By  on July 29, 2010

SHANGHAI — Luxury brands better get to know the Chinese words er nai and xiao san.

Those phrases mean mistress and third girlfriend, respectively, and are whispered on an almost daily basis by well-to-do Chinese. “With some fashion brands, we think that almost half of the sales are for mistresses,” said Rupert Hoogewerf, publisher and head researcher of the Huran Report, China’s rich list. “But this is difficult to ascertain.”

Equally difficult is defining exactly who is the consumer driving China’s supercharged luxury consumption since specifics are so hard to come by.

“That is the billion-dollar question,” said Charles de Brabant, an adjunct professor of luxury branding at China Europe International Business School in Shanghai, who said many luxury brands don’t fully understand Chinese consumers’ status-motivated shopping.

“The brands often say: ‘These customers are not like me. They are bling-bling. They are overnight millionaires,’” de Brabant continued. “It’s a far more sophisticated game that goes beyond the Rolex, the dark sunglasses and the souped-up Porsche.”

David Stewart, a partner in Jigsaw International, a lifestyle research agency in Shanghai, said the typical consumer profiles of other markets have no correlation in China.

“The luxury consumers in China tend to be younger than in other parts of the world. Some of them are independently wealthy. It’s very unclear where their money comes from,” he said.

Industry observers said there are several key consumer groups driving the country’s luxury goods market, which is estimated to come in at $9 billion this year, up more than 20 percent from 2009, according to China Market Research. The shoppers range from office worker women looking to snap up a branded handbag to entrepreneurs in polo shirts eager to please their mistresses.

The white-collar “aspirational” shopper is the fastest-growing group in China, according to China Market Research. In their 20s, and often not making more than $400 a month, these individuals will nonetheless save to buy a luxury bag. Ben Cavender, a researcher at China Market Research in Shanghai, predicted that going forward, this group will make up 60 to 70 percent of the overall market.

The superrich are another significant category of shoppers. Mainland China has 55,000 individuals with net assets of more than 100 million yuan, or $14.7 million, according to the Hurun Report.

“This higher-wealth group tends to be slightly older men, age 44, and over 15 percent of these men live in Beijing. They have their own company, but have made their money from property and investments,” said Hoogewerf.

Widening the net, there are 875,000 Chinese millionaires with personal assets of more than 10 million yuan, or $1.47 million. This figure includes the 55,000 superrich individuals mentioned earlier.

“A typical Chinese millionaire is a 40-year-old man who has made his money in property and investments. He owns four luxury watches, and owns at least three houses, the value of which have doubled in the last three years, and makes about four overseas trips a year, one of which is purely for leisure,” Hoogewerf said.

Cathy Hau, the deputy manager of luxury mall Times Square in Shanghai, warned it is best not to underestimate Chinese customers, especially men over 40, just because they’re dressed casually. It’s those very customers walking around in short-sleeve sport shirts and simple blue trousers with leather pouches in hand who have the most spending power. Some describe the look as tu, or peasant.

“Those superrich provincial guys have a different look. They might be coal mine owners from Shanxi or other types of businessmen,” she said.

The tradition of gift giving — whether it’s for corporate partners or paramours — is another force driving business in China.


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