yet children, who afford been raised by 6 p bents, has created a little emperor psychogenicity w here(predicate) their e real desire it met, and is recently creation satiated by westbound goods. They direct carry demoralize authority and t hey argon expenditure it on elevated priced goods. The choices and options available today argon a stark contrast to the limitations their p bents experienced thirty years precedent in a vastly different political time. Socially, China has always been a country deeply embedded in traditions such as endow giving, saving tone and the maintain for the hierarchal society.These traditions all stop from guanxi, the all-important flightiness of relationships, which is what drives business and social placement. The culture of relationships is paramount for creationness successful in China so the combination of mass wealth and the traditions all surrounding Guanxi has attri scarcelyed to the exponential growth of the luxury market in China. Although the Chinese leaping up been k immediatelyn to be a culture of saving, the tides have shifted and the 20-30 somethings have created a society of excessive go crosswaysing collect to extravagant barter fors to support their new t astes as well as these traditions.The new breed of buyers ar infantile and atomic number 18 embracing their freedom to purchase in their capitalistic society, which is a far cry from their parents socialist fostering. thereof both social and political changes have created this perfect storm of excess, which is fuel the luxury good market in China and for many years to come. Mao Zedong, the leader of China from 1949 until his death in 1976 is still regarded as a controversial figure exclusively his rule and communist policies work the beliefs of many parents and grandparents living in China today. Under Maos rule there was no individualism and consumption was controlled.Mao is regarded as a great leader in China as he is thought to have laid the groundwork for China be approach the great power that it is today as a result of his leadership of the undischarged Leap Forward and Cultural Revolution. patch he did create the expression blocks for present day China, he has been compared to communist leaders like Hitler and Stalin. He urged citizens to reject capitalism and pull down at one point proposed the collective Education Movement (SEM) in an attempt to educate the peasants to resist the temptations of feudal system and the sprouts of capitalism that he saw re-emerging in the countryside.3 The citizens living in these times are now parents and while their lifestyles are very conservative, they are raise children in a very different political environment. Their children didnt have a communist ruler and therefore have different views on modesty and consumption. While there is still a strict management on studying and discipline, the localize on success and press outing that you are successful has been morphed into an obsession with Western brands argueing pride in ones accomplishments. raze as young children the Western culture is quite an alluring, with children asking to be rewarded for good grades by going to McDonalds as we were told by on e of the speakers. forthwith in China, pile are who they wear. Even as Nicole from LVMH mentioned, the Chinese are obsessed with shewing that they are wearing de householder brands that you leave behind contact some wearing clothes and sunglasses with the tags still on them to show who the designer is. These nouveau riche are the products of parents who didnt have any choices and now they are embarrassing their freedom to chose.Forbes reported the average Chinese luxury consumer allow for spend roughly 11% of her income on luxury handbags along. 4 They also go on to say that these consumers are highly educated and highly do to identify products that will complement his or her individuality and rising power. 4 Parents of these kids werent allowed to have individuality, but now their children are not only wanting it but also fulfillking it with huge spending power. outgo 11% of your income on a luxury bag shows the emotional and mental bond to these luxury items.In the US sim ply to qualify for a loan for a mortgage, your total debt cant be more(prenominal) than 45% of your income. To count on that a quarter of that goes towards handbags alone not level included likely purchases like luxury cars, wines etc makes me think if this type of spending is going to be sustainable for the Chinese market. In China, there were many nice cars, but I didnt think that perhaps these people are driving cars they cant afford. I am apply to the United States where living on credit is a way of life, but this takes it to a whole new level.The millionaires are able to afford this, but if a middle class person is spending such a high percentage of her income on something like handbags, its going to create an economy where nobody can afford to buy a house and loneliness is never attainable. One of the Bentley students that sat with us at lunch mentioned that she cherished to buy a house but that she couldnt without her parents financial support due to the 50%-70% down pa yment required.She and virtually young people are lucky that their parents have saved and will be able to alleviate them, but for those in the young generation who arent saving wont be able to help their kids and there might be a whole future generation who can never afford to own property. These younger generations parents grew up in a communist and socialist society, where there isnt the ability to compassionate about perspective, but status and luxury has now become the coin in China. The millionaires in China are younger with an average age of 39.5 These young millionaires enjoy showing their status with nice things from great bottles of wine, cars to handbags. They are achieving success and are looking to reward themselves with nice things, which also shows status among their peers. A report on the watch market, mentioned that men need a watch of a certain quality to be part of the social circle. 6 The need to show status and create a sense of belong in a social group ha s become so ostensible that retailers are taking notice and even creating products specifically for the Chinese buyer.Mercedes Benz is even making a car with a longer wheelbase for the Chinese businessmen who are chauffeured around and need to have more room in the back which is a big difference from the rest of the world where carmakers are creating smaller cars that consume less energy and are more economical. 7 The retailers and manufacturers of world are taking note that the new Chinese buyer is very different from their parents given all of the political changes of the past few decades.While the political changes are one factor in the shift of buying trends, policy has also been a great factor and one specifically is the One Child Policy, which was introduced in 1979. This policy has created what many call, the Little emperor butterfly society as a result of one child being raised by 6 parents (on immediate and two sets of grandparents. ) These children have big(p) up being catered to and supported by six people and now their wants and needs are changing, as they get older.Where as their parents likely gave them the better(p) they could afford, these 20 and 30 somethings are becoming obsessed with Western brands, which cost a premium. Even with a 30% import tax, individuals who grew up getting what they wanted are buying these Western luxury brands, at times spending their entire months salary on a handbag. Although their parents had a culture of saving, this new generation tastes for highly taxed Western goods to show status has greatly changed this cultural norm.For this generation to keep up with their friend, they have forgone the notion of saving in replacement of a life full of luxury goods with no savings. I spoke to Mico about this on the bus and she mentioned that her friends spend all of their money on luxury goods and theres now a saying in Chinese that means that you spend all of your money that you make that month. She mentioned that buyi ng fakes is a faux pas and that they only buy the real things, which is what leads to them spending all of their money. She noted that this was very different from the upbringing of her parents who were brought up saving al or so 40% of their money.In the popular market that we went to in Shanghai, there were almost no Chinese in there and when we asked Mico if she went to the market to get knockoffs, she said that knockoffs were so three years ago. It pronto became unmixed why That is there where Chinese people in the markets they are in the real stores buying the real thing. In the streets it was quite unornamented that everyone had designer bags and clothing on, but this was mainly in Shanghai, Beijing and Hangzhou. In Xian there was still a feeling of communism, everything was still gray and there werent many people sporting their designer clothes.The chance right now is in the 1s tier cities and many retailers are seek to expand to the 2nd and 3rd tier cities. The opportu nity in China purely based on the enormous populations in these cities. The first focus for the retailers were the tier 1 cities and now the 2nd and 3rd tier cities will be paramount for companies to sustain this continued growth. While political changes have made way for the change in buying and spending trends of young Chinese buyers, tradition has maintained an important part of the culture across all generations of Chinese and the luxury market surge has been fueled by these traditions.Guanxi, the focus on relationships as part of the Chinese culture has many components, one of which is the value of founder giving as a sign of respect. Gift giving is a huge part of Chinese culture, most prominent around the Chinese New Year, but a very large part of life socially and professionally year round. consort to the authors of the book The Cult of the Luxury Brand, quanxiis the single biggest factor spurring the growth of luxe in China. 8 When you give a gift to someone in China, it m eans you are thanking him or her for helping you but also solidifies your guanxi with them and continues the future relationship.Luxury items are now raising the bar in gift giving as recipients truly appreciate the luxury gifts and merchants have reported frantic levels of spending 8 all at once by shoppers who are looking to purchase gifts for their business partners and friends. The culture of saving smell plays into this as well since the more luxurious the gift, the better. If you are looking to show great gratitude and save face then you will purchase a luxury item as a gift.In business face is extremely important so even Western brands are also learning this culture of gift giving, as they know the importance of partners in their business so they are making sure to take upkeep of them by giving great gifts. In addition to the culture of gift giving that has fueled the luxury market growth, the culture of hierarchal respect has also attributed to this. Many Chinese of the yo unger generation believe that luxury products mark where you have traveled up to but they also give you permission to continue succeeding.9 In a culture where you are competing with so many people and success is so important, its easy to see how luxury products represent achieving a certain social status and also denotes the fact that you will stay in that status. As Nicole from LVMH was speaking to us she noted that there are usually 40-50 students in each classroom. Students from an archean age learn to be one in a large crowd, but as they get older and look to prove to the world what they have accomplished, and they use designer goods to reflect their status.The irony of this is that one would think that after growing up being one in a crowd, one would think that they would want to show status and individuality, but the items they purchase to show their status is exactly what their peers have chosen, which is likely a Louis Vuitton handbag. For instance, although it was quite co nducive to the weather, when we were in China, every single person had Ugg boots on. In the US while Ugg is a popular brand, there are many more brands being wasted, as there are many more tastes evince by individuals.It was very raise to see that there was a proliferation of a small number of brands, namely Louis Vuitton, as I came to quickly reach that the Chinese want to wear brands that are recognizable. While they are miserable towards a more individualistic society, their tendency to be one of a group is still quite prominent. They do value the luxury brands to show status, but their need to be part of a group, albeit a high status group, is still quite unmistakable in the sea of Gucci and Louis Vuitton purses that were worn like a badge of honor by the women of China.The trip to China was quite eye-opening form the perspective of a Westerner who is used to a more modest lifestyle with an abundance of variety. The flashy cars and purses were immediately apparent from Beij ing through Shanghai, but as I sit here thinking about the political and social changes that China has gone through in the past few decades, I only with I was dexterous enough to somehow capitalize on this. China is a delightful country to visit given its great history and culture that is unambiguous today, but its also great to have visited a country that is still going through many changes and evolving at such a rapid rate.While the rest of the world is relieve oneselfly evolving, China is doing so at an exponentially quicker rate than most and that was quite clear with the sea of cranes in every city putting up buildings everywhere. I do believe that culture will always be a part of the Chinese people and lifestyle, but it will be interesting to see when this locomotive of luxury obsession begins to ebb or if China will meet its own credit crunch in the coming years given the drastic change in spending habits that the younger generations have adopted.1 Chinese appetite for pr emium products growing despite diminish economic activity. Datamonitor July 20010, English ed. 16. Print. 2 Andrea Gerst and Scilla Huang Sun, Chinas passion for luxury goods increases, Investment Week, family line 6, 2010. 3 Cultural China,http//history. cultural-china. com/en/46H9449H13452. html 4 Evelyn Rusli, What Chinese Shoppers Want, Forbes, surround 8, 2010. 5 Andrea Gerst and Scilla Huang Sun, Chinas passion for luxury goods increases, Investment Week, September 6, 2010.6 Florent Bondoux, Luxury watches find booming market in China, Media, September 10, 2009, 17. 7 extensive Mercedes-Benz E-Class to hit Chinese shores http//www. benzinsider. com/2010/04/lengthened-mercedes-benz-e-class-to-hit-chinese-shores/ 8 China Luxury, http//app1. hkicpa. org. hk/APLUS/0710/p24_29. pdf 9 Is Chinas Luxury Goods market a Pot of Gold for Marketers? Knowledge at Wharton, assessed July 27, 2007, http//english. cri. cn/2946/2007/07/27/199254317. htm.