Transcription
2011 China Luxury Market StudyBain Point of ViewDecember 2011This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
Agenda China luxury market overview Key trends of China luxury market Implications for luxury brands in ChinaThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf2
Mainland China ranked top 5 globally in 2010, whileGreater China (incl. HK & Macau) already among top 3Personal Luxury Goods - Ranking by Country (2010, B )((RMB 159B))(RMB 87B)*Indicates luxury spend in Mainland China, HK & MacauNote: 2010 Euro/RMB exchange rate 9.0Source: Bain luxury goods worldwide study 2011; Bain Survey of Luxury Goods Consumers in Mainland China 2011 (n 1,959); Bain analysisThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf3
Total luxury spend by mainland Chinese reachedRMB212B in 2010; 60% spent outside mainlandKEY HIGHLIGHTSTotal China luxury spend(RMB B)100%8060156212Overseas(Rest of world)38Overseas(Rest of world)52CAGR(09-10)36%38%0- Trend expected to continue in 2011/12- Driven by RMB appreciation andincreased oversea travels Purchase in Mainland continued toincrease, however still 50%HK & Macau50HK & Macau7245%Mainland 68Mainland 8727%200920104020 Overseas(including HK/Macau) spendingshowed strong growth; HK & Macauaccount for 50% of oversea spend“TheThe price gap between domestic & overseasremains; and with RMB appreciation,consumers are travelling abroad more andbuying a lot overseas.”VP, Luxury watch distributorSource: Bain Survey of Luxury Goods Consumers in Mainland China 2011 (n 1,959)This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf4
Phenomenal growth in 2010 across categories; momentumcontinued in 2011 with a gradual softening in Q4KEY HIGHLIGHTS* ChiChina’s’ domesticdi luxurylmarketkgrowth picked up speed in 2010and reached RMB 87B 2011 expected to be another goodyear for China luxury; however agradual softening in consumptionappeared in Q4 Watches and leather ggoods leadthe growth- Watches saw a clear rebound after ‘09,driven by economic recovery andaggressive brand marketing- LeatherL thgoodsd expect to continueipastgrowth trends, as major gift choice forpersonal and business*Growth in RMB is 27%; growth expressed in Euros factoring currency appreciation is 35%Note: Only premium cosmetics are considered luxury goods in the “Cosmetics” categorySource: Expert interviews; Brand interviews; Literature search; Bain analysisThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf5
Brands continue to expand aggressively in 2010, however,some slowing down evidenced in 2011KEY DRIVERSStore Count of Selected Luxury Brand by end of September 2011125114104 104- 2009: 150- 2010: 160- 2011 (by end Sep): 9010075 Some brands are making consciousdecisions to reduce the pace ofexpansion and focus more on storeperformance improvementOpened in 2011(byend of Sep 2011)Opened in 201069 Despite high growth of commercialreal estate, brands are being moreselective on top quality locationswith great infrastructure &managementOpened in 200957 56 5650 Some investment reductionplanned during 2008-2009 crisis New stores opened forselect brandsOpened in 200852Opened before 20084538 37253020 19 19 181670** Talent shortage and rising laborcostt remaini majorj hhurdlesdl ffor storetexpansion, especially in tier 2/3cities“We are intentionallyy slowingg downthe expansion, because we havealready established great awareness,and we will be very selective onlocations to open new stores.”PR Director, Luxury brand*Cartier and Bulgari store data excludes watch countersNote: Armani brand includes Giorgio Armani, Emporio Armani and Armani Collezioni; Dior brand includes Dior Ladies and Dior HommeSource: Analyst reports; Literature search; Brand interviewsThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf6
60% of growth in 2011 continue to come from newcustomers, however share from existing customers improvedKEY HIGHLIGHTSChina luxury market (RMB B)11514.9 110.8New customersExisting customers105Total spending8.895(63%)12.587.1856 26.2(67%)68.4(33%)655520092010 A gradual shift towards storeperformance improvementexpected“As more brands open new stores in tier2/3 cities, more people have access toluxury goods, and brands are attractingmany new customers.””PR Manager, Luxury brand(37%)75 China market is still supplydriven; new store openings createnew demand2011 Est“Many brands are starting to move fromland grabbing stage to performanceimprovement.”Industry expertSource: Bain Survey of Luxury Goods Consumers in Mainland China (2009: n 1,410; 2010: n 1,471; 2011: n 1,959); Expertinterviews; Brand interviews; Analyst reports; Company reports; Literature search; Bain analysisThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf7
In each luxury category, the top 5 brands account for 50% of salesTotal RMB 87B2010 China domestic luxury spend (RMB B)100%22.520.611.08.75.6WatchesCosmetics, PerfumeCosmeticsand Personal careLeathergoodsMenswear4.6 3.510.6806040200Top 5 brands by category in alphabetical orderShoesOtherJewelery Women'swearNote:Nt MMarketk t valuelisi composedd off salesl att retailt il value;l“Oth ” category“Other”tincludesi l d tableware/silverware,t bl/ ilstationery,t tisunglasses,laccessories and other niche luxury goods items; “Leather goods” includes smaller items such as wallets; ranking of luxurybrands is in alphabetical order; Armani brand includes Giorgio Armani, Emporio Armani and Armani CollezioniSource: Expert interviews; Brand interviews; Analyst reports; Company websites and reports; Literature search; Bain analysisThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf8
Louis Vuitton, Chanel and Gucci remained the mostdesired luxury brands in China in 2011“What are the 3 brands that you desire the most?”% of mentioned (Oct 2011)50%Top 346%38%4030%3022%2015%15%14%14%100Rank (2010)% of mentionedin 2010 surveyyLouisVuittonChanelGucciDiorArmani berry8679168%14%11%8%3%Note: Bain survey focuses on people who are interested in luxury brands, and therefore, brand desirability is very highSource: Bain Survey of Luxury Goods Consumers in Mainland China 2011 (n 1,959)This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf9
BJ/SH: a few new brands entered top 3 in BJ/SHcompared with overall China market in 2010“What are the top 3 brands you are most likely topurchase in each category in 2011?”1st2ndBJ/SH ONLY3rdWatchesCosmetics,perfumes &personal careLeather goodsMenswearJewelryShShoesWomenswearRanking improved in 2011*New to Top 3 in 2011** Ranking compared with view on overall China market in 2010; not for BJ/SH onlySource: Bain Survey of Luxury Goods Consumers in Mainland China 2011 (n 571 for BJ/SH)This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf10
Gifting remains a significant part of luxury spending“What percent of the luxury goodsyou’ve purchased is for gifting vs. ownconsumption?”% of luxury spending100Gifting806040Own200“Giving luxury goods as business giftscan show my taste and socialstatus also it makes the recipientsstatus,feel important and respected.”Luxury consumer200920102011“Luxury gifts always pleasantlysurprisepmyy clients and theyy helppme get the deal done moreeasily.”Luxury consumerSource: Bain Survey of Luxury Goods Consumers in Mainland China 2011 (n 1,959); Literature searchThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf11
Agenda China luxury market overview Key trends of China luxury market Implications for luxury brands in ChinaThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf12
Brand landscape is becoming more dynamic; cautiouslyoptimistic outlook on China luxury marketStrong growth in 2010 & majorityof 2011; with a more dynamic andactive brand landscapeOverall business environmentremains positive with a fewuncertainties“2010 was a recovery year forluxury watch market with anunprecedented highgrowth.”VP Luxury watch distributorVP,“We are still having quite goodgrowth during Q4 of 2011,just not as spectacular as thefirst 3 quarters We arecautiously optimistic about2012.”China MD, Luxury brand“Wi h suchh a fastfi“Withgrowingand dynamic market, brandsare doing everything theycan to ride the ggrowth andstrengthen their presencein China.”China CEO, Luxury brand“Overall we are quite positiveand confident about theChina market; but there arethings happening that wedon’t have enoughvisibility.”China MD, Luxury brandThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf13
Brand landscape is becoming more dynamic; cautiouslyoptimistic outlook on China luxury marketStrong growth in 2010 & majorityof 2011; with a more dynamic andactive brand landscapepinto tier1 Continued expansion2/3 cities, with a slower pace2 Leading brands emphasizingmore and more on improvingcustomer experience3 Acceleration of online platformsas channel for brand marketingandd ecommerce4 Heritage-focused brand buildingactivitiesEiChiChinese-culturelt5 Emerginginspired luxury brands6 Risk of negative mediaexposureOverall business environmentremains positive with a fewuncertainties Overall macroeconomicenvironment favors continuedgrowth, despite recent economyslowdown Consumers confidence remainshigh; level of sophisticationrisingi i Evolving regulatoryit requiresilenvironmentclosemonitoring and compliance bybrandsThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf14
1Tier 2/3 cities continue to be an important battlefield forluxury brands in China# new stores opened since 2008 (by end of Sep 2011)807060Tier 1 citiesTier 2 cities61Tier 3 cities46454035353430282623200Total # stores inChina (by end ofSep 2011)2057564569383712121211191620186**104 104 114 52145630197*Cartier*C ti andd BulgariB li storetdatad t excludesl d watcht h counterstNote: Tier 1 cities are Beijing, Shanghai, Shenzhen, Guangzhou; tier 2 cities are Chongqing, Tianjin all remaining provincial capitals other major cities;tier 3 cities are remaining prefectural citiesSource: Analyst reports; Company websites; Literature search; Brand interviews; Bain analysisThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf15
2Many brands upgrading existing stores and buildinglarger ones to improve shopping experienceDior expanded Shanghai Plaza 66store to 2 floors in 2010 (480 M²)Burberry opened largest Chinastore in Beijing in 2011 (1200 M²)MaxMara opened 3rd largest storeWW in Chengdu 2011 (720 M²)LV opened flagship store with VIP room inHangzhou in 2010 (1900 M²)Source: Literature searchThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHAZegna opened SHconcept store in2010 (1100 M²)2011 Bain China Luxury Market Study Media release vf16
3Proliferation of online marketing through social media togenerate excitement and increase mindshareSocial media has become most popular info sourcefor luxury consumersBrands actively exploring various Chinese socialmedia platforms“Where do you normally get information onluxury goods on internet?”% of respondents who use Internetas info source100%807968Burberry on KaixinCoach on Renren604031200Social media*News portalsBottega Venetaon WeiboVideo portals*Social media includes blogs, microblogs and BBSSource: Bain Survey of Luxury Goods Consumers in Mainland China 2011(n 1,959); Literature search; Site visits; Bain analysisLancome oniPhone appThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentLV on JiepangSHA2011 Bain China Luxury Market Study Media release vf17
3Luxury ecommerce in China is emerging but still nascent;various operating models existLevel of brand controlHighLowMono brandOperatingmodelMulti brandSelf-operatedPartnershipOnline outlets Luxury brands operateand maintain own ecommerce sites directly Brand official site withbrand’s own domain name “PoweredPowered by YooxYoox”Providerexample-Possibly with someexternal assistance onmajor site renovations,logistics, etc.Descriptions Usually as add-ons tocorporate websites Yoox offers complete ecommerce solution-Site maintenance, interfacedesign logisticsdesign,logistics, customerrelationship managementservice Mostly for marketing and Same price, products asconsumer educationretail storespurpose in ChinaBurberryArmani Promotions targeting priceconscious consumers Sell end of season productsp od ctsand discounted at 30 70%,avg. 45% Event-driven promotionand exclusive to members( 500k in China) Limited inventory andconsignment model withbrandsHugo Boss, Bulgari, D&G, etcBallyBrandexampleSource: Literature searchThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf18
4Brands deepening communication efforts withconsumers by actively showcasing culture & heritage Brands showcasing culture & heritagein top tier museums“Louis Vuitton Voyages”ExhibitionExhibited iconic travel pieces &handbags with history of travel inNational Museum of China, Beijingfrom May to Aug 2011“125 years of ItalianMagnificence” ExhibitionShowcased 600 pieces of Bulgarijjewelryy & its 125-yearyhistoryy inNational Museum of China from Sep toNov 2011“Culture Chanel” ExhibitionExhibiting 400 pieces from Chanel’spast and present, including paintings,drawings,drawings etc,etc at National Art Museumof China from Nov to Dec 2011Source: Literature searchThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf19
5Chinese luxury brands emerging, although still at experimentalstage; some with support from Western luxury companies(“UP DOWN”)Brandorigin Brand co-created by Hermes and Chinesedesigner- Hermes created Shangxia brand in 2008 with Chineseartist Jiang Qiong’er as brand CEO & Creative DirectorBranddconcept ChiChinese heritageh ideeplydl rooted,d withi hChinese craftsmanshipMarketstrategy Target Chinese customers and then expandoutside China- Pushed Chinese influence from product design furtherto utilize Chinese artisans and rare localmaterials like zitan wood- Product launch once a year with many items takingmonths to make- Offers handcrafts, clothing & accessories-1ststore launched in Shanghai in Sep 2010 and planto launch stores in Beijing and Paris by 2013- 60-70% customer base are Chinese opinion-leaderswith wide age range and deep cultural background Jewelry brand created by Hong Kong designer& French entrepreneur- Founded and opened its first store in Paris in 2004,entered Mainland China in 2008 IIntegrate traditionaldi il ChineseChiinspirationiiianddFrench craftsmanship- Each piece of jewelry has a remarkable Chinese cultureinspired symbol Aim to obtain international recognition firstworld with steady expansion- 9 boutiques around the world,plan- Plan to open store in Shenyang, Dalian in the future Plan to expand into luxury watch categorySource: Literature searchThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf20
6With prosperity of online media, luxury brands need toproactively manage negative media exposure in ChinaLuxury brands getting more scrutinyfrom consumers and authority Luxury brands are scrutinized forquality issues, some even gotpenalizedp Increasing complaints on brands’inadequate after-sales service in China,which is often complex and timeconsuming- Many brands don’t have customer servicehotline in China“Chinese consumers used to assume that luxurybrands have superior quality simply because oftheir big name and high price. However,consumers are becoming more aware oftheir legal rights in recent years.”Lawyer, China Consumer AssociationBrands sometimes unintentionally gotassociated with negative publicity Prosperity of online media facilitatedbroadcasting of negative events,especiallypy those related to socialtensions such as labour dispute,corruption, quality issues, etc Showing-off of luxury products oftencause unprecedented public discussionsand criticisms on social media“Luxury brands have been building their premiumiimagewithith goodd qualitylit andd culturalltlbbackground.kdBut they often get associated with showing-offof wealth, which may have negative impacton them.”I d t experttIndustryBrands need to be more sensitive to media exposurerisks & proactively manage PR in ChinaSource: Literature searchThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf21
Brand landscape is becoming more dynamic; cautiouslyoptimistic outlook on China luxury marketStrong growth in 2010 & majorityof 2011; with a more diverse andactive brand landscapepinto tier1 Continued expansion2/3 cities, with a slower pace2 Leading brands emphasizingmore on improving customerexperience3 Acceleration of online platformsas channel for brand marketingandd ecommerce4 Heritage-focused brand buildingactivitiesEiChiChinese-culturelt5 Emerginginspired luxury brands6 Risk of negative mediaexposureOverall business environmentremains positive with a fewuncertainties Overall macroeconomicenvironment favors continuedgrowth, despite recent economyslowdown Consumers confidence remainshigh; level of sophisticationrising Evolving regulatoryenvironment requires closemonitoring and compliance bybrandsThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf22
Overall business environment remains positive with someuncertaintiesMacro economy Increasing number ofHNWIs, affluenthouseholds & middle classwith rising disposableincome Consumer confidenceremains high Slow down of storeexpansion Rising level ofsophistication-High-end shopping mallsbecomingg increasinglygyimportant compared todepartment stores, poweredby booming commercialreal estate marketRegulatoryenvironmentConsumer-Individual luxury spendexpected to maintain orincrease-New needs & expectations tobe satisfied Still male dominantmarket; women categoriescatching up-Business gifting stillimportant part of luxuryspendingThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent Potential reduction of luxuryimport tariff may impactdomestic/overseasconsumption of certaincategories New regulations onprepaid cards to curbcorruption More stringent qualitystandard and process forimportation may causedelay of new productintroductions into ChinamarketSHA2011 Bain China Luxury Market Study Media release vf23
Agenda China luxury market overview Key trends of China luxury market Implications for luxury brands in ChinaThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf24
Implications for luxury brands in CSuperiorserviceDT l tbTalentbuildingildiEExplosion ofsocial mediaMain challenges aheadImplications for luxury brands As more brands have established broad presence throughhh expansion, therehis increasing need for of ensuring availabilitywhile maintaining exclusivityBe selective on locations for geo expansion Digital platforms getting more crowded,and difficult for brands to fully engageconsumers and maintain luxuryimage/experience onlineFocus on improving shopping experience,offering differentiated products/services,etc to boost organic store growth and stayexclusive Choose media and formats carefully Maintain clear brand positioning andpersonality More sophisticated Chinese consumers Ensure sufficient training and tracking/demanding services (shopping & after-sales) incentive mechanism to deliverthat are consistent across China andprofessional servicemore personalized Maintain consistent service level acrossshops in all city tiers Talent shortage remain major obstaclesfor brand expansion and organic growth,growthespecially in Tier 2 & 3 cities Continue to invest in talent management:recruiting trainingrecruiting,training, career managementand retention Multiple cases of luxury brands beingexposed to an extent thatthat’ss unheard ofbefore Actively monitor and manage potential PRrisks exacerbated by online media exposure Exposure/vulnerability to PR risksThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf25
Bain contactsTo schedule an interview with Bain & Company, please contact:INTERNATIONAL PRESS Cheryl Kraussat email: cheryl.krauss@bain.comor 1 646-562-7863 Frank Pintoat email: frank.pinto@bain.comor 1 917917-309-1065309 1065 Pinky Heat email: pinky.he@bain.comor 86 21-2211-5585 Dan Daiat email: dan.dai@bain.comor 86 21-2211-5570CHINESE PRESSThis information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consentSHA2011 Bain China Luxury Market Study Media release vf26
Agenda China luxury market overview Key trends of China luxury market Implications for luxury brands in China This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent SHA 2011 Bain China
