Retailers, distributors and sellers are
all keen to see duty lowered
BEIJING - International luxury brands
competing to expand their presence in China have to face the fact
that Chinese consumers prefer to buy premium goods abroad instead of
domestically.
The World Luxury Association released a
report in June revealing the Chinese spent nearly$50 billion in
Europe, four times what they spent on luxury goods in 2010 on the
Chinese mainland.
The figures have prompted hot debate on
reducing China's import duty on luxury products.
Although no general
agreement has yet been reached, premium brand designers from overseas
and distributors and retailers are keen on a tax cut.
Helmuth Hennig, managing director of
Jebsen Group, a Hong Kong-based luxury marketing and distribution
company, said it will be good news if a revised tax policy is
released early next year.
If China issues a duty-reduction
policy, "I think what we will do is to move some businesses
which are currently conducted out of the country into the Chinese
market", Hennig told ChinaDaily.
Founded in 1895, Jebsen currently
represents more than 200 premium brands in China, including Porsche,
Bosch, Raymond Weil and Pentax.
"Taxes obviously affect expensive
products, pushing consumers to consider where they make their
purchases," Hennig said. "From that perspective, to me it
makes sense that China should look at its overall tax situation."
Hennig pointed out a lot of Chinese
consumers buy luxury items overseas because of the high import duty
and taxes in China. "It may be good for the consumers but, at
the sametime, it may have a detrimental effect on China," he
said.
Francois Henri Pinault, chief executive
officer of PPR Group, is also aware of the situation. PPR is the
world's third-largest luxury group by turnover. Based in Paris, it
has 10 luxury brands including Gucci, Bottega Veneta and Yves
SaintLaurent (YSL).
"In the future, Chinese consumers
might well account for about 50 percent of worldwide luxury
consumption, when you include internal and overseas consumption.
Paris, Rome and Veniceare their favorite destinations to buy luxury
goods," said Pinault.
The United States Travel Association
said that Chinese visitors spend on average more than $6,000 each in
the UnitedStates, more than twice their counterparts from the United
Kingdom.
"A tax cut will definitely help
and improve our business in China. We are looking forward to it,"said
Lutz Bethge, chief executive officer of Montblanc. China has been the
largest market forthe German-based manufacturer of writing
instruments, watches and accessories since 2007.
Although expectations for the favorable
policy are high, foreign luxury brands do not intend to slow down
their expansion in China, given the huge potential of the emerging
market as well as their ever-increasing profits here.
Because of rising disposable income and
ever-increasing brand awareness, China is expected to surpass Japan
by 2012 to become the world's largest luxury consumer market, with
anestimated value of $14.6 billion, according to the World Luxury
Association.
Jebsen, which already has solid bases
in Beijing, Shanghai and Guangzhou, is eyeing untouched central and
western China.
"When you look at the map of
China, development must head further west to places such as Sichuan,"
said Hennig.
"But I think every pocket has its own requirements
and needs. So we need to understand which of our businesses should be
the first to go, which one will establish itself through either its
own distribution or third-party distribution."
The company is restructuring its
business in China. The company's beverage business focuses primarily
on southern and some eastern provinces, and the car business
concentrates on major cities.
Jebsen's revenue in the first half of
this year amounted to nearly $1 billion, an increase of 40 percent
compared with the same period last year. The Chinese mainland's
contribution to the group's business as a whole is growing very fast,
according to Hennig.
PPR is increasing Chinese consumers'
awareness of its brands with the launch of more newstores. Gucci will
have 12 new directly operated stores in the Chinese mainland in 2011,
the biggest yearly increase since the premium brand entered the
mainland in 1992. Six of them had already opened by the end of
August.
Gucci only had four stores in the
mainland before 2004. Since then, the number of Gucci stores has
increased to 54.
"We will continue to expand in new
cities," Pinault said. "And in the existing cities, new
sections,such as for men and for kids, and new brands, will also be
brought to China."
The approach of putting new stores in
more cities aims to improve local residents' recognition of the
brand. People prefer familiar brands when they have the opportunity
to buy luxury items.
However, Gucci recently came under fire
after five former employees at its flagship store in Shenzhen lodged
complaints about what they allege were inhumane working conditions at
the company.
The Shenzhen city government is
investigating Gucci and looking into the relevant rules and
regulations of the Italian label.
Insiders said it has had an effect on
Gucci's brand image in China, which may lead to a decline in sales
and hinder its expansion plans.
In the first half of 2011, PPR's luxury
business revenue in China increased by 45 percent to 443 million
euros ($622 million) accounting for 19.8 percent of the group luxury
activities.
Meanwhile, Gucci's revenue experienced a 35.6 percent
year-on-year rise in China to hit 337million euros, while YSL and
Bottega Veneta realized growth of 55.3 percent and 81.2 percent
respectively.
China is a new market for overseas
companies, given the vast land and specific characteristics of local
consumers, according to Hennig.
Luxury means different things to
different people. In China, luxury products are often bought toward
oneself.
"If someone has achieved something
with his life, he is often willing to spend money on giving himself
something which rewards success. Whatever it is has to be visible to
the individual or toothers as a symbol of success," said Hennig.
The marketer used luxury cars as an
example. In Europe, consumers have the option tore move the label
from their cars. On the rear of a Porsche, the GTS sign can be
removed if the owner does not want others to see he or she drives a
very expensive car.
"But in China, this kind of option
does not exist because nobody is currently interested in it," he
said. Jebsen's greatest challenge is to understand local people and
their specific requirements,which are often different from one area
to another.
To PPR, the challenge is to diversify
its products. Currently, the group's products are mainly clothes,
which have less added value among luxury goods. Pinault said it
expects to expand its jewelry and watch business in the future.
By Liu Jie and Wang Wen (China Daily)
Personal Reaction
Consumers or buyers really are affected by the prices of the product. Many people, like in China, purchase more goods outside their mainland due to taxes set on the product. If we think about it, the nearer to the producer's shop would means cheaper price of the good we purchase. That would be the reason for us to purchase more of that product sold.
Luxury means different things to different people.
I agree with this statement that everyone has their own definition for luxury goods. For example, in the perspective of a rich person, they would say that it is a "reward" of their success. While in the poor person perspective, they would say that they would rather spend that money for their own necessities. I believe that both persons are correct.
Moving on to my personal reaction, i would like to ask a question:
Why do we need to buy products, particularly luxury items, that are expensive?
Purchase it outside or just can be sold nearby?
For me, it is not really a need of having luxury goods, but I would accept the reason, like rewarding yourself for the success, in having these things. But that reason will be applied for those people whose money are overflowing or like such. One reason that irritates me the most is that those people who want to have these things just to show off, to the point of having debts, lots of debt! Don't you agree?
Material goods are now becoming the symbol of one's status in society.
Truthfully speaking, I am one of those people who belong in question two, who purchases goods from outside. I always look at goods on its quality and that would last longer, and that would be acquired more on the outside countries. Now a days it's hard to find things that would give us the right quality that we like.
Positive (+)
Luxury goods gives us the right quality and give us happiness.
Negative (-)
But that happiness is just temporary, and the cost itself.
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