This week in the news, young Chinese will drive China’s luxury spending, Shanghai Fashion Week features young designers with a European flair, cruise lines hope to convince Chinese to voyage outside Asia, Chanel cuts prices in China, and Beijing’s five-star hotels are feeling the pinch of frugality.
China’s Ministry of Commerce released a new consumption report that forecasts “a new peak” in luxury consumption this year. According to the report, consumption rate is expected to be greater than 50 percent this year, the first time in a decade, and is largely driven by services rather than goods. The Chinese are spending more on housing, entertainment, education, and healthcare and less on clothing and food. Spending on technology is expected to grow by more than 20 percent this year with more interest in wearables and smart home appliances. Chinese consumers are not very brand loyal, but the upside is that the frequency of their luxury purchases remains unchanged.
A number of young European designers and Chinese designers that studied at European fashion schools brought a European flair to Shanghai Fashion Week. Among the international designers were Astrid Andersen, Johnny Diamandis of AK Club, and Christophe Terzian. After graduating from the prestigious ESMOD school of design in France as the school’s youngest ever student, Terzian formed his own brand in 2013 and found a Chinese partner in Alexander Chu, the founder of the renowned buyer’s shop Nn. This year, clothing for professional Chinese women was popular as well. Shanghai Fashion Week featured two brands aimed at the professional women, Naivee and Y. Entwineyoung.
China’s outbound cruise market is growing rapidly. The Cruise Line Industry Association (CLIA) announced that the market grew 79% between 2012 and 2014. The industry was valued at $6.8 billion in 2013 and is expected to hit $11.5 billion in 2018. Last year, 700,000 Chinese went on cruises, but just 63,000 of them boarded ships that went beyond Asia. To encourage more extensive travel by sea, major cruise lines like Royal Caribbean are moving ships into Chinese ports, and seeking partnerships with Chinese companies that can provide reliable supplies and repairs. Royal Caribbean has even teamed up with the Tianjin Maritime College, which trains dual-language crew and staff by working on China-based ships, such as Ovation of the Seas.
Earlier in the year, prices in China were as much as 70 percent higher than in Europe for soft luxury goods. In March, Chanel cut prices by up to 20 percent on many product lines with prices on other goods leveling off throughout the year. Chanel said of the price discrepancies, “These differentials, which exist for all exporting brands, are caused by exchange rate fluctuations and the methodology used to set prices, which include taxes, import duty and transportation costs, and the economic environment, all of which are specific to each country.” Fortune Character Institute found that Chinese accounted for 47 percent of all luxury purchases last year, but that 76 percent of those purchases were made outside of China.
Last year, sixty five-star hotels reported heavy losses with an average of 40 percent of the rooms vacant. Many of the affected hotels have had to shake up their business models, including lowering their star ratings and lowering their prices. Beijing’s financial bureau does not approve the use of five-star hotels for official meetings, and all five-star hotels are excluded from the department’s list of 318 approved hotels. To counter this, some of the city’s five-star hotels have voluntarily lowered their star ratings. Beijing Jinjiang Fu Yuan Hotel was the first five-star hotel in the city to to do so in 2014. Other Beijing five-star hotels that are not quite so near the city center have lowered their prices to attract new business.
image credit: markus bollingmo