Praise for - download.e-bookshelf.de€¦ · “In this book, Erwan Rambourg has managed to combine his vast knowl-edge of the luxury goods sector with ideas drawn from his personal

Praise for The Bling Dynasty

“China’s volatile demand for luxury has left industry executives scratching their heads. How much longer will anti-corruption mea-sures weigh on sales? Are Chinese becoming more value-driven as they travel more and more sophisticated? Ultimately, how should global luxury brands set their pricing, supply, store openings, and digital strat-egy to capture Chinese consumers? The Bling Dynasty is an insightfulread for luxury managers, consultants, and anyone who wants to un-derstand consumption trends and China’s role in shaping them. As a former marketing manager in the industry, author Erwan Rambourg understands how the brands operate inside and out. As a co-head of global consumer and retail equity research at HSBC, he has taken his analytic depth to his fi rst book, fi lling it with interesting numbers and interviews with executives. Mr. Rambourg has a unique background as a Frenchman growing up in the U.S. and being based in Hong Kong for the past four years has given him a front-seat view of how the Chi-nese consumers operate and a broad perspective of the often opaque global world of luxury.”

—Wei Gu, Wall Street Journal editor for China wealth and luxuryl

“The Bling Dynasty puts doubters of China’s appetite for luxury goodsto the back of the queue. Erwan Rambourg’s clever use of avatars to portray the true nature and extent of the huge desire for luxury goods in China makes this informative but also easy read. It is a must for anyonehoping to understand what drives the consumers of the world’s secondlargest economy. Rambourg, based in Hong Kong at HSBC, is one of the leading experts on the luxury goods sector and in The Bling Dynastyhe successfully combines well-researched data with access to the realshoppers on the street.”

—Laura Chesters, business reporter and luxury goods specialist at London Evening Standard andd The Independent

“Erwan Rambourg adopts an engaging, conversational voice to explainthe complexities of the Chinese market—as if inviting his readers to a dinner party at his Hong Kong fl at. He answers the questions on so

many minds with clear explanations peppered with parables, literary ref-erences, hard data and genuine, wide-eyed discovery.”

—Miles Socha, European editor of Women’s Wear Daily

“In this book, Erwan Rambourg has managed to combine his vast knowl-edge of the luxury goods sector with ideas drawn from his personal expe-rience as a Westerner who has re-located to Hong Kong. The result is an interesting and entertaining viewpoint of the Chinese consumer and of the luxury goods world in general. In a simple but effi cient manner, the book covers an important and current issue in a way that allows the reader to view the dynamics of the world of luxury goods from an unusual perspec-tive. I particularly enjoyed being able to re-visit, through the book, some of the feelings that I have experienced during my many visits to Asia.”

—Diego Della Valle, Tod’s group chairman and CEO

“Erwan Rambourg knows the luxury goods industry inside out. His on-the-ground work in China yields deep insights into the mind-set of the local consumer and a clear analysis of the unparalleled opportunitiesthis market off ers to attractive, global brands.”

—Claus-Dietrich Lahrs, chief executive offi cer, Hugo Boss AG

“Erwan Rambourg is a marketer, an analyst, and a thinker and has usedhis broad experience of the luxury industry to write The Bling Dynastya bit like an international correspondent. He’s exploring China, the new Eldorado for luxury, and his inside knowledge and the focus on con-sumers have produced an analysis that is both sharp and concrete. A few memorable moments as well as a very personal touch make this book very informative and entertaining to read.”

—Francois Le Troquer, executive director luxury division, Watches of Switzerland—Mappin & Webb

“China’s middle class holds the key to the future of luxury. Erwan Rambourg demonstrates this with extensive insights into both theluxury industry and what Chinese want.”

—Francis Belin, senior vice president Asia Pacifi c, Swarovski Consumer Goods Business

“Through fi rsthand knowledge and unique facts and anecdotes, The Bling Dynasty provides an in-depth analysis of one of the most important markets for luxury brands, China. Erwan shares his insights with incisive scrutiny and wit, and off ers a unique perspective on a sector that is both abundantly discussed yet still fi lled with misconceptions.”

—Ketty Pucci-Sisti Maisonrouge, luxury entrepreneur, adjunct professor at Columbia Business School, associate professor at

IE Business School, author of The Luxury Alchemist

“I have been speaking with Erwan Rambourg for years and have ben-efi ted considerably from his ideas. Anyone who wants to understand the luxury m arket must fi rst understand the Chinese consumer. The Bling Dynasty is a must-read for investors, marketers, or anyone who wants a deeper understanding of the future of luxury in China.”

—Robert Dunphy, portfolio manager, OppenheimerFunds

The Bling Dynasty

The BlingDynasty

Why the Reign of Chinese Luxury Shoppers Has Only

Just Begun

Erwan Rambourg

Cover image: WileyCover design: Wiley

Copyright © 2014 by Author/John Wiley & Sons Singapore Pte. Ltd.

Published by John Wiley & Sons Singapore Pte. Ltd.

1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628, tel: 65-6643-8000, fax: 65-6643-8008, e-mail: [email protected].

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best eff orts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty maybe created or extended by sales representatives or written sales materials. The advice andstrategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any damages arising herefrom.

Other Wiley Editorial Offi cesJohn Wiley & Sons, 111 River Street, Hoboken, NJ 07030, USAJohn Wiley & Sons, The Atrium, Southern Gate, Chichester, West Sussex, P019 8SQ, United KingdomJohn Wiley& Sons (Canada) Ltd., 5353 Dundas Street West, Suite 400, Toronto, Ontario, M9B 6HB, CanadaJohn Wiley& Sons Australia Ltd., 42 McDougall Street, Milton, Queensland 4064, AustraliaWiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany

Library of Congress Cataloging-in-Publication Data

ISBN 9781118950296 (Hardcover)ISBN 9781118969717 (ePDF)ISBN 9781118969700 (ePub)

Typeset in 11.5/14 pt, Bembo Std by Aptara

Printed in Singapore by C.O.S. Printers Pte Ltd

10 9 8 7 6 5 4 3 2 1

In memory of my father

vii

Contents

Acknowledgments ixAbout the Author xiList of Terms xiiiForeword xv

Introduction: The New Silk Road xvii

Part 1: West Goes East 1

Chapter 1: Eastern Promises, Delivered 3Chapter 2: The Only Way Is Up 31Chapter 3: Another French Paradox 53Chapter 4: Deconstructing the Myth 75

Part 2: East Goes West 93

Chapter 5: The Trouble with Travel 95Chapter 6: Why Chinese Travel and Where To 107

viii C o n t e n t s

Part 3: East Meets East 141

Chapter 7: Are Chinese Brands a Threat to Western Models? 143

Part 4: The World Meets 161

Chapter 8: Pop Culture, Value for Money and Globalisation 163Cha pter 9: The Chinese Luxury Empire 183Chapter 10: All In: Coach, Apple and the Cosmetic Surgeon 197

Conclusion: The Bling Supremacy 211

Epilogue: What Is True Luxury? 213

Appendix A: Luxury Goods Basics 219Appendix B: China Statistics 225

Index 227

ix

Acknowledgments

T o all the contacts within the groups, the brands, their suppli-ers, the retailers, the media, thank you for sharing your en-thusiasm and insights. Keep ’em coming! Former colleagues,

colleagues of former colleagues, friends, friends of friends, and more: I will not name you to avoid the embarrassment but I’m very grateful for your time.

Shaun Rein, fi ve years younger than me but has seen it all: cheers for the great advice! Tom Fishburne: congratulations on living your passion. Steve Richter: thanks for inspiring me to move to Asia.

Three special mentions: For Francis Belin, thanks for all the feedback and constructive criti-

cism as well as all the great insights on Japanese and Chinese luxury consumption.

For Michael Gilmore, thank you for sharing twenty years’ worth of experience on Asian consumers—and a few bad jokes—two passions wehave in common!

Last but not least, to my real boss, Dorothée, thank you for mastering mellowness.

xi

About the Author

E rwan Rambourg is a managing director at HSBC in Hong Kong and the co‐head of Global Consumer & Retail Equity Research. He has been a top‐ranked analyst covering the luxury and sport-

ing goods sectors for the bank for the past ten years. Rambourg joinedHSBC in 2005 after working for eight years as a marketing manager in the luxury industry, notably for Richemont and LVMH.

He is regularly featured in the Wall Street Journal and the l Financial Times and appears on CNBC and Bloomberg. He earned his master’s degree from Aston University (Birmingham, UK) and graduated from the EDHEC Business School (Lille, France).

Rambourg grew up in New York and has lived and worked in Paris and London. In 2011, he moved to Hong Kong with his wife, Dorothée, and three children, Manon, Benjamin and Baptiste.

Visit the author’s blog at www.erwanrambourg.com for more infor-mation.

xiii

List of Terms

Absolute luxury: Expression coined by consultant Bain & Company to describe

the very high‐end brands in the sector. The lower end is called ‘ac-cessible’ and the market in between those two is called ‘aspirational’.

Anchor tenant or anchor store: An expression to describe the key brand (or brands) that will

generate the most excitement, traffi c and diff erentiation for a shop-ping mall.

Hard luxury: Generic expression to describe the product categories of watches,

jewellery and pens. Premiumisation:

Term coined by the spirits industry to describe the process of trading up, whether driven by pure price increases or favorable miximpacts (i.e., consumers drinking higher‐end spirits).

Soft luxury: Generic expression to describe the product categories of leather

goods, apparel and accessories.

xiv l i s t o f t e r m s

Ubiquity: The state of being everywhere at once (or perceived to be). It is

a real risk in luxury, as ubiquity is not compatible with the necessity to convey exclusivity.

Value for money: A very successful positioning for up‐and‐coming soft luxury

brands, notably American brands such as Coach and Michael Kors in Asia.

YUMMIES: Young urban males, the modern, more mainstream version of the

late 1980s ‘metrosexuals’.

xv

Foreword

O ne of the challenges in writing about China’s luxury market is the speed with which it is evolving. No market for luxury goods has grown more quickly.

In fact, over the last decade, the Chinese consumer has been a major growth driver for most luxury brands, whether spending ‘at home’ or spreading the wealth in global travel retail locations. Therefore, it is notsurprising that the Chinese consumer has become the primary target of international luxury brands.

Looking ahead, the Chinese should dominate the luxury space: the change we are seeing with the Chinese is a once‐in‐a‐generation trans-formation; no other nationality will infl uence luxury consumption as much as the Chinese in our lifetime.

Irrespective of any near‐term challenges that the China luxury market may be facing, its medium‐ to long‐term future is unquestion-ably bright.

While a shift from traditional corporate gift giving and evolv-ing government regulation may limit growth in certain categories, many factors point to signifi cant opportunities for growth in luxury

xvi f o r e w o r d

consumption. These include: an increasingly urbanized population, a large and rapidly growing middle class, continued investment in lux-ury retail infrastructure, policies favoring domestic consumption as export‐led growth slows, and the increasing sophistication of the Chinese consumer thanks to both travel and the amazing access to informationvia the Internet.

The Chinese consumer is a citizen of the world and adopting luxury brands will remain a key sign of moving forward, advancing in life while showing hope for the future.

Erwan Rambourg’s The Bling Dynasty is a valuable contributionto the understanding of China’s luxury market in a period of rapidlyevolving government policy and shifting macro trends and consumer behaviors.

His insight into the socioeconomic and consumer landscape in China combined with his knowledge of the world’s leading luxurybrands and their strategies for China help give a clear picture of themany factors at play in the largest and most important luxury market the world has experienced.

Victor Luis, Coach CEO

xvii

E uropeans used to crave Chinese luxury goods. So seeing Chinese buying European luxury goods could be the contradiction of an era. That contradiction could last.

Two thousand years ago, the world was economically divided be-tween Rome and China. The Roman Empire was known to the Chinese as Daqin, meaning the ‘Great Qin’, the Great other Empire to be reck-oned with far away on the other side of Earth. The Han dynasty of 206BC to AD 220 built and extended the original Silk Road 1 and saw the

IntroductionThe New Silk Road

Let China sleep, for when she wakes, she will shake the world. —Attributed to Napoléon Bonaparte, 1816

1 There were several roads. The northern Silk Road left Chang’An (today’s Xi’an), a capital under many dynasties in China, and went west through Anxi (now an archaeological site in the Gansu Province of China), Samarkand (now the second largest city of Uzbekistan) all the way to Tyre in today’s Lebanon, Damascus (in today’s Syria) and Rome, Italy.

xviii i n t r o d u c t i o n

development of wealthy merchants during what China remembers as a golden age. Roman consumers became obsessed with silk, fragrances, spices, jewellery, and anything coming from the East, really.

China was revered for the refi nement and the quality of its products, and the scarcity value meant that it was acceptable to pay the equivalent of ‘top dollar’ for them. As consumer spending started to weigh on the Roman fi nances, the Roman Senate ended up describing silk as a deca-dent and immoral cloth. And when the empire collapsed, the business on that Silk Road dried up.

Fast‐forward to the eighteenth century: the West is still fascinated by Eastern luxury products such as tea, porcelain and, yes, silk. The British are getting ruined by paying for these goods with tons of silver and quickly fi nd an alternative. Opium fi elds are cultivated in India bythe British‐owned East India Company 2 , which trades it in Canton and Macau, the two exclusive entry ports for British and Portuguese commerce into China. Opium was then banned in China, but Chinese consumers were hooked on it and soon the money fl owed back from East to West and it all ended terribly with the opium wars.

The Silk Road running East to West is no longer in use for the luxu-ry trade. Today, Chinese consumers are off of opium but on to imported Western luxury products. There is a New Silk Road that runs from the West to the East. It is a road that has not been open for long but it is a busy one and one where new lanes have been created quickly.

It is incredibly ironic that today’s luxury goods are Western and Chinese consumers are buying silk scarves and “carrés”3 from French brand Hermès 4 or, as history comes full circle, jewels from Bulgari andleather bags and fur coats from Fendi, two contemporary Roman icons.

The New Silk Road is catering to millions of Chinese feeding a new Bling Dynasty. Within this substantial empire, many characters stand out.

Let me introduce you to fi ve of them.

2 The Company, founded in 1600 and lasting until 1874, was known for trading all com-modities initially in the East Indies and later more broadly, operating under a royal charter from Queen Elizabeth I. 3 Literally “squares” in French. 4 The company, founded in 1837, started off as a harness workshop. For more on the Hermès group, see Appendix A.

Introduction xix

Chinese Luxury Avatars

Spending time in China and meeting Chinese consumers abroad has shown that some stereotypical luxury consumers do actually exist. Rather than quote real people who may fi nd it uncomfortable or rude, I have decided it was easier to present you with fi ve avatars. These are rep-resentatives who embody the thoughts and feelings of luxury consumers coming from very distinct subsets of the Chinese culture.

Here they are. (See Figure I-1 .)

Calvin Li

Calvin is 26 and is brand obsessed, loves logos and while he’s not that aff -luent, he wants people around him—friends, family, business partners—to know he’s succeeded.

He is what the managers of Coach would call a ‘status lover’, a some-what disappearing breed of Chinese luxury consumers. He’s after brands as he’s eager to fi t in to what he sees as modern China.

Many

Price Points

in USD

Lewis Wang

200 >

500 >

2,000 >

5,000 >

50,000 >

Superpremium

Premium core

Accessible core

Affordableluxury

Everydayluxury

Tiffany Ma

Brittany Chen

Hermes Zhou

Ultra High End

Very few

Number of

points of sale

Calvin Li

Limitless Bespoke

Figure I-1 Five Avatars of ‘Mass Lux’

xx i n t r o d u c t i o n

Calvin doesn’t speak English and I don’t speak Putonghua 5 so everytime we’ve had to chat, I brought a friend along with me for translation purposes.

Calvin works as a manager in a textile manufacturer. He lives in Jinjiang, a third‐tier city6 , and an hour away from Xiamen, where Calvin goes some evenings for fun.

His favorite brand is Louis Vuitton, 7 but that’s way too costly for him so midmarket imported brands like Calvin Klein work well. Three years ago, some Xiamen‐based friends made fun of him as he was wearing suit labels outside the cuff s—these were the labels he was sup-posed to have cut off .

He is part of a few people in his entourage who bought brands that they thought were legit but ended up being interpretations of Western or Hong Kong–based brands: Qiaodan Sports 8 (sued by Michael Jordanfor using his Chinese name and a similar logo), Gio Amrami (instead of Giorgio Armani) suits and others.

Lewis Wang

Calvin’s older cousin—he’s 30 now—runs a property business in Xia-men,9 the city known to some as China’s Saint Tropez. He is very rich by local standards. He was smart to begin with and has great business acumen and connections.

His English is not great, and some mistakes he makes are oppor-tunities for us to spend more time talking and laughing and less time

5 Putonghua means ‘common speech’. Also known as Mandarin, it is the sole offi cial lan-guage of the People’s Republic of China and of Taiwan and one of the four offi cial languages of Singapore (with English, Malay and Tamil). It originated in Beijing. 6 See defi nition of city tiers in Appendix B. Jinjiang has about 2 million inhabitants. 7 Louis Vuitton is the largest luxury brand both globally and in China. Though owner LVMH does not disclose annual sales, they are thought to be close to EUR7.5 billion. 8 Qiaodan Sports was in the news for countersuing Michael Jordan and planning for an initialpublic off ering. At the time—early 2013—the brand already had quite an extensive reach, being distributed in about 6,000 outlets in China. 9 Also known as Amoy, the city of Xiamen was one of the four Special Economic Zones inthe 1980s, open to investment and trade with foreign nations. It was ranked as China’s most romantic leisure city in 2011 in a survey run by Chinese tourism organizations and today has 3.5 million inhabitants.

Introduction xxi

understanding each other. But he’s a real entertainer and as long as hecan get by, he’s happy with that.

He seems fearless and clearly is enjoying life to the fullest. He’s a loud man, likes a drink—and a few more—but he’s a great laugh. Lewis has no inhibitions and when I think of him, it reminds me of Dr Seuss’s words: ‘ Be who you are and say what you feel, because those who mind don’t matter, and those who matter don’t mind’.10

A bit like Calvin, Lewis has ‘nouveau riche’ habits, loves brands but can actually aff ord quite high‐end kit. Unlike Calvin, he’s got a passport—like 4% of Chinese (or more than 50 million in total)—and hecan aff ord to buy a Louis Vuitton bag and has travelled in many Chinese cities. He went to Taipei late 2011, to Hong Kong for the fi rst time last October, to Macau earlier this year and dreams of Milan and Los Angeles for his fi rst ‘true overseas’ trip.

I write ‘true overseas’ as Calvin, like most Chinese, considers Taiwan, Hong Kong and Macau part of China.

He’s what the press calls Tuhao: tu is dirt; hao is splendor; so the meaning is along the lines of ‘parvenu peasant.’ Chinese popular culturedespises Tuhao and at the same time secretly is envious and jealous of them. Lewis bought the gold iPhone 5s that came out in 2013, the one Apple put out specifi cally for the Chinese market, known in China as the Tuhao Gold and in the Apple HQ as the Kardashian iPhone.

Tiff any Ma

Tiff any just started her fi rst job in Guangzhou 11 at age 22 in an advertis-ing agency. She’s ambitious, graduated from a good school but has lim-ited revenues in this fi rst job. She’s never been abroad but would love togo to Seoul or Tokyo as they seem so refi ned.

Her English is conversational and fi ne. She recently started taking a few Korean lessons, just because it’s cool, and she’d like to fi gure out what

10 To be fair, this seems to be a misattribution, as the inventor of the phrase likely was Bernard Baruch, American politician and fi nancier. 11 Formerly known as Canton, South China’s largest city with close to 13 million inhabitants. It is a dominant component of the Pearl River Delta Megacity which includes Shenzhen, Dongguan and others and constitutes a megalopolis of more than 40 million inhabitants, almost the equivalent of Spain.

xxii i n t r o d u c t i o n

on earth the K‐Pop 12 bands she loves so dearly are singing about. She alsofollows many of the Korean soap operas that air on Chinese TV channels.

She’s the Chinese equivalent of the Japanese Offi ce Lady13 (or “OL”) and has relatively limited needs, so she has quite a bit of disposable in-come to purchase brands. She’s connected, quite active on Internet fo-rums and blogs and a fi rst‐time buyer of imported luxury brands. She won’t be spending often but she’ll be saving up to buy brands where she gets the sense that she’s rewarding herself.

Her wealthier boyfriend—by that I mean he’s wealthier than she is; she only has one boyfriend—bought her a Tiff any ring recently, and she was absolutely delighted. Yes, it cost more than a similar ring at a family jeweller but the blue box, the Tiff any guarantee and the discrete yet recognizable design thrilled her.

She is one of the 2 million Weibo 14 followers of Angelica Cheung, the editor in chief of Vogue China and a veritable fashion guru. She likesbrands with history and reads about them a lot.

Brittany Chen

Brittany is Tiff any’s aunt though she’s just ten years older. She’s a marketing director for a fast‐moving consumer goods company in Shanghai.15

She’s Chinese in her style and has a slight, recognizable accent when she speaks in English but if I hadn’t met her in Shanghai, I would

12 Korean pop music developed since the early 1990s under the infl uence of American pop and a blend of rap, techno and rock. The genre exploded on the international scene with the success of artist Rain in the late 1990s. Since then record labels like SM Entertainment have been criticized for “training” their artists in a robotic manner but also praised for hav-ing been instrumental in starting the Korean Wave (“Hallyu” in Korean), a wave of cultural infl uence of South Korea around the world 13 Known also as pink‐collar workers (i.e., working as secretary types in the service industry), offi ce ladies usually live with their parents and are expected to leave their jobs when they get married. 14 weibo.com is a microblogging website that was launched in 2009 by the Sina Corporation. It is used by close to a third of Internet users in China. 15 Known as the Paris of the East— it’s clearly a bit bigger now with around 18 million inhabitants—Shanghai remains key for trendsetting in fashion and luxury to this day. It is the largest ‘city proper’ in the world as defi ned by the United Nations’ “World Urbanization Prospects” publication, meaning a ‘single political jurisdiction which contains the historical city center’.