The Bling Dynasty

Why the Reign of Chinese Luxury Shoppers Has Only Just Begun

Erwan Rambourg

• Publisher: Wiley
• Year: 2014
• Print ISBN: 9781118950296
• eBook ISBN: 9781118969700
• Edition: 1
• Topic: Business
• Subtopic: Consumer Behaviour
• Index: Business

Why the luxury market's fate rests in Chinese wallets

The media has negatively focused on the Chinese political administration clamping down on gifting. Observers have come to doubt the strength of Chinese consumption as the key driver for luxury. The Bling Dynasty illustrates how doubts about Chinese consumption are ill-founded and Chinese luxury demand is on the cusp of becoming dominant.

This book contains the research and expert views companies need to understand and address the new challenges posed by this dominance. Each chapter brings a different perspective, covering complex aspects of luxury consumption, with illustrations and real-world examples that support the research. Readers will gain insights through interviews with brand executives, retailers, experts, and consumers.

As an economic heavyweight, China is fast realizing its role in the luxury market. Chinese consumers should be accounting for more than a third of the global luxury market today, and half, if not more, in ten year's time. The Bling Dynasty runs counter to the conventional wisdom that expanding sectors become more global. Luxury is actually becoming over-dependent on Chinese sales.

Readers will:

• Understand how Western brands developed in Asia and the challenges they are met with, notably ubiquity
• Learn why Chinese are purchasing luxury items abroad and what it means for the future of the sector
• Gain insights on why there are no Chinese luxury brands challenging Western models
• Realize that Chinese consumers are becoming similar to their American peers and that luxury competition goes way beyond pre-conceptions

China's big spenders are increasingly mobile and this is affecting key markets. The Bling Dynasty provides new research and a comprehensive look at the booming business of luxury and the Chinese wallet.

Part One

WEST GOES EAST

Chapter 1
Eastern Promises, Delivered

A good traveller has no fixed plans and is not intent on arriving.

—Lao Tzu

Figure 1.1 Picture of a China Visa

This first chapter is an account of what I discovered moving East: the intricate yet essential relationship between Mainland China and Hong Kong and how dominant men have been for Chinese luxury consumption.

Don't Believe the Hype? Come to Hong Kong

As I start a book about Chinese consumption of luxury, I am telling you about Hong Kong. Why Hong Kong and not China proper? you may wonder. Well, in summary, my first shock moving East was to realize Hong Kong is where it all started for the luxury trade, but more importantly, it has been the world's window on China and in turn a very powerful vehicle for China to access the world.

Here are a few important developments that explain why Hong Kong is an essential key to understanding Chinese luxury consumption.

Hong Kong is a cosmopolitan hub. Through its history, culture and location on the Pearl River Delta and South China Sea, the city has become an international destination—leading the local airline operator, Cathay Pacific, to use the tagline ‘Asia's world city'¹ alongside a picture of a flying dragon—or at least an incredibly powerful bridge between the West and China. It came into being in 1842 when China's Qing dynasty government was defeated in the First Opium War and ceded Hong Kong Island to Britain in perpetuity. In 1898, China signed an agreement to lease the New Territories, the land North of Hong Kong island along the Mainland China frontier, and more than 200 islands for 99 years.

Hong Kong developed rapidly as a colony, and to this day it has kept a British feel in many areas, from the few remaining colonial administrative buildings and driving on the left to elements of social life through sports, such as cricket and rugby, and the culture of club membership. Many of my English friends in their forties or fifties were born here, grew up here, and even though they may have gone to boarding schools in England, came back and raised their own families and ran their own careers in Hong Kong.

Hong Kong has long been a natural home away from home for Mainland Chinese for economic and political reasons. In the late nineteenth century, while some fled upheavals in southern China, others looked to Hong Kong as a natural place to do business as its wonderful harbor had developed into a thriving port. The name ‘Hong Kong' is a British transliteration of ‘Heung Gong', which means Fragrant Harbor in Cantonese.

The first really significant inflow of Mainland citizens to Hong Kong occurred when the Pacific war between China and Japan broke out in 1937. By the time Japanese troops occupied Hong Kong in 1941, the population had reached an impressive 1.6 million. By the end of World War II in 1945, that population had been more than halved. The late 1940s saw a surge in population again. With the re-establishment of British rule, many who had left came back. But more importantly, when forces of Mao Zedong² took over China in 1949, Hong Kong became a safe haven for those fleeing communism and poverty. The 1960s were marked by a tough economic environment and tensions linked to the Cultural Revolution in China. In the late 1960s, the population reached close to 4 million souls.

As early as 1982, Britain and China started to have conversations around the future of Hong Kong—what would happen in 1997 when the 99-year-long lease expired. Two years later, with great foresight and pragmatism, Deng Xiaoping³ defined the conditions for Hong Kong to gradually revert to Chinese rule.

Under a principle of ‘one country, two systems', a transition started in 1997 and was to be completed 50 years later. This is the same path Macau—the only other Special Administrative Region—took in 1999. So, at midnight on 30 June 1997, after five years in the job, the last governor of Hong Kong, Chris Patten, officially handed back control of Hong Kong to Mainland China.

While some people left fearing the transition would not work, Hong Kong's economy has thrived ever since with the exception of a painful yet landmark event: the 2003 SARS (severe acute respiratory syndrome) epidemic.

SARS killed 299 people and devastated the economy. Tourism ground to a halt, retail sales nosedived and the stock market slumped. But from this tragedy an incredible opportunity emerged. In response, in July 2003, Mainland China introduced the Individual Visitor Scheme that enabled Chinese to visit the city without being part of a tour group. That meant the tourism industry and jobs related to it got a phenomenal boost at a time the economy needed it most. And the Chinese visitor numbers and buying power have gone from strength to strength ever since. While you will meet British, American, Australian, French and other non-Asian citizens when coming to Hong Kong, ethnic Chinese represent around 94% of the 7.3 million inhabitants.

Hong Kong has been a symbol of success and a city of hope for many expatriates. By expatriates, I mean expat Gweilos⁴—literally ‘ghost chaps' in Cantonese (i.e., foreigners), often loosely translated as ‘foreign devils'—like me. Other expatriates also include the ‘migrant worker' types coming in from China over the decades to live a better life than on the mainland, sending back some money to their relatives who stayed and hopefully one day becoming successful. Success could be found initially in textile and tech and, soon enough, in property, as Hong Kong has little space and many people and businesses. The constant flow of migrants from the mainland was very much part of this success story.

Li Ka-shing, the chairman of conglomerates Hutchison Whampoa and Cheung Kong Holdings, is a great example of how fortunes can be made. After starting out making plastic flowers in the 1950s, he became Asia's richest man in 2013, according to Bloomberg.⁵ Hong Kong's economy grew rapidly and the colony became one of the so-called Asian Tigers, making it the ideal connection between West and East.

Although China is essential for the Hong Kong economy, there are a few differences between the Hong Kong locals and mainlanders, linked to language (Hong Kong is Cantonese⁶ dominated while most mainlanders speak Putonghua), politics or economic issues. Whatever those differences, though, and while Hong Kong is under the ‘one country, two systems' edict until 2047, mainlanders have started influencing everyday life and, more importantly for this book, have become positively dominant as far as the luxury trade is concerned.

What It All Means for Luxury

The simple fact of China authorities making it easier for its people to travel to Hong Kong has been a great economic driver for the city over the past ten years and a game-changer for the luxury trade. Indeed, before ten years ago, as it gradually became easier to move across from the mainland to Hong Kong, wealth meant becoming successful in Hong Kong and being able to give black-and-white TV sets or rice cookers to relatives who stayed in the mainland.

Before you knew it was happening, luxury handbags and high-end watches were being bought by mainlanders in Hong Kong. The luxury boot is now very much on the other foot: mainlanders used to rely on Hong Kong largesse and spending power; now it is the other way round.

Hong Kong locals have had to accept that Chinese were not only ensuring today's business but, more importantly, tomorrow's growth, thanks to their spending. Knowing how to attract these consumers, speak to them, give them advice and please them has become vital in the luxury space for almost any country. Hong Kong shopkeepers have been smart and adapted quickly.

Before landing in Hong Kong, I thought Paris's Champs-Elysées, London's Bond Street and Tokyo's Ginza and Omotesando districts were pretty slick luxury store meccas. Queues generated by Chinese Mainlanders outside Louis Vuitton's flagship on the Champs-Elysées were a mesmerizing sight, yet an exception, to be fair. Queues in New York exist (or used to exist) outside the more volume-driven Abercrombie & Fitch and Hollister Fifth Avenue stores.

Queues outside most luxury stores on Canton Road in the Tsim Sha Tsui (TST) district of Hong Kong are an everyday feature. And they occur even o...

Table of contents

• Cover
• Praise
• Titlepage
• Copyright
• Dedication
• Acknowledgments
• About the Author
• List of Terms
• Foreword
• Introduction: The New Silk Road
• Part 1: West Goes East
• Part 2: East Goes West
• Part 3: East Meets East
• Part 4: The World Meets
• Conclusion: The Bling Supremacy
• Epilogue: What Is True Luxury?
• Appendix A: Luxury Goods Basics
• Appendix B: China Statistics
• Index
• End User License Agreement