LUXURY GOODS AND BRANDS IN CHINA

LUXURY GOODS IN CHINA

20080316-fendigw2qf2 shopdair.jpg
Fendi fashion show at the Great Wall
At a time when Europe, and the United States are still struggling with stagnant economies, China has emerged as the premier long-term market for luxury products. Chinese bought $12 billion in luxury goods in 2014, according to Ministry of Commerce statistics, and accounted for 20 percent of all worldwide luxury sales by 2015, according to the McKinsey and Co. management consulting firm.

China has become the world's second-largest consumer of luxury goods. According to the 2011 World Luxury Association Blue Book survey, China's total consumption of luxury goods had reached $10.7 billion as of the end of March 2011, accounting for a quarter of global consumption. In 2009, China was the world’s third largest market for luxury goods. It accounted for 12 percent of worldwide sales after Japan (41 percent) and the United States (17 percent). The demand for luxury goods reached $2 billion in the mid 2000s. By other measures China is the world's third biggest market for personal luxury goods, worth at least 160 billion yuan ($25 billion). In the next three years, it is expected to leapfrog over Japan and the United States to take the top spot, with the luxury segment expanding to 180 billion yuan ($28 billion). [Source: Haze Fan, Reuters October 27, 2011]

Women are quickly becoming the biggest buyers of luxury goods, In 2005, they accounted for 45 percent of sales, compared to 25 percent in 2001. Still the market has some way yo go. The prices and selection are better in Hong Kong and many shopper prefer to go there.

The luxury brands that do best in China are the ones that are obvious status-symbols and have their name displayed prominently like Luis Vuitton or Gucci. A manager for Cartier told Bloomberg, “A luxury brand in China represents middle class aspirations...so you can’t be too hidden. A lot of products bearing subtle logos do well outside China, but are not bestsellers in China.” Louis Vuitton routinely ranks among the most admired brands in surveys of Chinese consumers. But ultra-luxury names such as Hermes are making inroads, and some top-tier consumers now look down on Louis Vuitton as too common.

There is a general perception that foreign-made goods are better than Chinese-made ones and Chinese that can afford them are increasing buying South Korean cell phones, Japanese flat-screen televisions , American toys and European cars over their Chinese counterparts. Some Chinese consumers are reluctant about buying Chinese-made products because of safety concerns.

See Brand Names, Middle Class, Society, People and Life

Bain & Company’s 2014 China Luxury Market Study

According to the Bain & Company’s 2014 China Luxury Market Study, “the region’s luxury market is undergoing a fundamental shift, brought on by evolving customer dynamics, an influx of new, emerging luxury labels, and an economic slow-down. Customer segments are no longer clear-cut, with common behaviors observed across demographic groups; instead, there is an increased diversity of preferred brands, and exclusivity, quality and value for money without logos are becoming increasingly important. [Source: Bain & Company’s 2014 China Luxury Market Study, January 20, 2015 |+|]

“Bain’s survey of 1,400 Chinese consumers found that they are increasingly likely to switch between luxury brands. Seventy percent of respondents said they like to try different brands and styles, which has led to greater brand diversification and established greater parity between aspirational brands and established ones in terms of demand and desirability. The survey revealed that nearly 45 percent of respondents plan to buy more emerging luxury brands in the next three years. |+|

“The field of luxury brands in China is breaking wide open,” said Bruno Lannes, a Bain partner and author of the 2014 luxury study. “This creates a new window of opportunity for emerging brands. At the same time, it is imperative that more established brands don’t grow complacent as China’s luxury market continues to evolve, or they risk falling out of favor with consumers.” Luxury brands are no longer competing with only each other for a greater share of shopper spend; they are also contending with consumers’ increasing interest in luxury travel and experiences, such as spas and cruises. In Bain’s survey, 55 percent of consumers said they have spent on a luxury hotel or resort, and 80 percent said they would increase their leisure travel, as opposed to shopping tours in the coming year. |+|

Growing Demand for Luxury Goods in China

China has the fastest growing market for luxury goods in the world, remarkable fact considering that it is still home to 750 million peasant farmers. Analysts project China to leapfrog the U.S. and Japan to become the world's top buyer of luxury goods by 2015 or sooner. In 2009, in the midst of the worldwide recession, China accounted for a quarter of the world’s total sales of luxury goods, ahead of the United States and Japan.

China’s share of the luxury handbag and accessory market jumped from 1 percent of world sales in 2000 to 12 percent in 2005. Sales of luxury goods in mainland China totalled $10.3 billion in 2009, up 14 percent from the year before, according to Bain and Company. When purchases by Chinese citizens abroad are factored in, the market was worth $23.7 billion. [Source: Susan Stumme, AFP, January 22, 2011]

David Barboza wrote in the New York Times, “The Cult of Mao is quickly being supplanted by that of Louis Vuitton, Gucci and Armani.” It is said that every official arrested for corruption has at least one Montblac pen, in addition to Swiss watched and French wines. The pen company had 98 shops in China as of 2010, compared with 34 in the United States.

Luxury good makers are becoming less worried about counterfeit products as their clientele becomes richer and the rich turn up their noses to fakes. The owner of two Louis Vuitton handbags told the Times of London, “I know other girls will look at my bag to check if it is a fake. We all look at each other’s bags to see if they are real. Most important, I would know I was carrying a fake and I would look down on myself. I want to have the real thing.”

Even the poor aspire to obtain luxury goods. One migrant workers spotted window shopping at shops with brand-name goods told the Times of London, “I’m really envious of girls who can buy such expensive bags and clothes. I dream of buying L’Oreal face cream...If I work hard, maybe one day.”

Rapid Growth of Luxury Brands in China

Barbara Demick wrote in the Los Angeles Times: China is on the verge of becoming the leading market for just about everything over-the-top expensive. Companies obsessed with China a few years back for its flagrant counterfeiting now see it as their most promising customer, especially at a time when so many other nations are scrimping. Gucci's sales in China in the first half of 2011 were up 39 percent; Bottega Veneta's more than 80 percent. Prada plans to open 50 shops over the next three years.[Source: Barbara Demick, Los Angeles Times, January 4, 2012]

Chinese fashionistas are displacing those immaculate Japanese women in their Burberry scarves as the world's leading consumers of luxury goods. The consulting firm McKinsey & Co. projected that China will bump Japan out of first place by 2015 as the leading market for pricey goods. Even with the softening of China's real estate market, the source of much new money, some analysts believe the Chinese already top the luxury market. In fact, the sales figures understate Chinese spending because the rich here do much of their shopping abroad to avoid high taxes on luxury items and electronics.

So far, the Chinese haven't approached the excesses of the so-called New Russians, who after the Soviet collapse were quickly flaunting diamond-encrusted baubles and mega-yachts. After all, China is still at least nominally a communist country and the culture is rich with proverbs about the terrible things that can befall you for showing off. ("A tall pine attracts more wind" and "Man should avoid fame like a pig avoids fattening," to name two.)

The best increasingly means the real thing. Although knockoffs are still widely available, a McKinsey poll released in March found that the percentage of consumers willing to buy fake jewelry had dropped from 31 percent in 2008 to 12 percent.

China’s Rise in Luxury Goods Market

At a time when Europe, and the United States are still struggling with stagnant economies, China has emerged as the premier long-term market for luxury products. Chinese bought $12 billion in luxury goods last year, according to Ministry of Commerce statistics. China will account for 20 percent of all worldwide luxury sales by 2015, according to the McKinsey and Co. management consulting firm. [Source: Keith B. Richburg, Washington Post, August 18 2011]

Bentley has sold more cars in China this year than in Britain, with China accounting for 25 percent of its sales. Mercedes-Benz in July opened a new design studio in Beijing. According to the World Luxury Association, the market for luxury products in China grew 20 percent last year and shows no sign of slowing. “In China, purchasing power just keeps getting stronger,” Ouyang said. “We are the only country where luxury product consumption is growing year by year.”

As the global economy deteriorates, and China tries to accelerate its shift to a more consumer-led growth model, Beijing’s leaders see luxury items as a lucrative revenue source. Many Chinese buy luxury products in Hong Kong or abroad to avoid China’s high taxes, so officials are debating a move to slash tariffs to encourage consumers to shop at home. But the government is loath to be seen as taking any new measures to support the sliver of the population that can afford that pricey new Hermes bag or latest Ferrari, and has delayed any decision on cutting tariffs, according to Chinese media reports and industry analysts.

“The government is facing a conflict,” said Michael Ouyang, representative of the World Luxury Association in China. “They don’t want to promote luxury because they are worried people who cannot afford it will see the advertisements. But they don’t want to limit luxury products because it’s good for the economy. So they’re facing a dilemma.”

Major Luxury Good Brands in China

Giorgio Armani has a shop of Shanghai’s Bund, Pierre Cardin has shops in Beijing and Shanghai as well as second-tier cities like Taiyuan in Shanxi Province. Cartier had 15 shops in the mid 2000s. Prada planned to have 30 by the late 2000s. LVMH opened its forth Chinese “world store” in Shanghai in early 2004. It is opening up stores at a rate of two a year and boasting annual growth rates of 50 percent, China is now LVMH’s No. 4 market. Gucci and Louis Vuitton have also boasted 50 percent a year growth rates. China is now Omega watch’s largest market.

Coach, the 70-year-old New York handbag maker, plans to open about a dozen locations in China by midyear, which would give it 53 stores in the country. The firm is looking to triple its China sales to $500 million within three years. [Source: David Pierson, Los Angeles Times, February 07, 2011]

Hermes International, the Paris leather goods fashion house, saw its Asian sales jump 38 percent last year, thanks largely to expansions in mainland China, Macao and Hong Kong. After saturating the likes of Beijing and Shanghai, high-end retailers are moving to the hinterlands, where many have grown rich off mining and property booms. Hermes opened an outlet last year in the frosty northeast city of Harbin. A Louis Vuitton store is doing brisk business in the coal town of Taiyuan.”

In addition to having a dozen and half shops in China as of 2010, Hermes has introduced a special line of products just for China. Their shop in Shanghai sells chairs made of rare Chinese woods for around $40,000 and cashmere coats for $5,500, and they sold well even during the global recession. Hermes sales are increasing at a rate of 70 percent a year.

Tommy Hilfiger opened its first store in 2002 and had 40 stores in 23 Chinese cites in 2005. Business for Adidas doubled in 2004 and almost doubled again in 2005. One university students told U.S. News and World Report he was given $62 a month for expenses school and ate nothing but instant noodles all month and used the left money to buy Nike basketball shoes.

Beijing’s Version of Rodeo Drive

Barbara Demick wrote in the Los Angeles Times: The Chinese equivalent of Rodeo Drive is a four-block strip in the heart of old Beijing along Jinbao Street, whose name appropriately means "gold treasure." The street was built in 2002 out of two traditional hutongs, or alleys, one named Jinyu, or "goldfish," and the other Yaba, or "mute man," part of a larger redevelopment project that displaced more than 4,000 families. Along the same row as the luxury car dealerships is a branch of Hong Kong's Jockey Club and a seven-story mall where a Bottega Veneta handbag made of African crocodile skin can set you back $51,000 and a jewel-encrusted cellphone $132,000. [Source: Barbara Demick, Los Angeles Times, January 4, 2012]

Expensive simply for the sake of expensive is all the rage. At a trade show on the resort island of Hainan in November, promoters unveiled a gold-plated toilet costing more than $200,000. The recently opened Black Swan Luxury Bakery (that's the English name; it's the Black Swan Art Bakery in Chinese because of the ban on shechi) made headlines with a multitiered, cream-swathed wedding cake in the front window with a $314,000 price tag.

The phenomenon isn't limited to Beijing. Drive through most dusty provincial capitals now and you'll see high-end shops in the center of town, often alongside the People's Square---a popular name in deference to communist tradition. In Chongqing, a city once famous for its revolutionary zeal, a five-story Louis Vuitton shop opened in September, overshadowing the iconic Liberation Monument.

Impact of Xi Jinping’s Anti-Corruption Drive on Luxury Goods

Don Lee wrote in the Los Angeles Times, “Exports of elegant Swiss watches to China have plunged. Sales of Mercedes-Benz and other premium sedans are slowing. And high-end restaurants, coming off their worst Chinese New Year festival in years, are starting to change their menus to lure ordinary families. At a Montblanc shop in downtown Beijing, sales clerks recall the days when they rang up as many as 10 of the top-selling fountain pens every day. And never mind the $1,400 price tag: The platinum-plated pen capped with a half-carat diamond was a particular favorite. Nowadays the store sells one such pen every two to three days, said a saleswoman surnamed Ren, adding sadly that her pay is commission-based. [Source: Don Lee, Los Angeles Times, May 19, 2013 +++]

Yimou Lee and Farah Master of Reuters wrote: “with Beijing cracking down on corruption, retail watchers caution that China may not deliver the explosive growth that made it a vital market for luxury brands after the global financial crisis in 2008. Chinese buyers backed away from buying bling before the once-a-decade Party Congress in October, when new leadership was announced, so the strong November figures from Hong Kong may reflect a burst of pent-up demand. Sales of watches and pricey liquor took the biggest hit after the corruption crackdown, according to a survey from the Hurun Report, known for its annual China Rich List.” [Source: Yimou Lee and Farah Master, Reuters, January 20, 2013]

Jerome Taylor of AFP wrote: “Sales of jewellery, watches and other valuable gifts slumped 28.2 percent in June 2014 according to official government data. "At this critical moment, you don't want to lavishly spend a lot of money and draw attention overseas even if it's your own money,” David Ji, head of research and consultancy for Greater China at realtor Knight Frank, told AFP. [Source: Jerome Taylor, AFP, August 13, 2014 |||]

On the mainland itself, other key indicators illustrate the more cautious approach officials and big spenders are taking. The nascent but growing market for private jets has slowed as business tycoons opt for smaller or less flashy models while demand for yachts has also seen a hiccup. John Watkins, CEO or ASC Wines, one of the most prominent wine importers to China, said sales of high end bottles and vintages purchased by state officials have dropped by 80 to 90 percent. "The premium end of the imported wine market has been affected starting two years ago. The impact is still felt today," he said. "With government officials we are seeing very little activity in restaurants, hotels and clubs." In July 2014, “British drinks maker Diageo said its international brands fell 14 percent in China during the last financial year, largely driven by weakness in demand for its whiskies. |||

“Luxury goods houses in Europe are beginning to feel the pinch. France's Hermes reported that sales decreased in the second quarter, in part because of slowing sales in China. Spirits group Remy Cointreau and clothes designer Burberry had similar woes for the period while Swiss-based luxury giant Richemont also noted slowing China sales. But in Europe itself the spending power of the luxury yuan is still going strong, analysts say, partially because China's elite believe they can set off fewer alarm bells the further they are from Beijing. "It's no longer just Hong Kong and Macau that are their stomping grounds for luxury purchases," says Vickers. "They have other places to go where they are under less scrutiny." ||||

Luxury Good Marketing and Expansion in China

20111123-Wikicommons beijing.JPG
Cartiers in Beijing
Luxury goods analysts say foreign firms have only scratched the surface of the market's vast potential, which is based on the country's population of 1.3 billion and the mounting wealth of an ever-growing middle class. "In China, we consider that luxury is still in a pure recruitment phase," HSBC analyst Erwan Rambourg told AFP, explaining that 90 percent of Chinese buyers are newcomers to a brand, while the rest are repeat customers. "It is still a very underpenetrated market." [Source: Susan Stumme, AFP, January 22, 2011]

"China has become a place where not only luxury brands do local brand-building events; China is now front and center in luxury brands' global marketing campaigns," Bruno Lannes, a Shanghai-based partner at Bain, told AFP. Chanel, Louis Vuitton and Gucci remain the most desired brands in China, according to Bain, in part due to their iconic logos---which convey status, a key driver for Chinese buyers---but experts say tastes are changing.

HSBC's Rambourg explained that while some foreign labels adapt their merchandise in China to be more logo-driven in response to consumer demand, this approach is quickly being abandoned. "I think the fascination of Chinese people for Western brands is that they want the real stuff. That is the aspirational aspect of the product. If you make it too Chinese, they are not going to be interested," he said.

Analysts say foreign brands have yet to even conquer major cities such as Beijing and Shanghai. They can then target the second and third-tier cities in the country's vast interior---home to tens of millions of savvy shoppers. "Expansion in tier two and three cities is one of the major strategic directions for all luxury brands, not just the leading ones," Lannes said.

Louis Vuitton Exhibition in Beijing

In the summer of 2011, the National Museum of China in Beijing hosted a design exhibition announced co-organized with Louis Vuitton. Trademark Louis Vuitton suitcases and handbags were show in four exhibition halls. "Of course a 4,000-square-meter exhibition costs money, but this is not an important factor," said Yves Carcelle, president and CEO of Louis Vuitton Malletier at the press conference. "What's important is what you are going to discover. I think before money, there's history: 157 years of creativity and craftsmanship." The exhibition represented the perfect partnership between the national museum's fresh new identity and "LV's history and creativity," believed museum vice director Chen Lüsheng. [Source: Wei Na, Global Times June 1, 2011]

The exhibition had many critics. Everything about the exhibition looks like a fancy luxury commercial, inappropriate for a national museum, anonymous guests to the museum's press conference told the Beijing News. Peking University professor Xia Xueluan told the Global Times on Tuesday, "it's a well-known commercial brand and hosting such an exhibition is harmful to a State-level public museum that should in fact only be dedicating itself to non-profit cultural promotion."

A little "museum marketing" was good for the stuffy state sector, said Liu Zheng, a member of the China Cultural Relics Association. "Proper commercial campaigns could do a lot of good for cultural publicity in our museums," Liu told the Global Times on Tuesday, "and are permitted by the State Administration of Cultural Heritage as long as the profits are spent on preservation work for cultural relics."

Louis Vuitton’s New Four-Story Shanghai Showcase Store

In 2012, Louis Vuitton opened its largest China store in Shanghai, complete with a gilded spiral staircase and an invitation-only private floor where big spenders can get their hair done while deciding what to buy. The store also boasts steel sculptures and carries a wide array of goods ranging from chic coats and hats to brightly colored bags made from python or alligator skin. It also sells carrying cases for tiles used to play the Chinese game mahjong and made-to-order trunks for tea sets. [Ibid]

Melanie Lee of Reuters wrote: “Louis Vuitton is courting China's wealthy with one-of-a-kind shoes and bags it is branding as unique works of art to reclaim its exclusive cachet in the luxury market. "The made-to-order concept is the ultimate luxury," Louis Vuitton Chief Executive Yves Carcelle told Reuters during a tour of the store, which the company calls a "maison". "It's the same with art. If you are interested in art, the ultimate is to commission an artist rather than buy a piece that is already done," Carcelle said. [Source: Melanie Lee, Reuters, July 18, 2012]

“The Louis Vuitton maison, one of 16 similar boutiques in the world, is located in Shanghai's address for luxury goods: the swanky Plaza 66 mall, where rival brands such as Chanel and Prada also have stores. Spanning four levels and with more than 100 staff, the store is currently the only one in China that offers custom bags and shoes. The company declined to say how much it spent on the boutique. [Ibid]

“Being in this made-to-order market needs sophisticated customers who know what they are talking about and own several bags, if not dozens of bags," Carcelle said. "That's why the haute maroquinerie and made-to-order-shoes... are important to demonstrate in China," he said, using the French word for luxury leather crafts. "As long as we didn't have this space to show them to our clients, in a world that is changing fast, we were missing our weapons," he said. [Ibid]

“Louis Vuitton's timing, however, may be less than ideal. Luxury spending is softening in China as the economy weakens. Economic growth slowed to its lowest level in three years last quarter. Britain's Burberry said last week its sales had been hit by the slowdown in China. Carcelle declined to comment on the state of the Chinese economy or its impact on luxury spending, but said he sees more "maisons" opening up in the capital Beijing and Hangzhou, a thriving trade hub in eastern China. He said Chinese consumers had rapidly matured into luxury connoisseurs, and the company needed to cater to both first-time buyers and sophisticated shoppers. "Maybe in the West, this trend took 20 years but here it takes 5 years from the first purchase to the willingness to have more sophisticated products and services," Carcelle said. [Ibid]

Marketing Expensive Swiss Watches in China

In November 2012, AFP reported: “With the Chinese increasingly coveting European luxury goods, Swiss watchmakers are eyeing a huge new market for their wares, but disagree on the best way of capturing it. The question being mulled by famous Swiss watch brands is whether to create more specialty editions aimed at appealing specifically to the Chinese or instead simply wait for fast-shifting Chinese tastes to adapt to European fashion. At a Hublot workshop in Nyon, a small town set on the shores of Lake Geneva between Geneva and Lausanne, workers clad in white lab coats huddle around an extra slim watch conceived specially for the Chinese market. As they carefully place the dainty hands on the titanium face, Hublot spokeswoman Anais Treand insists that the watch, priced at 14,300 Swiss francs (US$15,100, 12,700 euros), will be a hit in China since it is "light and delicate". [Source: AFP, November 11, 2012 /~\]

In 2012, “China accounted for 7.8 percent of Swiss watch exports in terms of value, according to the Federation of the Swiss Watch Industry, and watchmakers claim there is plenty of room for expansion. "My 32-year-old son has been over there for 10 years. He is beginning to have a good feel for Chinese trends," Hublot chief Jean-Claude Biver told AFP, nodding towards a jade-faced watch made with Chinese consumers in mind. The company, which since 2008 belongs to French group LVMH, has decided to adapt to the Chinese with special marketing and products in a bid to capture a chunk of this massive potential market, he said. /~\

Other brands have also jumped on the Chinese bandwagon, producing often very limited and exclusive models inspired by Chinese culture. Geneva watchmaker Vacheron Constantin has thus just launched the "Legend of the Chinese Zodiac" -- a series of luxury timepieces based on a 12-year cycle beginning with the Year of the Snake. Crafted in pink gold or platinum, two models have so far been issued in separate, limited 12-piece series: one with a blue water snake slithering across the face, and the other with a brown one symbolising the wood snake, whose next year won't come around until 2025. /~\

:In famous watchmaking city La Chaux-de-Fonds, in western Switzerland, Jaquet Droz has meanwhile just launched two limited series featuring two orange tigers and two yellow dragons hand-painted on off-white enamel baked at more than 800 degrees Celsius -- a traditional Chinese technique. "These kinds of pieces are very successful in Asia, but not only there," said Jenna Racine, a spokeswoman for the brand, which has a long history of catering to Chinese desires; back in the 18th century it was the first to ever import watches into the Forbidden City. /~\

“But others in the industry caution against pandering to Chinese tastes, which they say are changing quickly. "The extreme focus on China is dangerous," said Thierry Stern, the head of Geneva watchmaker Patek Philippe, in an interview with Swiss daily Le Temps earlier this year. Biver of Hublot agreed that "you shouldn't adapt too much to (the Chinese), because when they evolve, you won't be on their wavelength any longer." /~\

According to Marc Hayek, the head of Blancpain, another brand belonging to Swatch, future sales depend not only on the Chinese market itself but also on wealthy Chinese tourists abroad. "In that area, there has been more progress than we would have thought," he told AFP. Swiss financial daily Handelszeitung has for instance calculated that each Chinese tourist visiting the central Swiss city of Lucern -- around 90,000 last year alone -- spends an average of 2,000 Swiss francs on Swiss watches. /~\

“Hayek, the grandson of Swatch founder Nicolas Hayek, is himself wearing a Blancpain watch specially made for the Chinese, crafted in platinum and equipped with a traditional Chinese calendar and hours, one of which corresponds to 120 minutes, along with Zodiac symbols and lunar phases. But despite his own delicate timepiece worth 82,000 Swiss francs, he insists catering to Chinese tastes should be undertaken with care, since watches should "remain truly 100 percent within the DNA of the brand". Heyek said he would never have agreed to simply decorating watches with drawings of Chinese animals, but had given his consent to specialty Chinese models that themselves were technically revolutionary and required years of research to develop. /~\

Chinese Consumers Drive Boom in U.S. Mink Farming

In April 2013, P.J. Huffstutter of Reuters wrote: Battered by the economic downturn and years of animal rights activism in their own backyard, American mink farmers are now in a different sort of quandary: scrambling to keep up with China's demand for all things fur. Driven by a hunger for high-end clothing and luxury home goods among China's burgeoning middle class, U.S. exports of mink pelts to China jumped to a record $215.5 million last year - more than double both the value and volume shipped in 2009. [Source: P.J. Huffstutter, Reuters, April 14, 2013 |::|]

“That Chinese consumers are clamoring for fuzzy-trimmed backpacks, ermine-edged coats and mink-covered office supplies comes as a welcome respite for the U.S. mustelidae world. The industry's fortunes had chilled in recent years, with farms shuttering and prices slumping amid the past two recessions and mounting criticism of the fur trade by U.S. and European animal rights groups. Now, prices of farmed mink pelts are soaring to all-time highs. South Korea and Russia, too, have contributed to a surge in demand that led to shipments of 11.8 million pelts worth $479 million worldwide by U.S. farmers, trappers and auction houses last year. That was nearly triple the level in 2009. |::|

“Weather has kept the demand piling on in recent months. Both Russia and China experienced unusually cold winters late last year. The bitter temperatures half a world away were something to celebrate on Ron Gengel's mink ranch. For three generations, the Gengel family has raised minks in a northern Illinois farm for furriers around the world."You have to keep track of so much, from what's happening to the Russian currency to what's the weather forecast in China," said Justine Gengel, Ron's daughter-in-law. "You have to know what the buyers want." |::|

“For now, at least, Chinese buyers and manufacturers are flocking to fur auction houses in Seattle and Canada by the droves. At a recent sale held at North American Fur Auctions in Toronto, the demand drove black male mink pelts to an average price of more than $141 each. Two years ago, similar quality pelts were selling for $98. "We had over 700 registered buyers and the majority were from China," said Nancy Daigneault, communications director for NAFA. "It was jammed. We've never had that many buyers before, ever." |::|

“Chinese consumers bought more than half of the fur coats sold worldwide in 2010, and China's retail sales of fur-related goods - ranging from full-length mink coats to ermine-covered toilet paper holders - were forecast to hit $6 billion in 2012, according to data from the China Chamber of Commerce of Foodstuffs and Native Produce. Few people understand the mink boom better than Zhang Lingli, manager of Shanghai Zhichuan Garment Co. Ltd. Inside her cozy shop, on the sixth floor of a downtown Shanghai mall, mink pelts are stacked in hues of black, blue and silver. Mink fur, Zhang said, has become particularly popular among those who have the extra cash to spare. The demand for mink pelts has been increasing every year in the past few years, Zhang said, and so has the price. But her customers simply shrug that off - and pepper her with requests for higher-quality furs from the United States, Canada and Europe. "They just want fur products," she said.” |::|

Problems for Luxury Good Makers in China

20111123-apple 716px-Iphone&SteveJobs.jpg
The sale of luxury goods has taken off slower than expected. Obstacles include tariffs on luxury goods; lack of a safety net; a strong desire to save; and too many luxury goods makers chasing after a limited pool of big spenders. Many feel that the Chinese market is over rated and more have lost money than made it. Cartier for example is barley making money even though it has 14 stores is ranked as the No. 1 luxury jeweler.

For the most part luxury good maker are still staking a claim for the future. Their shops are like billboards for buyers who get some idea of what they want and then purchase the goods in Hong Kong or on an overseas trip

Fake and Counterfeit Luxury Goods in China

The biggest problem that luxury good companies have in China is fakes. Counterfeiting of luxury goods is very common. Louis Vuitton wallets sell for as little $4. Prada, Louis Vuittin, Burberry, Hermes, Ralph Lauren, Givenchy and Chanel are particularly popular with counterfeiters and shoppers. High quality Gucci and Prada bags come complete with forged certificates.

Counterfeiting is a problem both in China and outside of it. Three fourths of all the luxury goods seized at ports in France and Italy originate in China. Suppliers who sell these goods often ship the labels separately from the goods and are sewn on after the goods clear customs. The producers also often produce the goods and labels in separate locations to avoid detection.

The quality of counterfeits is improving. Some times even pros are fooled and counterfeits have made their way into legitimate distribution channels and end up in stores where people think they are buying the real things. One study by Itallian authorities in the early 2000s found that fake Rolex watches were so well made---including the internal identifying marks like those stamped inside real Rolexes---that even people at Rolex had difficulty distinguishing them as fakes. Sometimes as much as $2,500 would go into making a counterfeit Rolex that sold for $12,000 or more in a jewelry shop.

The same study found that parts for luxury goods were made in southern China flown to Europe and then tucked into the floor of vehicles and assembled and distributed under the guidance of Camorra (the Naples mafia) with final touched put on by Venice craftsmen.

Most buyers know that what they are buying is not real thing. A media executive in Shanghai who earns $80,000 a year told the Washington Post: “I realized the quality of counterfeit stuff is not bad at all, and the price is one-tenth of the real products. I have never felt embarrassed to carry a fake. I have good taste, and I know what is quality and what is isn’t....It is not as if I buy the bag just because of the brand. It has to be a style I like.”

Many of the stalls where pirated materials are sold in China are run by old ladies, They often poorly lit and difficult to find. Counterfeit luxury goods are often sold on the streets in cities and markets around the world. They are also widely available on the Internet. Some products are sold by women who roamed the streets with catalogues looking for customers. If someone shows interest in a particular item in a catalogue, the women can direct them to a back alley warehouse where the items are sold.

An area on South Shanxi is said to be the best place to get quality counterfeit goods in Shanghai. There are good buys on fake Birkin Bags and Gucci hobo bags. Among the celebrities that are said to have shopped there are Celine Dion and Yao Ming. For counterfeit goods you can also stroll along Nanjing Avenue and touts will come up to you offering goods by Gucci, Coach, Jimmy Choo and others and show small laminated cards with the items they have for sale. If you agree to go with them they will take you through a maze of alleyway to shops you would never find on your own. Xiangyang Market was famous for its high-quality counterfeit Louis Vuitton bags, Prada backpacks, Rolex watches, Mount Blanc pens, Callaway golf clubs. More than 800 vendors crowded the five-acre market. Some payed as much as $10,000 a month for a kitchen-size space, described by some as the most expensive rents in Shanghai. After six years of operation the market was officially closed down in June 2006. The official excuse was to crackdown on piracy but the real reason many say was to allow the site to be developed. Some vendors moved to the Longhua neighborhood in southwest Shanghai. Many moved to Xintiandi. [Source: The New Yorker]

Efforts to Crackdown on Counterfeiting in China

China has anti-piracy and anti-counterfeiting laws and regulations but enforcement is weak. As of 2006, there were criminal penalties on producing or selling counterfeit goods if the total value of the confiscated products was less than a certain amount. The United States and other countries want China to impose harsher penalties on crimes linked with counterfeit goods.

In 2006, Chinese courts heard 769 criminal intellectual property rights cases, a 52 percent increase from 2005, and sentenced 1,212 people, a 62 percent increase. The total number of cases related to protecting intellectual property rights increased from 13,000 in 2005 to 20,000 in 2006.

A primary motivator for China will be when its brands are more widely recognized and it realized the importance of intellectual property rights. If anything is going to defeat the piracy of music, movies and software in China it will be other pirates working on the Internet that work on a global basis from anywhere and reduce the need for physical counterfeiting like that done in China.

Perhaps the biggest threat to the fake market is coming from Chinese shoppers, especially those with money who thumb their noses at fakes and want the genuine articles, See Gucci.

Crackdown on Silk Street Vendors That Sell Pirated Goods

In February 2009, market managers at the Silk Street Market in Beijing temporarily shut down 29 stalls for selling counterfeit goods. They didn’t o quietly. The object of much of their fury was IntellecPro, a Beijing firm specializing in intellectual property rights, who represents five foreign luxury-brand manufacturers that have sued the market for trademark violations. “We expected trouble,” Zhao Tianying, a legal consultant with IntellecPro, told the New York Times. “But we never imagined this.”[Source: Sharon Lafranier, New York Times, March 1, 2009]

The Silk Street Market crackdown had been a long time coming. It had been four years since Burberry, Gucci, Chanel, Louis Vuitton and Prada first sued the market’s operator, the Beijing Silk Street Company, and individual vendors for trademark violations. As part of a court-mediated agreement, the market’s managers agreed to punish offending vendors, shutting down six to eight at a time for up to a week. [Ibid]

Xu Shengzhong, the vendors’ lawyer, tries to portray his clients as too ignorant to distinguish fake goods from real or to recognize brand names. What is worrisome to government officials is the threat of social unrest.

George Wang, manager of Silk Street market, said that while he sympathized with the vendors, the Silk Market must fundamentally change and shift its focus from counterfeit goods to genuine pearls, silks, homegrown brands and tailoring services. Last year, the market began its own line of products, warning counterfeiters to stay clear. Wang said he hoped that shoppers changed their habits, too. At present, they want the knockoffs, he said ruefully. You can see it in their eyes. That is the brutal reality. [Ibid]

Protests by Silk Street Vendors

Sharon Lafranier wrote in the New York Times, “The vendors... responded with the same ferocity with which they nail down a sale. Dozens of them have staged weekly protests against IntellecPro lawyers who are pursuing the trademark case, mocking them as bourgeois puppets of foreigners. The vendors confronted witnesses who provided evidence of trademark violations and filed a countersuit asserting that only the government can shutter a business...A few characters scrawled in pencil on the wall outside IntellecPro’s office sums up the vendors’ message: We want to eat!” [Source: Sharon Lafranier, New York Times, March 1, 2009]

Dozens of vendors began by their protest by descending on IntellecPro’s office, occupying the reception area for hours while the police tried to mediate. The next day they stormed past the receptionist, banged on the walls and swore at the staff. The firm’s senior partner, Hu Qi, was afraid to go home and slept in a hotel for three nights. On the sixth day of their protest, more than 50 vendors waved signs and chanted slogans outside the firm’s building while IntellecPro lawyers, with 12 hired guards on hand, had their lunch delivered. [Ibid]

We are trying to run businesses here, one 37-year-old vendor in a red coat, a fake Dolce & Gabbana handbag on her arm, told the New York Times. They don’t have any proof. Asked about her handbag, she insisted: We don’t read English. We don’t know what the letters mean. We just think it is pretty. Another vendor, 24, who gave her last name as He, said: We want to be compensated for our losses. And we want a public apology. [Ibid]

George Wang, the market’s 43-year-old manager, told the New York Times, he was stuck in a terrible position. The five brands are saying, “You are not doing a good enough job in protecting our intellectual property rights,” he said. And the vendors are saying, :You are going overboard in protecting intellectual property rights.” [Ibid]

The police, saying their first priority is to maintain order, organized a meeting between some vendors and Hu, IntellecPro’s senior partner, according to the firm’s spokeswoman. It went poorly. The merchants lectured Hu on the need for intellectuals like him to respect workers, while Hu tried to defend his patriotism. These ordinary people work for decades, to their deaths! one vendor said. How can you say you are patriotic? [Ibid]

Image Sources: Wiki Commons

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Yomiuri Shimbun, The Guardian, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated July 2015


This site contains copyrighted material the use of which has not always been authorized by the copyright owner. Such material is made available in an effort to advance understanding of country or topic discussed in the article. This constitutes 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. If you are the copyright owner and would like this content removed from factsanddetails.com, please contact me.