Seeking Alpha runs a long report from Knowledge Wharton China on the nuances of China’s wealthy. Since the art market is still dependent upon growth in China to pull it out of the credit collapse, these details are valuable and important:
Unlike the singular group often portrayed in media reports, China’s newly rich are a varied bunch, but they can be broken down into three general demographics, according to Shaun Rein, managing director of China Market Research, a Shanghai-based consulting firm.
The first are the super-wealthy. With incomes of US$10 million or more, China’s super-rich have been buffered from the worst of the current financial storm.
The second group, composed mainly of upper-middle management and white-collar workers making between US$200,000 to US$300,000 per year, are the aspiring rich, and are the apple of the mass luxury market’s eye. But this category was the worst hit by company restructuring and downsizing, and these consumers are now more cautious about spending cash on wear-only-once Versace dresses or purchasing expensive Starbucks lattes during office lunch breaks.
Luxury buyers in the third group have salaries that belie their combined purchasing power and are mainly office workers making roughly US$600 or more a month. According to a recent survey conducted by China Market Research, more than 70% of respondents in this demographic said they will open their wallets more in the coming six months versus the last six, according to Rein. The survey’s results also indicate at least a 20% increase in market consumption in this demographic, especially in cosmetics.
The majority of China’s wealthy are young, with 80% below 45 years old, compared to 30% in the U.S. and 19% in Japan, according to McKinsey. Chinese consumers are also more focused on the functional value of luxury goods, and hesitate to spend on items not suitable for daily use.
The past decade has seen an evolution in both the types of consumers in China and in consumer sentiment, says Kress. When money first began to flow into the country, a handful of Chinese got very rich, very quickly. New to the market, this group was hungry for a chance to display their wealth, but lacked sophistication and knowledge of luxury brands. Assuming that the most expensive meant the best quality, they searched for the highest price tag.
As recently as five years ago, many companies saw China as a dumping ground for last season’s styles, says Kress. But as the Chinese started to travel, they quickly learned there was a difference between what they saw on shelves at home and what was on offer in boutiques abroad. Their growing economic power forced luxury brands to take notice. Now, accounting for slight adjustments to suit local tastes, Chinese shoppers in Beijing will find the same clothes hanging on the rack as in designer boutiques in Tokyo.
As the market opened, general knowledge of brands increased and tastes became more sophisticated, Kress notes. People developed an affinity for customized personal items at an impressively fast pace, and luxury brands have had to adjust accordingly. Major designers, such as Chanel, whose recent show in Beijing featured clothing inspired by traditional Chinese dresses, or qipaos, are gearing new lines towards Chinese tastes.
The Chinese market of the future may very well resemble the current market of Japan, which has developed a more individualist, Western way of consumption, Kress adds. Previously brand slaves, Japanese consumers are now mixing and matching Uniqlo and Hermes garments in any way they see fit, an evolution that is indicative of an economy that has developed enough that a significant portion of people make their living from creative industries. These consumers will want to express their individuality through their consumer choices, he says.
The urban sprawls of Beijing, Shanghai, Shenzhen and Guangzhou house about 30% of the country’s wealthy as of today, but by 2015, 75% will inhabit cities like Chengdu and Wenzhou and others in non-coastal regions, as money is redirected into China’s interior, says the McKinsey report.
Luxury Brands Gain Momentum in China Despite Global Slowdown (Seeking Alpha)