Kering Group is struggling with Chinese consumers

Kering, the French luxury group, is adapting its sales approach to better cater for increasingly sophisticated Chinese customers, according to group managing director Jean-François Palus.
“We’ve changed the way we conduct our business in China and the way we address Chinese clients when they’re abroad,” said Mr Palus at the Financial Times luxury conference in Lisbon on Tuesday.
“We learnt that a very serious risk is to become complacent, to think that it’s an easy business, an easy customer base, easy to open stores with good products and then people will come in. That was true for a moment but Chinese customers have become sophisticated and highly demanding and we need to adapt.”
Chinese consumers account for more than 30 per cent of global luxury consumption, according to consultant Bain, which is forecast to increase to 35 per cent by 2020.
How much of global luxury consumption Chinese consumers account for, according to Bain, a figured set to rise to 35% by 2020
In the past, luxury houses relied on rapidly opening up stores in China to fuel growth amid rampant Asian demand for their products, but this approach has been undermined by an economic slowdown in China.
In the final quarter of last year, Chinese consumers showed signs of returning, although notably shopping more in mainland China, while tourism in Europe has slowed in part owing to recent terrorist attacks.
In China, Kering is retraining shop assistants and replacing email communication with WeChat, China’s most popular social media platform with more than 800m daily users.
Mr Palus said: “The way the Chinese treat very important clients is different — they have a very candid approach to wealth.”
He pointed to a recent visit to a Gucci store in Beijing where the store manager told him he had hired the daughter of a billionaire to work with clients in the shop “because to talk to wealthy people in China, you need to be wealthy”. He added that bad feng shui in a shop can hurt client traffic.
According to Pierre Gervois, the Founder and Publisher of the STC magazine, a luxury travel publication for High Net Worth Chinese global travelers “HNWI Chinese clearly signaled about  five years ago that they wanted to purchase luxury goods outside China, to enjoy the full experience of the iconic flagship stores in London, Paris or New York”
“This new trend has not been immediately recognized by luxury conglomerates such as LVMH and Kering, that led to an inflation of store openings in China in the years 2010/2015, with little customer traffic, insufficient staff training, and in some cases damaging consequences in terms of brand image.”, Mr Gervois added.
Kering posted a 31.2 per cent rise in revenues to €3.57bn in the first three months of 2017, lifted by a 34 per cent jump in sales from luxury activities.
Among its brands, Gucci led the way, posting record revenue growth of 51.4 per cent for the three months — the latest sign of improvement under creative director Alessandro Michele. Other Kering brands such as Brioni and Bottega Veneta were doing less well than the likes of Saint Laurent.
Mr Palus said: “The market has become more difficult and the pace of growth has slowed down. In this environment you need to take market share from the competition.”
Kering was not looking at acquisitions, added Mr Palus. “We have so much on our plate with helping our existing brands tap their potential . . . we don’t have enough time to think about M&A.”
He said that Kering was also still adapting to digital platforms. “We need to open ourselves to what’s happening in other industries and other countries. Our industry needs to become less product-centric and become more customer-centric.”

Source: The Financial Times.

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Luxury Brands’ Value Shrinks $7 Billion as China’s middle class spend less

STC event pic 2Luxury isn’t what it used to be. The value of the top 10 luxury-goods brands fell 6 percent, or $7.1 billion, to $105 billion as companies from Prada SpA to Cartier grappled with slowing sales in China and Russia, research company Millward Brown said in the 2015 BrandZ study.

Only Louis Vuitton and Chanel saw an increase over last year. Vuitton gained 6 percent to $27.4 billion, placing LVMH Moet Hennessy Louis Vuitton SE’s biggest brand atop the luxury ranking for the 10th straight year. Chanel’s value rose 15 percent to $9 billion, propelling it to fourth in the list behind second-place Hermes and Kering SA’s Gucci.

Spending on gifts has fallen in China as the government clamps down on corruption, while Russia’s shoppers are suffering from the ruble’s depreciation and sanctions tied to the conflict in Ukraine, Millward Brown said. At the same time, efforts to appear more exclusive have created opportunities for cheaper brands such as Michael Kors and Tiffany, which finished in the top ten for the first time, the researcher said.

But this does not reflect the trends of High Net Worth Chinese, who still consume luxury goods overseas, during their business/leisure trips.

The brands who suffer the most are brands with low brand equity, in the eyes of Chinese consumers, as the most prestigious brands (in particular watches brands) continue to thrive with Chinese  affluent collectors.

Chanel, the maker of No. 5 perfume, and handbag purveyor Vuitton fared better than their peers thanks to their unique approach, according to Elspeth Cheung, Millward Brown’s Global Brandz Valuation Director.

Chanel has harmonized prices across regions, encouraging more in-store consumption, Cheung said. And Vuitton has successfully revitalized its brand with a fresh take on its original LV monogram.

The worst performers were Cartier, whose value decreased 15 percent to $7.6 billion, placing it sixth, while Prada slumped 35 percent to $6.5 billion, according to the study. An overly expensive product mix and lack of novelty at Prada have led shoppers to spend elsewhere, analysts at Exane BNP Paribas have said.

Gervois magazine - The new travel magazine for millennials travelers in the United StatesHermes’s value fell 13 percent to $18.9 billion and Gucci declined 14 percent to $13.8 billion, according to the study. Rolex fell 6 percent to $8.5 billion, placing it fifth. Rounding out the top 10 most valuable luxury brands were Burberry in eighth, Michael Kors and Tiffany.

The luxury ranking is part of a broader study commissioned by WPP Plc, the advertising-company parent of Millward Brown. The study is based on interviews with more than three million consumers and an analysis of companies’ performance.

In conclusion, Luxury brands should open less stores in Mainland China (and certainly close some of them), and focus their marketing efforts on Chinese outbound travelers who prefer now to buy overseas, to enjoy better prices, better service, and the social status which comes with a product bought in New York, London or Paris. “Bought in Beijing” is not cool anymore.

Source: Business of Fashion

 

Chinese tourists “crucial” for cruise industry’s future, in Europe and the Caribbean

Shanghai Travelers Club magazine - CaribbeanThe potential of growth of the Chinese society, and its desire to explore the world are crucial factors for the cruise industry’s future, a high-ranking representative for the Cruise Lines International Association (CLIA) said in a recent interview.
“We believe what we are seeing today is just the beginning of a trend, with respects to Chinese tourists,” CLIA Italy’s national director Francesco Galietti told Xinhua.
Some aspects would so far distinguish Chinese from other tourists cruising in Italy.
“The first is a strong preference for cultural heritage cities such as Rome, Florence, and Venice, and a second aspect is that, when they visit Italy for the first time on cruise ships, they tend to repeat the travel, maybe in another way,” Galietti explained.
A third element would be related to a specific city, Venice, and to its power of attraction through the years.
“An important aspect we observe is a sort of ‘Silk Road tourism’ in that city… Because Venice used to be one of the final destinations of the ancient Silk Road,” he said.
Despite an increasing tourism flow from China to Europe, Chinese would yet represent still a large world to explore for cruise operators. “We believe Chinese are critical for our industry,” Galietti stressed.
“The potential of the Chinese society, and the Chinese people’s will to explore the world and put their own culture in contact with western culture… This is very important to us, and CLIA cruise lines are aware of that,” he said.
The changing trend in Chinese tourism would also impact China’s major shipping operators, whose presence used to be much limited to trade.
“Take Chinese COSCO shipping company as example: it is a big name in cargo, and we are now seeing its transition from a leadership in this sector towards tourism… It will be interesting to see whether (cities of) destinations will be able to match this growing demand from Asian tourism,” he said.
According to the CLIA representative, China’s domestic cruise market is also going through an unexpected phase.
“At the beginning, cruise lines thought that they would create hubs in China for the Chinese market, through river trips, domestic cruises, and so on… Whereas now, we see that it is not just the regional market expanding,” Galietti explained.
As such, cruise lines have adjusted and arranged for longer trips from China to other destinations, and some companies within CLIA have developed a strong footprint in Asia.
“I am thinking especially to Royal Caribbean International and Carnival, and also to Italy’s leading shipbuilding company Fincantieri, which has opened a big production site in China,” he said.

The prestigious travel publication “Shanghai Traveler’s Club magazine” published this month its first ever issue entirely about the Caribbean, featuring Jamaica and Tobago as well as cruise stories in the Caribbean. ” We have published this special issue because our readers told us they wanted to experience the Caribbean, while traveling on luxury cruise boats or super yachts between islands” told us Pierre Gervois, Publisher of the Shanghai Travelers’ Club magazine.
The cruise industry impacts widely on the European economy as a whole, and the sector registered a 40.2-billion-euro (44.6 billion U.S. dollars) output in 2014 with a 2.2 percent increase over 2013, according to CLIA data.
This performance led to the creation of almost 10,000 new jobs in Europe last year, bringing the overall number of people employed in the sector up to some 348,000.
According to the association, Italy is the country benefitting most from the cruise sector in Europe, despite a slowdown in 2014 compared to other European competitors, and visiting the country on cruise ships would remain a special attractiveness for tourists.
“We are speaking of a country that is a peninsula: the largest portion of Italy’s perimeter is on water… So, explore the country with cruising indeed makes sense and has something special,” Galietti said.
Source: New China/ Xinhua agency

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Could Asia become overly dependent on Chinese tourists?

Chinese-tourist-in-ThailandChinese tourism is changing the world’s tourism map. The biggest tourism destinations are looking to attract Chinese tourists, with new locations becoming more popular as Chinese visitors decide the best places to visit. As other Asian cities attract more Chinese tourists, experts are concerned that the economies in these destinations are becoming too reliant on Chinese travel.

The figures in the annual MasterCard Global Destinations Cities Index have always seen some fluctuations, but recent years have introduced a defining variable into the mix: Chinese tourists.

China’s emerging middle class and growing numbers of increasingly affluent travellers have created a new tourism market. The big winners in terms of increased Chinese tourism have been some of the biggest cities in Asia. In fact, the recent report shows that the top ten fastest growing cities include cities from most regions of the world, excluding Western Europe and North America.

The report ranks the world’s 132 most popular cities in terms of international visitor numbers and spending. London is still controlling the top spot, but big Asian cities are climbing up in the rankings.
Over 13% of the visitors to these Asia-Pacific destinations were Chinese tourists, the largest foreign tourist group in the region. Five years ago, the figure was only around 6%.
The Tourism Authority of Thailand says that Chinese visitors to the country stood at 4.6 million in 2014. By the end of this year, authorities expect the arrivals to increase by almost 40%.
An increase in Chinese tourism has not meant only an increase in pure visitor numbers, but also surge in the revenue the cities are able to attract from tourism. Bangkok, the Thai city ranking on the top spot in Asia-Pacific destinations, has visitor spending of $12.4 billion. The city is currently growing its visitor spending the fastest, with 11.8% growth between 2014 and 2015.

New Zealand, following a targeted promotional and media campaign made with China Elite Focus in partnership with the Shanghai Travelers’ Club magazine from 2011 to 2013, achieved remarkable results with affluent Chinese travelers arriving at Auckland Airport, and flying in premium cabins. “New Zealand is now seen by China’s elite travelers as the premium destination in Asia-Pacific”, said Pierre Gervois, CEO of China Elite Focus. “We have worked extremely well with Auckland Airport to create the Luxury New Zealand campaign and change the perception of New Zealand in order to attract more sophisticated and wealthy Chinese travelers”.

While Chinese tourism can greatly enhance the economies of these Asian cities, there is growing concern that some of the cities might become too reliant on Chinese tourism.
 
Eric Schneider, Group Head at MasterCard Advisors of the Asia Pacific Region, told gbtimes that tourism bodies must look to appeal a broader audience to guarantee ‘long term resilience’. “You must always be cautious not to put all your eggs in one basket,” Schneider said.
But China’s outbound tourism has still much more room to grow. According to Schneider, around 5% of Chinese citizens currently have passports. In a country with population of 1.357 billion, the potential for more outbound tourism is incredible. “It is inevitable that, as the Chinese middle class grows and begins to travel more often, they make up a bigger proportion of tourists to cities around the world,” Schneider pointed out.

It is certain that the power of Chinese tourists will continue to grow in importance in the coming years. For Asian cities, as well as for other big world cities, it is essential to maintain a diversified economy – not to rely too much on tourism or Chinese tourism particularly – while understanding the potential of attracting this new tourism powerhouse.

Source: GB Times, Krista Lomu

China’s trade deficit in services sector widens as Chinese tourists spend overseas

Bicester VillageChina’s trade deficit in services widened to U$18.3 billion in May, as Chinese tourists continued to spend more abroad than foreigners visiting the country, the foreign exchange regulator said on Tuesday.
The deficit was led by a US$16.2 billion gap in spending between Chinese and foreign tourists, according to data from the State Administration of Foreign Exchange.
The country posted a US$17.3 billion deficit on trade in services in April. The services sector had a deficit of US$10.2 billion in May last year.
For the first five months, China had a deficit of US$76.7 billion in services trade and a surplus of US$207.8 billion on trade in goods, producing a combined surplus on trade in goods and services of US$131 billion, the data showed.
Beijing has promised to further open up China’s services sector, which is dominated by Chinese companies, to foreign investment but the process has been gradual.
The government has been trying to boost the services sector to create more jobs at a time when factories are struggling, but analysts warn that clumsy attempts to force the transition could do more harm than good.

Source: http://www.scmp.com

Brands should not ignore Chinese LGBT travelers purchasing power

Long an important target for marketers in the West, LGBT consumers often have higher disposable incomes and lead consumer trends. With public acceptance of LGBT people continuing to grow worldwide, it’s time for brands to think global when developing their marketing strategies to this community.

Case in point: as the second-largest economy — and home to the largest LGBT population — in the world, China deserves serious attention.

According to Hong Kong-based venture capital firm LGBT Capital, the annual purchasing power of China’s 70 million-strong LGBT population amounts to $300 billion, compared to $870 billion for Europe and $750 billion for the U.S.  Despite its size and huge potential for growth, virtually no Western brand has formally engaged this community, mainly due to its invisibility in public and in the Chinese media.

But that’s quickly changing.

In February, Chinese tech giant Alibaba launched a Valentine’s Day contest in partnership with several Chinese non-profit LGBT organizations, including PFLAG China and the Beijing LGBT Center, to sponsor 10 gay and lesbian couples for a trip to Los Angeles in June to get married. Although these marriages are largely symbolic for now, the campaign has ignited enthusiastic discussions about the acceptance of LGBT people in China, as well as the potential of China’s “pink economy.”

Public opinion is also pointing to an optimistic future. According to a recent consumer survey by Baidu, China’s dominant search engine, 88 percent of Chinese millennials say they have no problem with accepting people who are gay.

As more and more LGBT Chinese step out of the closet and embrace their own identities, they will want the brands that they like and associate with to share the same pride. In fact, some Western brands that are publicly supporting LGBT rights may have already reaped early benefits in the China market.

Last October, Apple CEO Tim Cook came out as gay in an open letter published by Bloomberg Businessweek, a story that also appeared on the cover of the magazine’s China edition. Mr. Cook’s coming-out story quickly became a hot topic on China’s dominant social media platforms, Weibo and WeChat, with many within the LGBT community calling him a hero.

Coincidentally, Apple is also the preferred electronic brand for Chinese gay men. According to an LGBT consumer study released last year by Zank, China’s leading gay social app, nearly 70 percent of Chinese gay men own an iPhone, compared to 26 percent for Samsung phones. Such an advantage will prove even more beneficial for Apple as the company slowly transitions to a luxury lifestyle brand with the imminent launch of Apple Watch.

The travel and tourism industry will be another major beneficiary of the so-called “pink yuan.” Already the world’s top spenders on tourism, Chinese outbound tourists spent a record $165 billion overseas last year, according to Chinese government tourism statistics. As acceptance of LGBT people continues to rise in China, there will be even greater demand for travel products and experiences that are specially tailored to this demographic on online travel sites and for independent travelers.

China’s statistically astronomical — but largely untapped — LGBT market presents a highly lucrative growth opportunity for brands and travel destinations that have long benefitted from LGBT consumers around the world. Businesses that are interested in this segment must act early, but be prepared to make a long-term commitment, in order to reap the harvest.

“Luxury hotels and retailers in Western Europe and in the United States should be proactive with Chinese affluent LGBT travelers” said Pierre Gervois, CEO of China Elite Focus Magazines LLC. “Doing so is a sign of respect for the Chinese LGBT community, and a way of promoting brands with Chinese key opinion leaders”.

Source: Charlie Gu / CLA Insight / LGBT Capital

US$264 Billion. (That’s not Finland’s economy size, it’s what Chinese tourists will spend)

Book your holiday now, before a wave of 174 million Chinese tourists snap up the best bargains.

Already the most prolific spenders globally, the number of Chinese outbound tourists is tipped to soar further as the millennial generation spreads its wings.

Here are the numbers: 174 million Chinese tourists are tipped to spend $264 billion by 2019 compared with the 109 million who spent $164 billion in 2014, according to a new analysis by Bank of America Merrill Lynch. To put that in perspective, there were just 10 million Chinese outbound tourists in 2000.

How much is $264 billion? It’s about the size of Finland’s economy and bigger thanWealthy Chinese Businessman- Shanghai Travelers Club Greece’s.

“China-mania spread globally in the past few years, akin to when the Japanese started travelling some 30 years ago, when the world went into frenzy then, pandering to Japanese customers’ needs,” the analysts wrote. “In our view, this is going to be bigger and will last longer given China’s population of 1.3 billion vs Japan’s population of 127 million.”

Millennials, or 25- to 34- year olds, are expected to make up the bulk of Chinese tourists at 35% of the total, followed by 15- to 24- year olds accounting for around 27%.

“Chinese travelers now massively prefer to shop overseas. Buying a luxury product in Mainland China is seen as “Uncool” and shows that you can’t afford to travel to New York city, Paris or London to buy at the original brand ‘s flagship store” says Pierre Gervois, Publisher of the New York City based Shanghai Travelers’ Club magazine.

Advertisement Tower - Gervois Hotel Rating May 2017 featuring Pierre GervoisOnly about 5% of China’s 1.3 billion populace are thought to hold passports, meaning the potential for outbound tourism is vast.

The projected boom could be good news for the global economy. The Chinese are the world’s biggest consumers of luxury goods, with half of that spending done overseas. Chinese visitors to the U.S. have risen more than 10% since 2009, the fastest pace for a destination outside of Asia. Australia, France and Italy are also popular.

Asian markets stand to benefit, with the biggest uptick tipped for Japan, South Korea and Southeast Asia, according to the research led by Billy Ng in Hong Kong.

 

Source: Bloomberg.