Challenges Magazine – Luxury Sales Overcomes Anti-corruption Measures in China

Campaigns against valuable gifts and purchases paralyze apparatchiks. But consumption patterns evolve.

Galeries Lafayette Beijing

Galeries Lafayette, Beijing. The well-known Parisian department store opened in mid-October occupying more than 30,000 square meters of retail space. Evidence shows that large luxury groups still rely on the Chinese market.

How much bribes, kickbacks, and gifts in kind are received annually by China’s officials, politicians and managers of state companies? Answer: it amounts to a mountain full of cash. In 2011, China’s central bank estimated, the sums diverted over the last twenty years summed up to more than 95 billion euros, so about 5 billion a year. Staggering.

Former Prime Minister Wen Jiabao noted that this evil has become “the greatest threat to the ruling party”, and its new leader Xi Jinping expressed that this is a war with no rest towards the millions of corrupt members. The system executives are banned from purchasing jewelry, high-end wine, and luxury leather goods with public funds. Also, they are barred from receiving presents with high monetary value, even though gifting is fundamentally rooted in the culture of the country and its business practices.

All that glitters and blings have been suppressed and perceived as a disgrace due to the new government regulations that have been passed recently. Even ministers store their gold watches – accessories they are crazy about, which represents 40% of Chinese luxury goods – on field trips to keep a low profile. A watchword against luxury already arises for large international brands, while China is expected to account in 2015 at least one third of the global market, estimated at nearly $ 175 billion, according to a study by McKinsey.

Previous drop in sales

During the Chinese New Year in February, a few months after the official launch of the anti-corruption campaign, “luxury goods spending dropped to $830 million, or – 53% compared to the previous year,” says Patrice Nordey, CEO of VELVET GROUP, a digital consulting agency based in Shanghai.

“Receptions and banquets have been cancelled, leaders have been indicted, Rolex watches and ostentatious Hermes hand bags have been banished from the media landscape. The anti-corruption campaign has had a real and noticeable effect on the sales of the luxury groups”.

However, most officials refuse to make a connection between this campaign and the fall of their sales.

“In reality, the slowing down already started since 2010, which was well before the anti-corruption measures. We observe a general slowing down in the growth of the luxury retail market in China, from an 18 % growth in the first quarter of 2010 to a less than 14 % growth in the first quarter of 2013”, adds Patrice.

Consequences: after years of strong growth over the last decade, large luxury conglomerates like LVMH and Kering select their new store locations more carefully within the 3000 shopping centers in the country and have taken measures to completely freeze new settlements stores.

Democratized consumption

Should we be alarmed that French houses rely on China as a growth driver? Not necessarily. Evidence shows that the dynamic is still there. Galeries Lafayette has just opened a store dedicated to fashion that covers 30,000 square meters in one of Beijing’s most popular neighborhoods near  Shin Kong Place, the luxury hotel in the created from scratch in 2007. This is the place to be. Chanel, Gucci, Prada , Armani, Italian and French ready-to-wear brands, more than 900 premium brands, the greatest wine brands in the world , rivers of diamonds … all this has generated a turnover of 6.5 billion Yuan (780 million Euros) in 2011. This has made it the most profitable luxury shopping area (excluding real estate and automobile) in the country. Nick Debnam, Asia-Pacific president of consumer markets with KPMG branch, expresses that the luxury sector “is not in recession,” despite a slowdown.

Online Sales Luxury Market China

In 2015, Online sales is expected to represent 10% of the luxury market in China (Source: iResearch).

“The growth drivers are still there and consumption patterns are changing,” he insists. In fact, luxury is no longer reserved for only Party apparatchiks or large fortune makers in the country. Nearly three-quarters of the 80 million Chinese tourists who travel the world each year now return with luxury purchases which they buy at a price 20-30% cheaper than in China. Their favorite shopping destinations include Hong Kong, Japan, Switzerland and France. The average Chinese consumer’s shopping expense has increased to 1,500 euros, which is far higher than that of the Russians and Indians. Thus, luxury groups have put in place some comprehensive strategies to serve Chinese customers not only “in China, but also in their stores in Paris, Milan and Geneva,” says Patrice Nordey.

Boom on Internet

Luxury stands out on the Chinese Web – China ranks as the biggest market for e-commerce worldwide, before the United States. Estimated at 1.35 billion Euros in 2011 in the former Middle Kingdom, the e-luxury market has indeed jumped 70% last year with a total 2.3 billion Euros of online spending. It is expected to exceed 5.5 billion by 2015, according to iResearch Chinese cabinet, and thus capture 10% of the local luxury market. “The anti-corruption campaign will not change the situation,” said Wang Jun, a Beijing blogger.

This strong growth of online luxury disrupts traditional models, offering “the possibility of exploring brands on your iPad, via social networks such as Weibo, Wechat or P1. Consumers have the option to buy luxury goods and have them delivered straight to their home through online retailers such as Yoox, Glamour Sales, and Shangpin”, explains Patrice.

Is China the new continent for luxury? Despite the impact of the current campaign that targets the “rogue cops” Party, opportunities remain “for brands that manage to adapt to this new context.”

Article by Pierre Tiessen.

Marketing to China – 5 Questions with Patrice Nordey, Founder of VELVET Group

Velvet Introduction

1 What is Velvet’s story and what are the services it offers to its clients?

VELVET is a digital consulting agency based in Shanghai specializing in the deployment of communication strategies and online marketing, as well as e-commerce activities and structure for the Chinese market. We cater to international luxury, fashion and cosmetic brands. VELVET’s clients include Boucheron, the famous jeweler in Place Vendome, Galeries Lafayette department stores, brands from L’Oréal or Kering (ex-PPR) one of the largest luxury groups (Gucci, Bottega Veneta, Balenciaga, Saint Laurent, etc..) and lifestyle brands (Puma, Volcom, Electric, Cobra).

Our main playground is the Chinese market, though our customers are international. This has led us to realize missions in Paris, New York, Melbourne, Hong Kong and Florence during the past year. I [Patrice Nordey] launched VELVET after six years of experience in China. It is the result of my first digital adventure started in 1998 with the founding of French online magazine Neteconomie.fr, which was later sold to a sizable media company.

 

2 What is the real reason that inspired you to start your company in Shanghai?

Creating VELVET is the willingness to reconcile two distant worlds, luxury and digital (internet and mobile). The Chinese market has become since this year, the largest market in the world of e-commerce (ahead of the United States) and the most important consumer market for luxury goods and services. We are betting that a position in strategic consulting in this segment will bring tremendous value to the market. Of course, this is in addition to advertising agencies like Publicis-Omnicom, WPP, Dentsu, Aegis Group and more specialized agencies which have greatly strengthened their presence in the last 5 years.

 

3 What is your vision of the luxury market in China in 2013?

China’s market represents 25 % of this year’s global luxury market and remains very strong, despite a slowdown since 2010. This makes it the most attractive market for luxury brands. Moreover, it remains highly fragmented and rapidly changing. The share of purchases of luxury goods by Chinese traveling abroad, including France, for example, is the most dynamic component. Consumers are slightly tired of traditional luxury brands and are more in favor of “affordable luxury” and dynamic premium brands. Sophisticated clientele take a closer look at more specialized brands such as Christian Louboutin or Maje that arrived in China this year. Chinese consumers browse on their smartphones and iPads to discover luxury brands and products, not only at home but also when shopping in store. There is a unique opportunity here to capture and engage customers via social media and other mobile-specific applications.

 

4 What is the most important online social platform for a luxury brand in China today?

No platform is perfect within itself. We recommend Sina Weibo to reach a wide audience, WeChat for more interactive communication and the point of sale, and vertical platforms such as P1 to reach urban and more advanced communities in fashion. This year we worked with BoBo, a mobile social networking app catering to Chinese hairdressers and stylists who want to share new hair styles and styling techniques, with a community of 200,000 professionals. The collaboration between a well-known cosmetic company and BoBo was an effort to target high-end salons and famous hairdressers through an online social network. This collaboration was very effective!

 

5 Why luxury brands are afraid to sell on the Internet today? Are they wrong?

This fear is based on realistic problems: counterfeit goods, parallel distribution, sales of luxury goods at rock-bottom price, and other issues that are prevalent online. Naturally, it would not be a confident environment for luxury brands to launch their products online. However, market conditions are gradually improving, along with an emerging class of consumers who want to live a true online “luxury experience” with their favorite brands. I think the real question for these brands is their degree of integration with the stores, the “OmniChannel” approach, as well as the development of real differentiating services based on a structured approach to CRM. Be able to book a shopping appointment online on the brand site, pick up your purchase in the nearest shop, and have access to services such as VIP concierge through the mobile platform. These are the avenues to explore and to differentiate in order to offer a true digital experience within the luxury industry.

VELVET partners with P1 on “The Great Style Leap” Streetstyle Photo Exhibition

The unique lifestyle focused social network P1 is showcasing a collection of photos at “The Great Style Leap”  exhibition that will occupy 800 square meter of space in the heart of Beijing’s trendiest shopping area, Taikoo Li Sanlitun.

The Great Style Leap photo

China has during the last 6 years undergone a paradigm shift when it comes to what people wear and how they chose to express their personality through their clothes. What was earlier a 2 dimensional status ladder where the size and price of your brand handbag was the definition of attractiveness has now been replaced by a complex of individual styles without one single common measuring tape.

The photos are selected from an incredible database of more than 6 million P1 streetstyle photos taken over the years of 2007-2013 in metropolitan China, showcasing the rapid proliferation of individual expression through what people wear. This unique database is a historical record of the progress that has taken place and the rapid proliferation of individual expression through what people wear.

The photo curation has been realized by one of the most influential women in China, Fashion Entrepreneur Hung Huang, with more than 8 million fans on Weibo.

Join us in celebrating the individual expression and originality of Chinese style today at “The Great Style Leap” in the fashion center of Beijing. So, you want to know more about the sponsorship opportunities, please contact us.

P1.com

About the organizer:

P1 is a lifestyle focused social network founded in 2007. It has since then attracted more than 3 Million members and is today a fully mobile social network where people share their lifestyles and find inspiration.

Location: Taikoo Li Sanlitun, Beijing
Date: Indoor [Dec 13 – 19, 2013] – Outdoor [Dec 5 – Jan 5, 2014]

Connexions – A Closer Look on “E-Retail: Luxury Gets Going… Finally!” by Patrice Nordey

LANVIN+完稿-1

According to a study done by KPMG, 72% of Chinese tourists traveling abroad claim to have bought luxury goods. These purchases represent a significant proportion of their total expenditure (over 40%) with the most popular products of choice as cosmetics, watches and handbags. The prices of these products bought abroad are 20 to 30% cheaper than in China, and account for half of China’s luxury market today.

However, with the rapid development of online shopping in the Middle Kingdom (159 billion Euros at end 2012), we see pure Internet players taking advantage of this lucrative market in the recent years. Startups such as 5lux.com, Ihaveu.com, Shangpin or Xiu.com (87 million turnover in 2012) buy directly from distributors – rarely trademarks – and short all intermediaries to offer prices 20-50% lower than those charged by official channels shops.

Some of these actors, such as Secoo.com, even sell second hand luxury goods while ensuring the authenticity and condition of the product through strict certifications.

To counter these new discount models – which have tremendously opened consumers’ appetite for the “digital luxury” – premium and high end brands fuss to offer their online distribution model to recreate the conditions of an experience luxury with exclusivity, personalization and value-added services.

Upscale cosmetics brands were the first to launch, for example Lancome or the specialized retailer Sephora in 2006. Marni, Armani, Bally, Dolce & Gabbana, Alexander Wang and the Moncler brands have also launched in 2012 under the auspices of the Italian Yoox platform. More recently, Hugo Boss and Coach launched their e-commerce with a narrow range of products. Department stores such as Marks & Spencers and Lane Crawford also accelerated the development of their Internet offerings for their wealthy clients in China and Hong Kong.

Estimated at 11.1 billion RMB in 2011, the e-luxury market in China jumped by 71% in 2012 with 18.9 billion RMB of online spending. It is expected to exceed 45 billion RMB by 2015 according to iResearch and thus, capturing 10% of the first luxury market in the world.

TechCrunch Shanghai – Digital Innovation in Fashion from Technology to Services

Digital-in-Fashion

Technology is upending every single part of our daily life and fashion industry is no exception. CEO of VELVET Digital Agency Patrice Nordey, Digital General Manager at Nike China Nicolas Zurstrassen, Director of Ecommerce & Operations at Converse An Chiem, Director of Digital Marketing at Westin Hostel Penny Peng, and Regional Digital Manager Asia and Australia at Nivea Eike Wobker joined us at TechCrunch Shanghai to discuss digital innovations in fashion industry.

All panelists agreed that social media, like FacebookWeChat and Sina Weibo, plays a significant role in their interaction with customers.

In hospitality industry, the social media provides more convenience to customers, enabling them to search for hotels assorted based on reviews from friends, obtain customer services, etc., said Penny.

An Cheim noted that they want to maintain the application of social media at interactive level, to have two-way conversation with consumers, rather than going too far to become an ecommerce channel only.

In selection of digital technologies, brands always have to get back to the question of who your consumer is, what are their demands, and how do they want to be attracted to your brands, said Nocolas. The next crucial factor is to provide utility to them in terms of a tool, a story and a service. He added mobile marketing is not only about mobile phones, but about mobility or what the consumers need when they are out, and therefore, it is applicable to all wearables, like shoes and clothes.

According to Eike, digital provides an opportunity to glue different marketing channels together.

– See more on Technode!

Event Watch – China in Context by Jing Daily in New York on November 14th 2013

Context in China Jing Daily

You are in US and you want to know more about Luxury, Chinese Market & Digital Strategy?

China Luxury Advisors and Jing Daily have partnered to host a seminar to provide senior leadership from luxury brands, retailers, digital companies, media organizations, hospitality, and destinations with strategic insights into the Chinese consumer that will influence both China strategy and global practices and decisions for brands who are serious about winning the Chinese consumer.

Topics will include:

  • Innovation and the Chinese consumer: As China’s luxury market rapidly changes, learn how brands are innovating to appeal to Chinese consumers, from brand positioning to design, product development, retail, and marketing.
  • Consumer influencers: From cultural traditions to KOLs, explore the landscape of what’s influencing the tastes and purchase habits of China’s affluent consumers, and learn how to best maximize investment and outreach in this area.
  • Effective brand building for the Chinese consumer: Best practices for enhancing consumer demand both in China and abroad.
  • Understanding China’s travelers: On-the-ground observations and stories from traveling with Chinese high-net-worth consumers.

Save the date & Buy your tickets here!

Context in China Jing Daily

Date: November 14th, 2013
Location: AW Asia – 545 W 25th St – New York, NY 10001
Duration: 1 day (8:30 am – 12:00 pm)
Price: seminar ticket $350 – conference special, 3 tickets $700

VELVET invited to the Galeries Lafayette Store Opening in Beijing

The leading Parisian’s department store Galeries Lafayette has launched a new Flagship in Beijing, seeking to tempt China with the “art of French living”.

Galeries Lafayette store beijing

The original department store in Paris, which is over 100 years old, has partnered with Chinese fashion retailer I.T Ltd to find this outpost. Located in Xi’dan, one of the most popular shopping areas in Beijing especially for Chinese youth, the six-storey store carries over 500 international and domestic brands including selections exclusive to the Beijing store. Bringing numerous international labels such as Givenchy, Valentino, Bottega Veneta and Fendi to Xi’dan for the first time, it is also the first location in Beijing for Saint Laurent Paris. The Asian Market, a special in store area showcases emerging Chinese fashion designers and is currently showing Simon Gao’s limited edition collection.

The chain’s showpiece outlet on Paris’ Boulevard Haussmann is a top target for Chinese tourists visiting France – their favorite European destination – and the Beijing version includes a reproduction of its trademark glass dome, made up of LEDs.

French model and actress Audrey Tautou, best known for playing the leading role in the 2001 film Amelie, was the guest of honor at the Beijing store’s grand opening.

Galeries Lafayette celebrities Audrey Tautou

Location: 110 Xi’dan North Street, Xicheng District, Beijing

Velvet invited to the Lane Crawford Store Opening in Shanghai

Velvet was pleased to be invited by Lane Crawford to a special evening celebrating the Grand Opening of China flagship store.

Lane Crawford opening shanghai

Lane Crawford opens its China flagship store in Shanghai’s Times Square, providing shoppers with 150,000 square feet and four floors worth of 500 brands across women’s fashion, beauty, fine jewelry, menswear, and home and lifestyle, making this the largest Lane Crawford store ever! Featured brands include Alexander McQueen, Givenchy, Lanvin, Saint Laurent Paris, Alexander Wang and Sacai; as well as collections including Alice & Olivia, Sandro, Maje and the introduction of J. Crew in China.

“Global retail leadership is now coming from China, and the China customer is at the forefront of fashion. We set out to create the ultimate luxury fashion and lifestyle destination – the largest selection of luxury brands in an innovative, highly visual space, offering world-class service at a scale never before seen in Shanghai”

Andrew Keith, CEO of Lane Crawford

The store was designed in collaboration with architecture firm Yabu Pushelberg, which has worked with Lane Crawford on four previous stores. The design takes a “modern gallery approach to retail”.

During the evening party, Lane Crawford welcomed a range of Chinese celebrities as well as über-stylish crowd.

Lane Crawford Store Opening shanghai

From left to right: Hong Kong actress Carina Lau, Chinese model Du Juan, Chinese actress Zhou Dongyu, Chinese TV Hostess Zhu Zhu, Taiwaiese model Godfrey Gao, Hong Kong actress Maggie Cheung – Photo credit: Lane Crawford

Location: Times Square, 99 Huai Hai Zhong Road, Shanghai

Event Watch – MagentoCom Conference in Shanghai on November 18th 2013

MagentoCom China - e-commerce

As e-commerce is booming in China and East Asia, merchants continue to see the value in Magento as a flexible and cost-effective e-commerce system of choice that enables a fast time-to-market strategy and almost limitless e-commerce opportunities.

The true impact and success in the Asian market however depends on the e-commerce service system as a whole. Although Magento has proven to be successful in itself, many merchants are getting on board the Magento platform with the help of various partners and can only be truly successful in collaboration with reliable service providers.

MagentoCom (China) will be scheduled on November 18, 2013 in Shanghai. The targeted audience for this event is Merchants, Digital Managers and Business Leaders with the opportunity to meet leaders in the Digital Industry and get to know about new E-Commerce trends and opportunities in China.

Save the date & Buy your tickets here!

Date: November 18th, 2013
Location: Renaissance Shanghai Zhongshan Park Hotel
Duration: 1 day (9:00 am – 9:00 pm)
Price: early bird ticket ¥480 – after early bird ¥680