According to Shanghai Tang’s founder, Sir David Tang, understanding Shenzhen consumers is the key to understanding the Chinese luxury market for foreign brands.
During his opening remarks for the “China: Crisis, Consolidation and the New Consumer” panel at Financial Times’ Business of Luxury Summit on June 9th, Tang said, “We always hear of the DNA of brands, but I think its high times we think of the DNA of a country of operation.”
Tang continued, “That’s why I think that understanding Shenzhen is understanding the market conditions of business, which is clearly as important as the product itself.”
Tang is referring to the fact that Shenzhen has been for several years the center of diagou sellers on the mainland due to the city’s close proximity to Hong Kong and the multiple-entry visas introduced in 2009 for citizens of Shenzhen.
According to Global Times, a report by Hong Kong’s legislature from 2002 shows that only 6.38 million mainland Chinese visited that year, and only 7.9 percent visited as individuals, not with a tour group. By 2013, the number of mainland visitors had risen to 40.75 million with 67.4 percent coming individually. Of these 40.75 million visitors in 2013, Shenzhen accounted for approximately 11 million visitors.
High import tariffs, along with currency swings in Europe, and Xi Jinping’s anti-corruption measures have accelerated this diagou shopping trend.
Panel moderator Jamil Anderlini, Financial Times’ Beijing bureau chief, noted that one Swiss watch company CEO had told him that before the anti-corruption measures, 65 out of 100 watches sold went to China. Now, only 25 out of 100 are making it to China.
According to Luxury Daily, the Chinese consumer demographic with ages ranging from 25-40 years old will reach more than 310 million people within five years, and they are tech-savvy, expect high value, and they have money to spend.
Because this coveted demographic wants both luxury and value, they are turning more often to diagou agents, so that they can avoid import duties and get what they believe to be a fair price for the value.
To counter the diagou agents and the huge spike in spending abroad by Chinese tourists in Europe, companies such as Chanel and Tag Heuer have taken measures to level prices across regions.
By understanding the dynamics of cross-border shopping and the factors that drive it, specifically in Shenzhen, foreign companies will have a much better idea of how to conduct business in China.
image credit: shanghai tang