LUXURY IN CHINA: Get Rich Is Glorious

TO GET RICH IS GLORIOUS Being rich a state of mind www.trendbuero.com >> 1

September 2008, Beijing TO GET RICH IS GLORIOUS Being rich a state of mind Trend Insight Report www.trendbuero.com >> 2

“The money is there.” Glen Murphy, managing director at AC Nielsen in Shanghai 100 million Chinese luxury consumers. Source: Morgan Stanley, 2006 Introduction www.trendbuero.com >> 3

“The money is there.” Glen Murphy, managing director at AC Nielsen in Shanghai Already the third largest luxury market in the world. Introduction www.trendbuero.com >> 4

“The money is there.” Glen Murphy, managing director at AC Nielsen in Shanghai The world's top luxury market by Source: Goldman Sachs, 2007 2015. Introduction www.trendbuero.com >> 5

To Get Rich is Glorious 115 US$-billionaires in 2007... Introduction www.trendbuero.com >> 6

To Get Rich is Glorious The only country where consume more luxury than . Introduction www.trendbuero.com >> 7

To Get Rich is Glorious The world’s youngest luxury market, with in their 30’s. Introduction www.trendbuero.com >> 8

To Get Rich is Glorious ¥ $=??? Introduction www.trendbuero.com >> 9

Chinese on the move What’s Next? Introduction www.trendbuero.com >> 10

Chinese on the move The next generation... Introduction www.trendbuero.com >> 11

Chinese on the move Introduction www.trendbuero.com >> 12

Chinese on the move ... they will look and buy different. Introduction www.trendbuero.com >> 16

Chinese on the move But how? Key Questions www.trendbuero.com >> 17

“If you are looking for quick profits, don't go to China. It takes a long time to be profitable.” Nigel Luk, Cartier's managing director for China To identify the potential for your brand behind these over- whelming figures, you need to understand what luxury buyers try to achieve and sell them what they need to succeed. Introduction www.trendbuero.com >> 18

Research is based on desk research, 24 focus groups, in-depth interviews as well as expert interviews. Therefore CIMG and Trendbüro investigated upcoming needs and rising desires of Chinese luxury consumers as well as its impact on China’s luxury market. Introduction www.trendbuero.com >> 19

Analyze changing life drivers and desires of Chinese luxury consumers to identify upcoming consumer requirements towards luxury brands. – Which social changes shape the life drivers and motivations of China’s consumers? – Which new consumer needs will challenge China’s rising luxury market? – How to address to these needs with products, marketing and services? Key Questions www.trendbuero.com >> 20

Trend Insight Report: To Get Rich is Glorious 1. People’s Republic of Change 2. Luxury in a Shift 3. Faces of Luxury 2010 Agenda www.trendbuero.com >> 21

The future of luxury is based on a fundamental change of social values from the past to the present. Within the last 60 years Chinese consumers underwent two major value shifts, which significantly impacted their lives, beliefs and buying habits. People’s Republic of Change www.trendbuero.com >> 22

Three decades of communism were followed by three decades capitalism. Now China slowly transitions into three decades of consumerism. People’s Republic of Change www.trendbuero.com >> 23

The Chinese market is influenced by three generations, who possess contrary ideals. 1. Baby Boomers 2. Generation X 3. Generation Y People’s Republic of Change www.trendbuero.com >> 24

Baby Boomers (1950 - 1964): Dominated by political figures and movements. They respond to politics and believe in heroes. People’s Republic of Change www.trendbuero.com >> 25

„The Song of Lei Feng” romanticizes selflessness which shaped the whole generation until the 80s. Serving the people Between the Chinese liberation in 1949 and the opening in 1978 Chinese consumers were mainly faced with instability and economical chaos. The Great Leap Forward, the Famine and the Cultural Revolution threatened China for three decades. In that period, people lost their identity, their privacy and even their right to an education. The only things that couldn’t be banned were their dreams. Deficiency and limitation of goods shaped daily life. Even money could not open all doors. Political power was the only accepted currency during this time. People’s Republic of Change www.trendbuero.com >> 26

This generation lost its creativity with the Cultural Revolution. Following and imitating others was the only way for social development. Money is power and power is everything The baby boomers are hopeless romantics and fiercely nationalistic. While their romanticism of the Chinese Revolution might have turned into cynicism due to the Cultural Revolution, their nationalism remained undiminished. The baby boomers are frugal people, trained not to desire material goods and creaturely comfort. Nowadays some of them are the richest people in China. They splurge to impress. Money is power to them, and power is everything. Today, baby boomers are still the policy-makers and the parents who shape the mindset of the next generation. People’s Republic of Change www.trendbuero.com >> 27

Generation X (1965 - 1979): A generation of realists woke up after Tiananmen Square protests, who believe only in themselves. People’s Republic of Change www.trendbuero.com >> 28

In their young adulthood only some Western movies where available. But “Pretty Woman” came to China and libarated the Chinese dream. First come, first serve Generation X is influenced by the liberal spirit of the 80s, growing-up while China transitioned from a planned economy to market economy. These entrepreneurs lived the Chinese dream. But after 1989 they underwent a value shift from an idea of collective wealth to a focus on self, driven by political reforms as well as the privatization of China’s economy. New business opportunities replaced their enthusiasm for society and turned their hearts to a single purpose: make money, and make lots of it. They went from 20 years of depreciation and food coupons to over-supply. From 1,300 private car owners in the entire nation to three million in Beijing alone. People’s Republic of Change www.trendbuero.com >> 29

Mr. and Mrs. X are opportunists. They were educated by Mao and trained by Bill Gates. They are open to new things and appreciate originality. Money can change your life! Generation X suffers a collective insecurity from living through so much change. They therefore trust in material security and status. 60% of them buy luxury goods to increase their self-confidence1. Their heroes are the rich and famous entrepreneurs who made it. They believe in Darwinism and they know how to work the system to their benefit. For them there is only an up or down but nothing in between while the government dismantles its cradle-to-grave welfare system. Generation X is the majority of these who keep the 80% of Chinese private business running. 1 TNS, 2006 They make the money, show off the money, and spend the money. People’s Republic of Change www.trendbuero.com >> 30

Generation Y (1980 - 1995): Possesses a Chinese mindset but a global lifestyle shaped by McDonald’s, Google and MBAs. People’s Republic of Change www.trendbuero.com >> 31

Self-made web-clips offer the best insight to China’s youth detailing their dreams and believes first hand: dv.ouou.com I am what I am. Your are serving me! Generation Y is the first Chinese generation born into consumerism. They grew up in the information age with internet and mobile phones. They are overwhelmed with information and personal choices. Are you Hello Kitty or Rebel? Gym or Yoga? Stay in China or go abroad? Artist or businessman? Fake or real? They are the first generation with the right to Source: 1 Seventeen Readers Poll, 2006; choose their career, lifestyle and cultural affinity. No wonder that 85% of them see Picture: http://dv.ouou.com themselves as their role model.1 Consequently, the first generation of only children grows up in a modern environment, full of confidence in their future? People’s Republic of Change www.trendbuero.com >> 32

For Generation Y there is nothing wrong with hedonism and self- rewards. Money gives access but no satisfaction They buy because the product emotionally bond with their self identity, because of peer pressure, because it’s a fad. They are often educated outside China and will spend more on luxury products, because they won't know what it means to be without money. They are not frugal, nor do they buy status, believing that consumption is a part of self- expression. Generation Y represents the future of China. Today, they are the ones dictating what is cool and what is not. This generation will be the first where business and political elites will be surpassed by design and style elites. People’s Republic of Change www.trendbuero.com >> 33

China’s culture today is mainly determinated by security, harmony, control and formation than lust, strangeness or sensuality. Community Selflessness Tradition Communism Growth Nationalism Status Source: SEMIOBENCH CN by Trendbüro Capitalism Censorship Disparity People’s Republic of Change www.trendbuero.com >> 34

The next generation will open the door for a value shift towards consumerism, self-expression and hedonism. Community Consumerism Selflessness Tradition Communism Self-Expression Growth Nationalism Status Source: SEMIOBENCH CN by Trendbüro Hedonism Capitalism Censorship Disparity People’s Republic of Change www.trendbuero.com >> 35

China turns into a global society The fundamental value shift from communism to capitalism to consumerism will unleash a new type of consumer with advanced preferences towards brands, products and services. People’s Republic of Change www.trendbuero.com >> 36

Trend Insight Report: To Get Rich is Glorious 1. People’s Republic of Change 2. Luxury in a shift 3. Faces of Luxury 2010 Agenda www.trendbuero.com >> 37

This new luxury will possess elements of showing one’s status and self- reward. But the way to achieve it will shift to the next level. Luxury in a Shift www.trendbuero.com >> 38

There are four different types of luxury consumers based on social background, luxury experience and income level. Nouveau Rich Understaters Connoisseurs Spirituals Luxury in a Shift www.trendbuero.com >> 39

While most of Chinese luxury shoppers are the nouveau rich, many of them are still looking for their place in the world of lux. Understaters Connoisseurs Source: SEMIOBENCH CN by Trendbüro Nouveau Rich Spirituals Luxury in a Shift www.trendbuero.com >> 40

Nouveau Rich: Showing-off works! 65% of Chinese are convinced that people who own luxury brands are successful people.1 1 TNS, 2006 Luxury in a Shift www.trendbuero.com >> 41

Nouveau Rich: Movie star Fan Bingbing is preferred star in advertisements and one icon for the Nouveau Rich in China. I want to stand out! Background: Entrepreneurs, celebrities or young businessmen who are the first in their family, who can afford luxury. They still rank themselves with “average” people. Motivation: They want to show their success and want to stand out from the mass. They don’t care about others, but due to their cultural background formation still rules. Habits: To balance formation and their longing to be special they buy the most popular brands with high mass reputation (Armani, BMW, Mercedes, Rolex, Gucci). Luxury in a Shift www.trendbuero.com >> 42

Understaters: Not show but know! About 70% of Chinese believe that owning luxury brands doesn’t necessarily mean one is fashionable.1 1 TNS, 2006 Luxury in a Shift www.trendbuero.com >> 43

Understaters: Successful actor Lu Yi spends his time with his family instead on superficial glamorous events. I want to fit in! Background: Successful creatives, rich people from behind the scene or experienced luxury consumers. They are international, speak English and understand luxury as a lifestyle. Motivation: They want to fit in to a sophisticated group of international and stylish people. They want to differentiate themselves from superficial show-off attitudes. Habits: They mix established brands with niche brands to create their individual style as long as it fits into the peer group. They tend to be a bit artistic and edgy (MINI, Y-3, Issey Miyake, Marc Jacobs, MIU MIU). Luxury in a Shift www.trendbuero.com >> 44

Connoisseurs: Already today about 60% of luxury consumers buy luxury to reward themselves.1 1 TNS, 2006 Luxury in a Shift www.trendbuero.com >> 45

Connoisseurs: Jiang Wen is a famous movie director and a king of the Chinese film. He enjoys his life away from the hustle and bustle. I want to enjoy my life! Background: Either they are self-made businessmen with a good self-perception or they grew up in a financial hedge. Money is seen as a key not as a treasure. Motivation: They want to enjoy their life. Life balance and sensuality are very important. “Soft luxury” is highly appreciated. Habits: They often live a quite life, enjoy excellent foods, traveling but also doing charity activities. Luxury brands have to offer them a personal relationship, a buying experience and high quality (Bulthaup, Patek Philippe, Ferretti Yachts, Cohiba, Hennessy). Luxury in a Shift www.trendbuero.com >> 46

Spirituals: They are often overseas born Chinese. With a growing number of Chinese returning back home this group is slowly rising.1 1 From year to year the number of returning Chinese is rising – 30,000 people in 2005, Blue Book, 2007 Luxury in a Shift www.trendbuero.com >> 47

Spirituals: Wang Fei is a talented singer who incarnates Asian musical culture. She lives an international, individual and edgy lifestyle. I want to find myself! Background: Grow up in a well off environment or with an artistic background. Financial problems are not relevant. Luxury goods are nothing more than commodities for them. Motivation: They want to find the meaning of their life. They are looking for authenticity and spiritual experiences. Habits: Spirituals are often involved in charity and fundraising. Though they are highly individualistic, striving for spiritual adventures and bored by the superficial world of luxury. Reversion to nature and the primordial dominates their lives (Yö, Linda Loudermilk, Leica). Luxury in a Shift www.trendbuero.com >> 48

Brand preferences of different consumer types. Source: Brand positioning is based on focus groups, in-depth interviews, expert interviews Understaters Connoisseurs Nouveau Rich Spirituals Luxury in a Shift www.trendbuero.com >> 49

China’s luxury market will be dominated by the Nouveau Rich and Under- staters, but Connoisseurs will have a significant impact on them. Source: Brand positioning is based on focus groups, in-depth interviews, expert interviews Consumerism Understaters Connoisseurs Self-Expression Nouveau Rich Hedonism Spirituals Luxury in a Shift www.trendbuero.com >> 50

China’s luxury market will give birth to new attitudes towards luxury to keep pace with developing mindset of Chinese luxury consumers. Consumerism Understaters Connoisseurs Self-Expression Source: SEMIOBENCH CN by Trendbüro Nouveau Rich Hedonism Spirituals Luxury in a Shift www.trendbuero.com >> 51

These upcoming attitudes are the output of a sustainable shift in the mindset of luxury consumers. Sensuality: Authenticity Lust: Enjoyment Strangeness: Experience Luxury in a Shift www.trendbuero.com >> 52

With a rising consumers variety China’s luxury market will be more diversified. Celebrated excess Über-Luxury Luxury Personal wellbeing Personal Luxury The promise of True Premium Premium Luxury for beginners Prêt-à-Premium The cheap has to be more attractive Masstige Basics have to cost next to nothing Hard Discounting Luxury in a Shift www.trendbuero.com >> 53

Those who want to succeed in China’s upper luxury segment they have to contribute sustainable value for a global luxury lifestyle. China’s luxury shoppers of tomorrow are brand savvy. For them the big price tag and an even bigger label name doesn’t make a product luxury. Luxury in a Shift www.trendbuero.com >> 54

Trend Insight Report: To Get Rich is Glorious 1.People’s Republic of Change 2.Luxury in a Shift 3.Faces of Luxury 2010 Agenda www.trendbuero.com >> 55

63% of the young Nouveau Rich want to enjoy the present moment as much as possible and 76% would pay more to buy natural healthy foods.1 The experiential, authentic and enjoyable side of luxury 1 McCann Worldgroup Consumer Insights and Market Intelligence, 2006 products and brands will determine if consumers consider them luxury or not. Faces of Luxury 2010 www.trendbuero.com >> 56

Marketing will be dominated by seduction, education and establishing a 1-to-1 customer relationship. Marketing Approaches – In the future luxury consumers will save as much as possible, adhering to the motto: Make luxury an investment to make most of one’s life. 1 15 mio. Chinese with annual income about $ 32,000; AC Nielson, 2006 – Encourage national pride but don’t try to be Chinese. – Revive your brand with enjoyable and entertaining content not with a painful interruption of it. – Take over responsibility and share your success. Charity is highly appreciated within the community of luxury buyers. – For the majority of China’s upper class1 luxury will be out of reach. Affordable accessories will be a market to target. Faces of Luxury 2010 www.trendbuero.com >> 57

Service makes the difference between counterfeit and original. Innovative services will be key in strong customer relationships. Service Approach – The rich has less time. Time saving services and efficiency at the POS are appreciated by customers. – Chinese are comfort junkies. Space, silence and customization are important. – Escapism is common in darwinistic China. Offer a shopping experience which allows to escape from reality for a moment. – Luxury buyers adopt a global lifestyle and are eager to learn about a brand. Coaching is more than welcome. – Nowadays loneliness is pervasive in all social classes. Make your brand to a place where customers find kindred spirit. Faces of Luxury 2010 www.trendbuero.com >> 58

Products give brands a body and an appearance to make brand values alive. Therefore authentic luxury needs to be an experience for all senses. Product – Packaging is often the first brand experience for luxury consumers and therefore most important. – China’s hyper-growth left a lack of pureness and authenticity. Products that tell a story about their origin and ingredients promise a desirable piece of pureness. – Chinese consumers live between national pride and global attitudes. Global luxury goods touching Chinese tradition will find a grateful audience. – Chinese are opportunists and believe what they see. They don’t just buy a product, they buy a bit of an admirable world of lux, not made in China. Faces of Luxury 2010 www.trendbuero.com >> 59

Many brands which are successful in the West, flop in China. Therefore, fine-tune global strategies to regional distinctions. The following seven cases illustrate a scenario of the * All cases are fictional and not aligned with the named brands. Chinese world deluxe in 2010.* Faces of Luxury 2010 www.trendbuero.com >> 60

Authenticity of a brand means consistency in design, communication, service and also manufacturing. Gucci re-opens factories in Italy 1 TNS, 2006; 2 Many consumers are convinced that some luxury goods sold on black market are Insight: 70% of Chinese appreciate the superior quality of luxurious brands1 but doubt that superior quality can be made in China. Solution: While brand awareness is still low, the country of origin is more important. Therefore Gucci decided to re-establish some of their factories in Italy. An Europe made Gucci bag not only guarantees for superior quality but originals stolen from Chinese factories. can be easily identified as a counterfeit.2 Output: The trust in the quality of Gucci products increased while the number of counterfeits slightly declined. Faces of Luxury 2010 www.trendbuero.com >> 61

An individually made stamp and personally delivered by Oppenheim’s factory – an experience customers are willing to pay for. Oppenheim sold stamp edition in 30 days Insight: After two decades of Westernizing Chinese consumers rediscover their roots and Picture: Design/Rendering by XLPlus Design, Shanghai; Concept by Trendbüro appreciate luxury that revive their tradition. Solution: Oppenheim, maker of high-quality writing instruments, released an edition of signature stamps, which have a long tradition in China. After launching a jade made USB-stick last year, Oppenheim proved again its excellent consumer understanding. Output: Customers appreciate the classical look of the black-white stamp but also the high quality of the stamp signature, which is handmade in China’s oldest stamp factory. Faces of Luxury 2010 www.trendbuero.com >> 62

Luxury market is like a dating; it’s about long-term relationships. If customers think you just want money, they want a divorce. Many women felt in love with Hermes Insight: In a rushing, anonymous world with over populated cities also luxury consumers are looking for attention and unique experiences. Concept: Hermes took-up this desire when they introduced its new collection of luxury finesse. With a handwritten, poetic letter store manager Li Dan indulged the senses of Beijing’s luxury elite. It took three days to write all letters but in response many women felt in love with the French luxury brand Hermes. Output: And as its said Li Dan indulged not only the senses of his upscale clients but also their wallets and credit cards. Faces of Luxury 2010 www.trendbuero.com >> 63

Consumers look for new, inspirational shopping experiences that excite the senses. Three on the Bund opens Men Only Zone Insight: China‘s Connoisseurs are spending more for cosmetics and fragrances. They look for shops that cater to their special needs – shops which are bold, clean and cool. Concept: Together with Lacôme Homme Shanghai’s luxury shopping venue Three on the Bund has established a pink-free world for male toiletries, providing everything indulgent men need to look and feel great. Output: The royal comfort experience helped Lacôme to introduce many other products and made Three on the Bund the first choice of men. Faces of Luxury 2010 www.trendbuero.com >> 64

Shopping cathedrals are playgrounds for all senses and a great opportunity for sense branding at the point of sale. Q206 opens a World of European Style Insight: Many Chinese luxury consumers get bored by luxury offers. Shopping should be more like a journey to a desirable place. Solution: Berlin based luxury department store Q206 feels challenged and opens a World of European Style in Beijing. It will be more like a shopping palace where the cafe bar, library, social club and gallery are part of the brand experience. Output: Customers can taste, smell, read and touch brands facets and meet new friends in an exclusive environment. Faces of Luxury 2010 www.trendbuero.com >> 65

The staff in showrooms are important communicators of the brand and a strong influence on the nouveau rich who have little brand knowledge. LV succeeds with sophisticated staff Insight: Customers complain about pushy badly trained staff in luxury stores. Solution: Louis Vuitton recognized this challenge early and educates its staff partly in Hong Kong. They offer specific courses and international staff exchange to push their staff to the same sophisticated level as their customers. Output: Since LV also offers home visits to save customer’s time, customers begin to build personal relationships with their style consultants during their “style-time” together. Faces of Luxury 2010 www.trendbuero.com >> 66

Luxury consumers expect the same professionalism and quality of experience they enjoy outside in the comfort of their own homes. Ritz Carlton sells Grand Home Sweet Insight: China‘s rich expect maximum comfort and technology at home. After the kitchen, attention is now focused on bed- and bathroom, also installing specialty rooms such as game rooms, yoga and wine rooms. Concept: The upscale hotel chain Ritz Carlton is successfully marketing their furnishings for private homes. What people are looking for is better relaxation – but also an exciting atmosphere for certain moments. Output: Ritz Carlton brings the mood of a luxury hotel into people‘s home for sweeter dreams and a stronger customer relationship. Faces of Luxury 2010 www.trendbuero.com >> 67

Curious to learn more about Chinese luxury consumers – their aspirations, life-drivers and longings? Contact us! This summary illustrates only the highlight of our research results. Please send us specific questions about your luxury consumer of tomorrow. Faces of Luxury 2010 www.trendbuero.com >> 68

From the big picture to the detail 1. Desk Research online media, books, reports, white papers 2. Focus Groups 24 focus groups (1,5 hours) in Beijing, Shanghai, Shenzhen: 60% of the participants were female, 40% male; aged between 20 to 40 years with an available monthly income of about 3000 RMB. The majority of the participants hold a college or university degree. 3. In-depth Interviews 12 interviews (1 hour) with luxury consumers: 4 female and 8 male interview partner, aged between 30 to 55 years with personal assets of about 250,000 EUR 4. Expert Interviews 15 interviews (1 hour) with marketing/sales representatives of premium and luxury brands Research Methodology www.trendbuero.com >> 70

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LUXURY IN CHINA: Get Rich Is Glorious

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