Like buying stocks and shares, you knew you didn’t need it, but just couldn’t resist. Branded, high end shopping tourism – the ‘nouveau riche’ demand for luxury fashion brand names sold in Mandarin friendly Outlet Malls such as Bicester in the UK, is a mainstay of the global tourist industry. But a perfect storm could be brewing. The combination of a) the need to boost domestic consumption, b) a change in the shopping aesthetic from the foreign luxury brands bought by the super rich to cheaper fashion lines to appeal to the young, and c) the shock fall of the Chinese stock market in July, could lead to a reversal of this trend. The question is, will Chinese shoppers continue to take their spending power overseas? And will there be any change in the type of goods bought?
Coveted brands such as Burberry, Lauren, Prada, Chanel, Louis Vuitton and Dior remain desirable. As Shanghai resident Qui says, “Although these luxuries are not the fashion in season, for most Chinese, just to own one luxury fashion item is more important than what it is. With economic growth, the middle class is expanding, and though they have low brand cognitive, they have more desire to squander money to impress their relatives. Bicester can provide a Chinese shopping guide in almost every shop and Chinese people can use their China Union Pay card. The middle class can get better service, quality guarantees (no fakes), and cheaper prices (including tax return)”. This solves, for me, one of the big economic mysteries: why Chinese people travel to the UK to visit an American style Mall, in an Oxfordshire field, to buy something made close to where they live.
As a UK ex pat, the sight of a T shirt in Shanghai railway station last year with a price tag of RMB 1300 was enough for me to get out the smelling salts, given the equivalent price in a chain store like Topshop in the UK would be a tenth of that. The price gap is due to three factors. The first is the high consumption tax in China. In the Chinese market, the average price of imported luxury goods is 45% higher than that in Hong Kong, 51% higher than America and 72% higher than France. Secondly, China has too many logistic processes and at each level the price rises. Thirdly, the pricing policy of these luxury brand companies is based on profit maximization. In other words, pricing is made by brands not manufacturers because the design copyright, raw materials and runs are strictly controlled by that brand.
But there is change in the air. Enter, in 2013, Beijing-born Masha Ma, only 30 years old and fresh from her Fashion course at Central St Martin’s in London followed by an internship with celebrated fashionista Alexander McQueen (his retrospective is now running at London’s Victoria and Albert Museum). She aims to build China’s first truly international designer brand and has opened two “MA by MA” boutiques in Shanghai with plans to open around 100 more in China, and this in addition to producing her regular couture collections for Paris Fashion week. After years of consuming foreign luxury brands to beyond saturation point the Chinese zeitgeist is now for inventing (not copying) home grown designs. The government crackdown on the “gift culture” and corruption will also play a part in the decline of the Luxury Brand. Finally, in June 2015, China signed the Free Trade Agreement with Australia; this means goods can be imported at zero tax rates. Qui says: “I think with this agreement, we will be able to buy true, safe and cheap products at a much lower price in the future”.
The rich over-35s, dubbed the ‘Bling Dynasty’ by the USA banker turned author Erwan Rambourg,
need to buy home grown products and spend less money globetrotting to find the Holy Grail of the Brand. Stocks can go down as well as up, and many of the super rich, as well as ordinary people, are discovering this truth as they watch their savings decline. Fashion shopping habits will change. Chinese people like shopping abroad but they will be more sensible. People need to buy what they really want, what they can use, and not waste money on a totem of success. Younger age groups are the future, and what they really want are the low cost popular ranges like Topshop offers in the UK. Will this be Masha Ma’s next move?