Benchmarking the evolution of the China luxury market Preliminary research web edition Shanghai, April 2013
Contents of the document China at a glance Overview of China luxury market Retail development of reference brands Selected trends 2
China at a glance: Population Mainland China is divided into 27 Provinces and 4 Municipalities (, Shanghai, Tianjin and Chongqing). 8 Provinces have a population larger than 60 millions Population 2010 (Mil.) Guangdong Shandong 96 Henan 94 Sichuan 80 Jiangsu 79 Hebei Hunan Anhui Hubei Zhejiang Guangxi Yunnan Jiangxi Liaoning Heilongjiang Shaanxi Fujian Shanxi Guizhou Chongqing Jilin Gansu Inner Mongolia Shanghai Xinjiang Tianjin Hainan Ningxia Qinghai Tibet Source: www.citepopulation.de 72 66 60 57 54 46 46 45 44 38 37 37 36 35 29 27 26 25 23 22 20 13 9 6 6 3 104 Map of Population (Mil.) >80 >60, <80 >40, <60 >20, <40 <20 Xinjiang Tibet Qinghai Heilongjiang Inner Mongolia Jilin Jil Liaoning in Hebei Tianjin Ningxia Shanxi Shandong Gansu Shaanxi Henan Jiangsu Sichuan Hubei Anhui Shanghai Chongqing Zhejiang Hunan Jiangxi Guizhou Fujian Yunnan Guangxi Guangdong Hainan 3
China at a glance: GDP by province Differences in terms of contribution to GDP formation are very large across China 2012 GDP (RMB billion) Map of GDP Guangdong Jiangsu Shandong Zhejiang Henan Hebei Liaoning Sichuan Hubei Hunan Shanghai Fujian Anhui Inner Mongolia Shaanxi Heilongjiang Guangxi Jiangxi Tianjin Shanxi Jilin Chongqing Yunnan Xinjiang Guizhou Gansu Hainan Ningxia Qinghai Tibet 3,461 2,981 2,658 2,480 2,385 2,225 2,215 2,010 1,970 1,780 1,721 1,599 1,445 1,369 1,303 1,295 1,289 1,211 1,194 1,146 1,031 747 680 565 286 233 8 70 5,707 5,406 5,001 >2,000 >1,000, <2,000 <1,000 Xinjiang Tibet Qinghai Heilongjiang Inner Mongolia Jilin Jil Liaoning in Hebei Tianjin Ningxia Shanxi Shandong Gansu Shaanxi Henan Jiangsu Sichuan Hubei Anhui Shanghai Chongqing Zhejiang Hunan Jiangxi Guizhou Fujian Yunnan Guangxi Guangdong Hainan Source: China infobak 4
China at a glance: Disposable income Municipalities and coastal provinces have the highest per capita disposable income Per capita Disposal Income 2012 (krmb) Map of Disposal Income (krmb) Shanghai Zhejiang Tianjin Guangdong Jiangsu Fujian Shandong Liaoning Chongqing Jilin Guangxi Jiangxi Anhui Yunnan Hubei Hunan Hainan Hebei Shaanxi Shanxi Henan Sichuan Ningxia Qinghai Xinjiang Gansu Guizhou Tibet Inner Mongolia Heilongjiang 2 2 27 27 26 25 23 20 20 19 19 19 19 19 16 16 15 14 14 33 31 36 >30 >20, <30 >10, <20 <10 Xinjiang Tibet Qinghai Heilongjiang Liaoning Hebei Tianjin Ningxia Shanxi Shandong Gansu Shaanxi Henan Jiangsu Sichuan Hubei Anhui Shanghai Chongqing Zhejiang Hunan Jiangxi Guizhou Fujian Yunnan Guangxi Guangdong Hainan Jilin Inner Mongolia Source: www.citepopulation.de 5
China at a glance: Main cities According to the common definition, China is segmented in 4 Tier 1 cities, 14 Tier 2 and 19 Tier 3 4 14 19 Tier 1 cities Tier 2 cities Tier 3 cities GDP Population GDP Population GDP Population Shanghai Guangzhou Shenzhen 1,780 20.7 2,010 23.8 1,230 8.1 1,150 10.5 Hangzhou Harbin Tianjin Chengdu Wuhan Nanjing Shenyang Chongqing Qingdao Xi an Dalian Jinan Changchun Changsha 780 8.8 455 9.9 1,119 13.5 685 14.1 800 10.1 720 8.2 591 7.2 1,146 29.5 730 7.7 730 8.6 700 5.9 481 7.0 400 7.6 640 7.1 Wuxi Taiyuan Wenzhou Sanya Nanning Kunming Fuzhou Suzhou Zhengzhou Changzhou Guiyang Haikou Hohhot Ningbo Shijiazhuang Urumqi Xiamen Hefei Lanzhou 757 4.7 208 4.2 335 8.0 33 0.6 221 7.1 251 6.5 373 6.5 1,200 6.4 555 9.0 397 3.6 170 4.4 71 2.1 2 2.9 652 5.8 408 10.3 206 3.4 282 1.9 364 7.5 156 3.2 Total 63 Total 145 Total 98 Source: China infobank 6
China at a glance: Regional differences Some central provinces are today growing very fast and are generally considered the next frontier of China luxury development North - Winter is dry and cold - Conservative and respectful for traditional family values - Generous, practical and forthright - Good appreciation of luxury goods, but economy less developed and retail market still very polarized (luxury or low end) - Local consumer are less aware of international brands and do not travel as much as in the other areas East - Moderate weather - Fashion savvy, pay great attention to details - Fast-paced life - The area with the higher purchasing power - One of the richest areas, it is also a shopping destination for consumers from all around China South - A very developed and rich area - Moderate climate, pleasant the whole year - Travel frequently to HK and Macau (and do there most of their shopping) - Counterfeiting is a huge problem in this area - Being much driven by export, the area suffered from the crisis West - Moderate continental weather - Very laid-back life attitude and carefree lifestyle - Local consumers seem very willing to spend on luxury goods (similarly to those of the north) and do not travel frequently - The market demand is growing quickly driven by the rise of the middle class Source: TNS International Research, Internal analysis 7
Contents of the document China at a glance Overview of China luxury market Retail development of reference brands Selected trends 8
Chinese millionaires map, Guangdong, Shanghai and Zhejiang are home to the largest concentration of Chinese Millionaires, accounting for 60% of total In 2012, Chinese Millionaires increased to 1,020,000 by number. Xi an, Wuhan, Ningbo, Chongqing, Suzhou and Dongguan enjoyed the fastest growth from 2010 to 2012 >100k 50k-100k 30k-50k 10k-30k <10k Source: Hurun 2012 Wealth Report Tier1 city Tier2 city Tier3 city Chengdu Chongqing Tianjin Wuhan Nanjing Ningbo Fuzhou Xiamen Guangzhou Shenzhen Dongguan Dalian Qingdao Harbin Shenyang Suzhou Shanghai Hangzhou Wenzhou No. of Millionaires in 2012 Shanghai Guangzhou Hangzhou Shenzhen Nanjing Wenzhou Suzhou Tianjin Ningbo Dongguan Chengdu Xiamen Qingdao Dalian Chongqing Fuzhou Shenyang Harbin Wuhan Xi an 55.000 53.000 52.000 24.200 22.500 20.000 17.100 20.000.000 15.000 12.500 12.500 12.500 12.500 13.000 8.800 6.500 7.500 7.000 179.000 140.000 Fastest growth Growth% 2010-2012 19% 15% 12% 12% 14% 10% 10% 28% % 48% 23% 11% 9% 13% 14% 29% 27% 15% 12% 59% 67% 9
Luxury spending of Chinese nationals Despite the global economy slow down, Mainland China luxury market still increased by 7% in 2012. Total Luxury consumption of Chinese nationals grew 15% Total spending on Luxury by Chinese nationals Billion RMB Total= 266 Overseas HK/ Macau/ TW Mainland China 306 CAGR (11-12 ) 15% In 2012, Mainland China s luxury market grew at 7%, a lower rate as respect to previous years Spending in HK/TW/Macau grew at 12% 26% 30% 31% Chinese outbound tourists have traditionally targeted brands when traveling to popular destinations like South Korea, France and USA, as well as at airport duty-free shops worldwide 33% 12% 34% 40% 37% 7% 2011 2012 N.B. The definition for luxury products is not precise. The categories here included are accessories, apparel, jewellery & watch, leather goods (bags/shoes), high end cosmetics; Not include wine & spirits and durable goods such as cars and yachts Source: Bain&Co, BAS analysis 10
Mainland China luxury market by product category Apparel accounts for 14.5% of the overall luxury goods markets. In 2012 it performed better than other luxury segments China Luxury market category Accessories, 6% Women s wear, 4.5% Shoes, 6% Jewelry,8% Men s wear, 10% 2009-2010 2010-2011 2011-2012 27% 30% ~7% 15% 27% 20% 22% 24% 20% 35% 20% 20% 30% 10% 15% 10% 5% 12% In 2012, China Luxury market grew overall by 7% as respect to 30% in 2010 and 27% in 2009 Typical gifts items like watches (- 5%) and jewelry (+5%) were the most affected categories Leather goods, 19.5% Cosmetic, perfume and personal care, 22% 30% 22% 30% 22% 10% 15% Women s items (apparel and cosmetics) still enjoyed a healthy growth Despite the temporary slow down, China is still a very dynamic market for luxury brands Watches, 30% 45% 40% -5% Source: Bain&Co, BAS analysis 11
Luxury consumption by disposable income segment Very wealthy and wealthy people drive luxury demand in China Luxury consumption by annual household disposal income Total= 127 Bn RMB Very Wealthy Wealthy 24% 36% 8 Bn RMB 28% 32% Very Wealthy (>1Mn) Wealthy (500k - 1Mn) Mass Affluent (250-500k) Upper Middle Class (50-250k) 2012-2015 CAGR 12%-16% 21% 10% The wealthy and very wealthy are only 1% of total households, but contributed for 60% of luxury consumption in 2012. Their purchases are expected to even increase in terms of share by 2015 The consumption of the upper middle class households is expected to increase from 13% of luxury consumption to 15%, mainly fuelled by the increased number of families reaching the status Mass Affluent 27% 25% 11% Overall the market is still expected to grow by more than 10% a year Upper Middle Class 13% 15% 24% 2012 2015 e Source: Hurun Report 2012, Mckinsey&Co 12
Attitude towards luxury goods consumers Luxury is more and more regarded for the lifestyle values it conveys rather than as a mere demonstration of wealth (either with a positive or negative eye) Attitudes towards luxury goods owners (%) 53 22 Enjoy high quality life 57 58 Showing off / Flashy 17 43 14 Having a successful life 43 42 Wasting money 11 12 34 11 With good taste 36 New rich 9 29 11 Fashionable 13 16 20 Superficial 2 3 3 2009 2011 2012 The respondents attitude towards the luxury goods owners is more and more positive Source: KPMG / TNS Luxury Survey 2012 13
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