This week in the news, luxury is thriving in China’s outlet malls, China’s urban hotels have seen rising occupancy rates, British brand Gieves & Hawkes’ modern makeover appeals to Chinese, Hong Kong retailers are worried by a cosmetics slump, and there are six driving forces behind Chinese luxury buying.
The luxury market is thriving in outlet malls located on the outskirts of large cities that are offering consumer discounts on brands such as Burberry and Giorgio Armani that range from 30 to 70 percent. Since 2011, the major mall developer RDM has noted 45 percent year-on-year sales growth and an average of 12 percent return of investment. Sasseur Group, a developer based in Shanghai, has seen a same store sales growth of 30 to 40 percent over the past few years, and has set a sales target of $645 to $800 million for the end of this year. Developers are experimenting with strategies to maintain their hold on consumers. RDM’s tactic is to localize its approach and develop a firm understanding of the Chinese market, while Sasseur has added lifestyle amenities to its malls.
Growth in occupancy rates in China’s urban hotels has relieved fears of oversupply in the hospitality sector. Since 2010, a supply-demand imbalance has exerted pressure on China’s hotel industry. The industry sustained another blow during government’s austerity push in 2013, which forced government workers to decrease their spending on business trips. However, JLL recently found that the occupancy rate of Shanghai-based hotels rose to 71 percent from 66.2 percent in 2012 last year, while the rate of hotels in Beijing increased to 63.6 percent from 59.5 percent. The growth stems in part from the country’s growing middle-class and the recent proliferation of Internet service firms in China, which require employees to travel for business more frequently.
British fashion brand Gieves & Hawkes has been given an image makeover since being acquired by Hong Kong-based company Trinity Ltd in 2012. Trinity previously served as Gieves & Hawkes’s Asian distributor and opened 95 Chinese stores for the brand by 2012, a number which now exceeds 100. The 205-year-old luxury brand supplies clothing to the Prince of Wales, Queen Elizabeth II, the Duke of Edinburgh, and the bodyguards to the British monarch. To make the brand more appealing to modern audiences, Trinity hired Jason Basmajian as Gieves & Hawkes’s new creative director. Under his direction, the brand has been modernized and internationalized for consumers in China, where the brand has displayed its greatest international growth in recent years.
Hong Kong retailers have already felt the effects of China’s slowing luxury spending, and along with the pro-democracy protests, 2014 was a tough year for Hong Kong luxury stores. Now, the category that had once withstood slowing sales, cosmetics, is feeling the pinch as well. Two Hong Kong cosmetics chains, Bonjour and Sa Sa, have both downgraded their expectations for the near future. Due to the falling spending power of its biggest client base, mainland Chinese tourists, Bonjour posted a profit warning in which the company expects net profit to decline 10 to 20 percent year-on-year compared to last year. Bonjour’s biggest rival, Sa Sa, announced sales of HK$2.5 billion with flat turnover in the third quarter ending December 31st.
In the last few years, Chinese consumers are increasingly spending more money on self-indulgence as well as self-enjoyment in search of luxury experiences, and these numbers are still on the rise today. These consumers pamper their success by purchasing luxury goods for their own contentment. They are willing to experience luxury by purchasing items that are emotionally meaningful to them such as cars, hotel and resort stays, restaurant visits, and spa treatments. These modern Chinese consumers are seen to have more hedonistic tendencies, which were only in the past linked to western culture. Consumers motivated by self-reward tend to have planned purchases as well as impulse buys.
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