International Trade News: Prof. Becker, is the Chinese luxury consumer still an unknown quantity?
Prof. Florian Becker: I don’t think so. There are a lot of Chinese people here in Europe – and they are buying everything that isn’t nailed down. I hear that a lot from people working in luxury retail outlets who would very much like to experience this buying frenzy at first hand.
International Trade News: What kind of spending behaviour are we talking about here?
Prof. Florian Becker: For example, a Chinese customer went to a luxury watch shop to buy a watch worth 30,000 euros. The shop did not have the exact watch he wanted in stock, so the customer bought another watch without even hesitating. This extreme flexibility that allows someone to decide to buy something else in a split second is completely alien to German consumers. Add to that a complete lack of concern regarding the price: “Make something expensive and I want it all the more.”
International Trade News: Is this form of shopping tourism on the rise?
Prof. Florian Becker: Yes, hundreds of thousands of Chinese people now travel to big cities such as London every year to spend large amounts of money. And the shops have learnt to expect them as I am sure Prof. Ma can explain in more detail.
Prof. Xiaojuan Ma: I experienced it myself in 2014 – shortly before Christmas in London when I was out and about with two Chinese girlfriends. We found ourselves in a well-known luxury shopping area shortly before closing time and I said: “This is ridiculous, we can’t go into the shops now.” But my friends said: “Oh, yes we can, we’re Chinese.” They were right: The shop that had closed – and that had already turned away customers before us – miraculously reopened for us.
International Trade News: In other words, their hours of business were extended just for you.
Prof. Xiaojuan Ma: That’s right. What is more, we were each given a personal shopper. The English are really good at that. They have found the right way to address us as a customer group.
International Trade News: And how much money did you spend?
Prof. Xiaojuan Ma: One of my friends did spend a couple of thousand euros in the shop. She put her credit card on the counter and said: “I’ll take these three bags.” That‘s a completely normal process for Chinese visitors to London; the trip becomes 100% a shopping tour.
International Trade News: Are the Asian luxury shoppers part of the new middle class?
Prof. Florian Becker: In China they are part of the wealthy class. By contrast, there are a lot of Chinese people who have very little money. The phenomenon and reality of social inequality is alive in China. The luxury market profits from wealthy Chinese people travelling abroad to indulge in conspicuous consumption. The rate of growth in buying goods abroad is explosive and currently rising by around 30% per year. This market is growing much faster than the domestic Chinese market for luxury goods.
International Trade News: Let’s stay with consumers. The market is also growing because the Chinese middle class continues to expand. By 2022 there will be around 80 million Chinese households with annual income in excess of 35,000 dollars. Why are they so keen to spend their new found wealth?
Prof. Xiaojuan Ma: From a psychological point of view, it has a lot to do with cultural values. On the surface, we can observe this rather disconcerting purchasing behaviour which we in the west are only just beginning to understand. Compared with Europeans, Chinese consumers have a highly developed sense of social status. They talk about keeping up appearances or their social face which is called “mianzi” in Chinese. Behind it is the desire to say to others: “I am successful, I can afford to buy certain things.” Chinese buyers favour the big, expensive brands. The sense of “having” is what is important.
International Trade News: Is that because they did not have much before?
Prof. Xiaojuan Ma: This concern with social standing has always existed but was assuaged through immaterial values such as education and position in the management hierarchy. They also express: “I am worth more.” Chinese people have become more materialistic in their outlook and define their social status via their material possessions. They also have a collective mindset. Consumption in Germany is about expressing individuality. In China people consume in order to belong – to a hugely successful elite.
International Trade News: Which products do Chinese luxury consumers most like buying?
Prof. Xiaojuan Ma: Luxury watches, luxury clothing brands, designer handbags, mobile phones – anything that enhances a person’s image and sense of self worth.
International Trade News: What must European businesses bear in mind when targeting Chinese consumers of luxury goods?
Prof. Xiaojuan Ma: They need to keep an eye on the risks as well as the opportunities. A major opportunity is offered by the ongoing positive development of the Chinese economy which could strengthen still further the already strong tendency among Chinese consumers to buy luxury goods abroad.
Prof. Florian Becker: Luxury products in China are subject to extremely high taxes, however, customs duties are hard to apply to private individuals in China – which is one of the reasons for the boom in foreign luxury markets. Another reason is the fear Chinese consumers have of becoming a victim of product counterfeiting in their own country. Women are also growing in significance as a confident and wealthy target group that is happy to spend money on luxuries. Many luxury goods are aimed at women and there are great opportunities for them in China. More than half of all executive and management positions in China are held by women. Chinese women are far more likely to be entrepreneurs than their German counterparts. That is why there are huge opportunities for companies that succeed in appealing to wealthy Chinese women.
International Trade News: Dr. Ma, please tell us what are the inherent risks of the foreign luxury goods market.
Prof. Xiaojuan Ma: I can see risks in the short, medium and long term. If the Chinese government were to decide to introduce strict customs duties for private individuals, then the number of people buying goods abroad would drop sharply. A medium term risk: How stable is Chinese society? There is a growing phenomenon that has been dubbed “chou fu” – hate of the rich. If it spreads further, rich people will probably become less conspicuous in their consumption of luxury goods in order to avoid condemnation. The long term risks depend on the question of how high Chinese spending power will be in 2030 when Chinese society will have aged significantly. In 2010 the ratio was 5.5 people of working age for every pensioner. By 2030 there will only be 2.5 people of working age for every pensioner.
International Trade News: Have you identified any other long term trends?
Prof. Xiaojuan Ma: Yes, shifting values. Today, there is still a strong sense of wanting to belong, particularly among the over 35s. They still have the traditional materialistic desires and expectations; they buy in order to belong. However, in the future, there will be younger consumers in China who are more interested in emphasizing their individuality.
International Trade News: And, by doing so, they will come closer to Western consumption habits.
Prof. Xiaojuan Ma: That is where this development will inevitably lead.
International Trade News: If we compare the domestic market with foreign shopping tourism: Is it better for a Swiss manufacturer of luxury watches to offer those watches in China or would he be better off tempting Chinese consumers to come to Switzerland?
Prof. Florian Becker: He needs to do both. First, he has to make sure he grabs his share of Chinese spending abroad. Second, it is vital that he build up a presence in China because sales abroad carry the risks we mentioned before and can quickly peter out. There are also risks in China itself: President Xi Jinping has launched a massive anti-corruption campaign. The Chinese habit of currying favour with others by lavishing them with luxurious presents in its strong networking culture could decline as a result of anti-corruption laws and is already showing signs of doing so.
On average, Chinese consumers of luxury goods visit five different countries in Europe and take in big cities such as Paris, Munich, Frankfurt and London
International Trade News: Which countries do Chinese buyers prefer to buy from? Is Germany one of them?
Prof. Xiaojuan Ma: I certainly would not rule out Germany. Chinese tourists usually undertake a grand tour of Europe that generally lasts one or two weeks. On average, they visit five different countries and take in big cities such as Paris, Munich, Frankfurt and London. Germany has a good reputation in China. Cuckoo clocks from the Black Forest are very popular. The same goes for kitchen utensils. At the end of their trip, most Chinese tourists buy one or two sets of cooking pots – regardless of how many pans they have at home. Often they are bought as presents.
International Trade News: Shopping tourism is very popular even though Chinese workers have less holiday entitlement than Germans. Wouldn’t it be much easier, cheaper and quicker to order luxury goods on the internet?
Prof. Xiaojuan Ma: That is a good question. That would, of course, be easier. However, there have been several scandals in China involving the sale of fake goods over the internet. The Chinese maybe more internet-savvy than the Germans but, when it comes to the purchase of luxury goods abroad, they would rather put their trust in “flesh and blood” people. This “daigou” or buying through trusted representatives is extremely important.
International Trade News: To finish, we would like to return to something that Dr. Ma mentioned at the start of the interview: the fact that Chinese visitors to London can shop outside of the normal hours of business. Could the increase in the number of Chinese customers lead to a liberalization of working hours and employment laws in Europe?
Prof. Xiaojuan Ma: Well, I could imagine that no one in Germany would be particularly happy about that. However, I have to say that Chinese consumers expect flexibility. Retailers in England have recognized this and responded accordingly. For Germans, on the other hand, time is money and the customer is not king but an equal, even if that means losing a sale.
International Trade News: Dr. Ma, the current German government is not in favour of liberalising opening hours.
Prof. Xiaojuan Ma: That is what I meant earlier. It will be difficult to achieve that kind of flexibility in Germany. Although, if I am honest, Chinese customers are sometimes served outside normal opening hours, but then usually by the shop owner personally. Chinese customers also expect a personalised service when they are shopping; ideally from someone in a senior position.
Prof. Florian Becker: The consumers we are talking about are wealthy individuals under 40 who represent the new China. They have a strongly hedonistic streak. The German government should be making it easier for them to come here and buy luxury goods because, at the end of the day, they spend a lot of their cash here. There is too much red tape for them to wade through when they arrive. German luxury retailers are also missing a trick or two in comparison to their counterparts in London. There, Chinese shoppers are picked up directly from the airport and accompanied by helpers who speak Chinese and take care of everything for them. Generally speaking, the English appear to be a lot more pragmatic and flexible in their pursuit of rich Chinese customers. Countries like Germany would do well to follow their example.
The Chinese love London. The city is a popular stop-off on their luxury shopping tours of Europe because the English roll out the red carpet for them. Even after the shops have shut for the day they can find someone to serve them. Could this mean greater liberalization ... more...
Management thinker and economics professor Hermann Simon is one of the leading experts on pricing in the world. In an interview with International Trade News, he shows how a small and medium-sized company managed to increase its turnover tenfold through the use of Power Pricing. Just how high ... more...
Give your employees permission to do what they want for 20% of their working day. The thought has probably left you scratching your head and intuitively thinking it ’ s a crazy idea that could never work. However, Professor Florian Becker, who has just published a book ... more...
Just enter your email address and start receiving the International Trade Newsletter, free of charge, to your email inbox.