The world’s second largest economy is not immuned to the global economic uncertainties. Aware of the global economic implications, Chinese consumers are treading cautiously. They are steering away from the hyper spending (although they can still afford to) and tightening their belts, cutting back on some luxuries.
Luxury accessories are the first to go. According to a survey conducted by global research firm Ipsos and communication firm Ruder Finn, luxury-brand watches is the top item crossed off consumers’ shopping lists, with 54% of mainland respondents saying they plan to spend less on watches over the next 12 months. Similarly, 48% of mainland respondents plan to reduce jewelry and high-end handbag purchases.
Fortunately, it’s not all bad news across the board. The same survey indicates that 43% of mainland respondents will still spend more on luxury cosmetics and expensive shoes, and 40% of them will buy more premium wines and cigars.
Another major finding of the survey is that China now challenges Hong Kong’s title as “Shopping Paradise”. Surprisingly, the Mainland has replaced both Hong Kong and Europe to become the number one destination for buying luxury goods in 2012. “Most luxury brands already have stores in major cities on the mainland, and consumers now can purchase luxury items from next door, so they have fewer reasons to travel to purchase them from Hong Kong,” said Elan Shou, Senior Vice President at Ruder Finn.
And even when they do make their ways across the border, they aren’t spending as generously as they used to. Alan Chun, manager of the Gaily Jewellery Co. Ltd. store on Queens Road, Central, said that instead of spending anywhere between HK$100,000 to HK$1 million on diamonds and jades like they used to, shoppers are now settling for more regular priced items at around HK$30,000 “just for fun”.
The strengthening of the yuan and Hong Kong’s lower tax rates suggest that Hong Kong will still attract mainland shoppers, especially those from second and third-tier cities where the presence of luxury retailers is still lacking. However, discounts alone won’t be sufficient as consumers are becoming more eager for the full shopping experience.
During economic uncertainties, luxury retailers will need to emphasize product quality and brand equity – the two irreplaceable traits of luxury goods. Overseas retailers will need to understand the unique brand perceptions and shopping habits of the Chinese consumers and build their sales strategies around such preferences.
Adjusting to consumer confidence and purchasing power is a never-ending battle for retailers. In the near term however, with the upcoming “Super Golden Week” from Sept 30th to Oct 7th in honor of the Mid-Autumn Lunar Festival and the National Day Holiday, retailers will likely see another spike in buying.