China's hunger for luxury goods grows
Booming nation expected to be No. 2 buyer by 2015
BEIJING -- China is on a spending spree for luxury goods, and it has only just begun.
The country is now the third-biggest consumer of luxury goods, accounting for 12 percent of sales worldwide, up from 1 percent just five years ago, according to a recent report from Goldman Sachs. If the high living continues as expected, China will surpass Japan to become the world's second-largest purchaser of luxury goods by 2015, when it could account for 29 percent of the world's luxury sales, the report said.
''There's a lot of prestige buying in China now," said Edward Bell, director of planning in Beijing for the Ogilvy advertising firm. ''People who buy luxury brands see the products as extensions of themselves everywhere, but in China this is taken very seriously."
Consider: British carmaker Bentley has sold more Mulliner 728 limousines, at $1.2 million the world's most expensive car, in Beijing than in any other city in the world. Also, Chinese yuppies, known as chippies, bought 23,600 BMWs last year, 50 percent more than in 2004. With about 5.2 million potential luxury car buyers, China, industry analysts say, could soon become the world's largest buyer of luxury automobiles.
Some of the spending is driven by China's growing number of millionaires. The country now has 300,000 people with a net worth of more than a $1 million each, according to Merrill Lynch & Co. But young urban salaried workers are also lapping up luxury goods. Yang Qingshan, secretary-general of the China Brand Association, recently said about 13 percent of China's population, or 170 million people, now buy top-tier brands.
Luxury goods companies have launched sumptuous marketing campaigns, and chic advertisements for pricey foreign goods cram most magazines. Jeweler Cartier, whose China revenues almost doubled last year, a period in which it sold a single diamond necklace for $3 million, recently created a massive ice replica of its flagship Paris store at the famous winter festival in northern Harbin city, and company executives said they soon expect to have 30 stores in China, second only to the number in the United States.
In fact, nearly every company active in China's $1.2 billion-a-year luxury goods market has said it plans to expand, and glass-and-granite boutiques hawking fashionably rumpled Italian suits are springing up even in less prestigious cities such as Shenyang in northeastern Liaoning province.
Parts of Chinese culture have always been fond of money and the things it can buy. Ritualistic and traditional symbols for prosperity, such as fish, adorn almost every palace, temple, school, office building, and home. No Chinese festival is complete without paying due homage to qian, or money.
But for many Chinese the rush to buy is also driven by a profound societal need to escape from the recent past when Mao tried to turn the country into an agrarian utopia and people thirsted for simple items, such as soap and TVs.
''Money is the new god in China today," said Dr. Ding Ning Ning, director of social studies at the Development Research Center of the State Council. ''People are in a selfish mood. They want to show off and be extravagant."
The Hurun Report, a socialite magazine in Shanghai, recently interviewed 600 Chinese millionaires to identify their preferred brands. Christie's was voted the best auctioneer, Vacheron Constantin the best watch, Davidoff the best cigar, Giorgio Armani the best designer, Hennessy, Chivas Regal, and Dom Perignon the best liquors, Princess the best yacht, and Ferrari the best sports car.
With China's economy continuing to boom, luxury marketers are counting on escalating profits, except for one big problem -- the plethora of anonymous factories that spin out imitation $5,000 suits for $50 apiece.
At a recent luxury goods industry conference in Hong Kong, companies said China's lack of a system of intellectual property rights is the biggest problem they face in the country. Rip-offs aside, Chinese companies have also taken several international brand names for themselves. For example, there are 200 different ''Valentino" brands in China, said Valeria Azario, an executive with V.S. Ltd., which manages the original Italian Valentino brand.
Recently, a group of luxury brand owners -- Burberry, Chanel, Gucci, Louis Vuitton, and Prada -- tried a novel approach to cracking down on fakes. Since the factories producing these goods are difficult to locate, and often owned by high-ranking Chinese military officers, they tried to get China's new justice system to clamp down on markets where the fakes are sold. The luxury goods makers had some success but few expect them to thwart the imitators any time soon.
But there is still expected to be a growing market for the real thing. Paul McGowan, chief executive of Added Value, a division of the advertising firm WPP, recently said his organization's research showed that Chinese tend to buy luxury products without a lot of study or research.
''China is still in its infancy and it's still status and show that are the main market drivers" of luxury sales, McGowan said.
Some rich Chinese consumers readily confess they like to walk out of a shop knowing they've overpaid. Said Isabella Ma, 32, wife of a wealthy electronics manufacturer in Beijing: ''Why be shy to confess it." 