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Image Acknowledgments:
Front cover: ChinaLuxuryNetwork.com
Introduction: FT Tilt




         matthunter.com
          DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY
                                                AMS                             3
Agenda



         •   China and the global market for luxury goods


         •   Role of the internet in Chinese luxury consumption


         •   Driving forces behind online growth


         •   Online luxury goods customer segments


         •   Future trends




                                                            AMS   4
A Chinese Obsession?

Globally the luxury goods market is thriving. China has emerged as a major driving force
behind this vitality. In recent years, Chinese luxury goods purchases have surged.


The domestic market is growing rapidly, as young, rich elites are reaching out to embrace
finer fashions. The markets of Greater China continue to boom. And Chinese travelling
abroad are becoming the leading consumers in major fashion destinations.


Chinese consumers are fast becoming central to the global luxury goods industry


                                                              AMS                           5
The market for luxury goods is seeing exceptional growth
 globally

                         Worldwide Luxury Goods Market by Area

    Luxury Spending                                              CAGR
                                                                 09-11
           €200B                                       191
                                                                 13%
                                          171
                                                                  5%
                              150
               150            Other
                                                                 26%
                            Japan
                          Asia-Pacific
               100                                               13%
                           Americas

                 50
                            Europe                                9%

                   0
                             2009        2010         2011E


Source: Bain & Company                                  AMS            6
As China’s domestic economy has surged, demand for luxury goods has grown rapidly.
Areas such as Shanghai’s bund abound with high-end stores for luxury brands of all
descriptions.

                                                            AMS                      7
China’s domestic market has grown twice as fast as the
 global market

     •   China’s luxury goods market                                         Chinese Personal
         doubled in size between 2009 and                                    Luxury Goods Spending
         2012
                                                                                    €20B

     •   Extensive growth: luxury goods
         becoming more widely available                                                                              15
            -In 2011, China saw almost as many new                                      15
              openings of luxury retailer branches as Europe                                                    13
              and the USA combined
            - Luxury retailers have pushed out from the major
              (“tier 1”) cities to begin colonisation of tier 2 and                     10               10
              tier 3 cities
            - 66% of YOY growth comes from new customers                                         7

                                                                                          5
     •   Intensive growth: luxury
         consumers spending ever more on
         luxury goods
            -33% of growth comes from existing customers                                  0
             increasing purchases                                                             2009 2010 2011 2012E
            -Small high-end clientele developing heavy
             purchasing habit
            -Significant aspirant middle-class now spending
              above Western norms

Note: 2011 estimate as per Bain; 2012 revenues estimated at 18% YOY growth from 2011 as per McKinsey forecast
                                                                                                   AMS                    8
Source: Bain & Company (China Luxury Market Study 2011); McKinsey & Company (McKinsey Insights China)
Consequently, Mainland China’s luxury goods market
 became the 5th largest in the world in 2010

                                           Personal Luxury Goods Market –
                                         Ranking by In-Country Spending (2010)




Source: Bain & Company; China Luxury Market Study 2011
                                                                       AMS       9
However on a global scale, Chinese luxury purchases are
 even more significant

       Luxury goods purchases in                                  Chinese Mainland consumers
      Chinese societies total €26.6B                              spend > €6B in Euro markets



                                  China
                                 €12.9B

                                                         Taiwan
                                                         €3.9B

                                     HK            Macao
                                    €5.8B          €0.8B
                                                                  Paris
                                                                  €4.3B
                                                                                Milan
                                                                                €2.0B
              S’pore
              €3.2B




Note: Data based on 2010 revenues                                         AMS                   10
Source: Bain & Company; China Luxury Market Study 2011
50% of luxury goods purchased in Milan and Paris are
 bought by visiting Chinese




Note: Data based on 2010 revenues
                                                         AMS   11
Source: Bain & Company; China Luxury Market Study 2011
Chinese consumers are fast becoming the main driving
force of global luxury


        Including purchases in Mainland China, Taiwan, Hong Kong,
         Macau & purchases by Mainland Chinese when travelling
                     abroad, Chinese consumers drive




         25%          of all global luxury purchases




                                                   AMS              12
Agenda



         •   China and the global market for luxury goods


         •   Role of the internet in Chinese luxury consumption


         •   Driving forces behind online growth


         •   Online luxury goods customer segments


         •   Future trends




                                                            AMS   13
Chinese consumers are more reliant on the Internet than other
nationalities to…

  -…discover luxury brands
  -…research products
  -…and complete their purchases

And consequently, the internet accounts for an unusually large
share of total purchases




                                             AMS                 14
The in-store experience is still the most important factor
in determining purchases




                                         AMS                 15
However, the internet is the next most important influence
 in persuading Chinese to buy luxury goods


                                                       Purchase influencers




Note: Derived from regression of whether consumers purchased products from a luxury brand with whether they experienced a certain touch
point and how the information was received (positively or negatively). Internet specific responses scaled to 100%. Survey products include
RTW, Bags, Shoes, Jewellery & Watches. Based on a survey of 2,422 consumers. NB: McKinsey survey therefore largely assumes correlation
is causation
                                                                                                        AMS                                  16
Source: McKinsey & Company; McKinsey Insights China (2010)
Amongst internet interactions, paid advertising and social
 reviews are of near equal importance in persuading shoppers
 to buy

                                          Purchase influencers: Internet only




Note: Derived from regression of whether consumers purchased products from a luxury brand with whether they experienced a certain touch
point and how the information was received (positively or negatively). Internet specific responses scaled to 100%. Survey products include
RTW, Bags, Shoes, Jewellery & Watches. Based on a survey of 2,422 consumers. NB: McKinsey survey therefore largely assumes correlation
is causation
                                                                                                        AMS                                  17
Source: McKinsey & Company; McKinsey Insights China (2010)
When researching, social media is the channel most commonly
 used to obtain information on luxury goods

                              “Which channels of the Internet do you normally
                                 get information on luxury goods from?”




Note: Social Media includes: SNS, Weibo (Chinese Twitter-style micro-blogs) and Blogs   AMS   18
Source: Bain & Company; China Luxury Market Study 2011
Although China has a vigorous and well established
fashion press…




                                       AMS           19
…Online fashion bloggers are even more influential




                                        AMS          20
Chinese consumers’ opinions on luxury brands are heavily
 shaped by fashion blogs

                     Consumers who say their opinions on luxury
                    goods and brands are shaped by fashion blogs




Source: Altagamma
                                                         AMS       21
After researching online, Chinese luxury consumers are
 exceptionally likely to make purchases online

                    % of Luxury Consumers Making Purchases Online




Source: Altagamma
                                                         AMS        22
As a result, the online share of luxury spending is far higher in
 China than elsewhere

                            % of Luxury Consumers Making Purchases Online




Note: China online figures understate sales by excluding direct retail by major brands
2012 Figures include linear extrapolation based on YOY growth rates from 2010-2011
Source: Data from Bain & Company (Global total, Global online, China total); iResearch (China online)

                                                                                                        AMS   23
These figures imply China has the world’s leading online
luxury goods market




                                        AMS                24
What does this really tell us?



                                           •   13% online penetration vs.
                                               3% online penetration as a
                                               global average is a
                                               tremendous difference


                                           •   Given the uncertainty in
                                               measurement and differences
                                               in categorisation of “luxury”
                                               it’s possible the true figure is
                                               significantly lower




     However, we can reasonably conclude that the online
     market is significantly more important in China than in
                       established markets
                                                    AMS                       25
Agenda



         •   China and the global market for luxury goods


         •   Role of the internet in Chinese luxury consumption


         •   Driving forces behind online growth


         •   Online luxury goods customer segments


         •   Future trends




                                                             AMS   26
Unique factors have led to accelerated development of China’s online
market
•   Luxury brands are rapidly increasing their store footprint across China. However,
    this development has lagged growth in domestic demand and in many cases
    Chinese stores fail to match the range and experience offered by overseas
    stores. Underserved Chinese customers have turned to the internet to fulfil
    their needs.

•   Online behaviour varies by customer type. An unusually young, rich elite uses
    the internet as a tool of convenience to order luxuries as simply as ordering
    commodities. Fashion fanatics develop sizeable online followings from eager
    aspirants. And a growing core market turns to the web to flaunt their latest
    purchases, much as a peacock fans its feathers.

•   Collectively these factors make the online environment exceptionally important
    as a researching and purchasing medium for Chinese luxury shoppers



                                                              AMS                       27
A relatively undeveloped network of stores has
 contributed to the growth of online
  •   Luxury brands have accelerated store
      roll-outs across Mainland China in recent
      years, with China receiving as many
      store openings in 2011 as the US and
      Europe combined


  •   However, surveys suggest this roll-out is
      long overdue and that many luxury
      retailers are failing to provide an
      adequate level of service in their
      Chinese stores…
        -45% of Chinese who travel abroad to purchase
          luxury goods do so because they find the service
          and shopping experience superior
        - 69% say they find more variety when shopping
          overseas


  •   For customers unimpressed with store
      service or located in un-served towns,
      online has grown in prominence




Source: World Luxury Association 2012
                                                             AMS   28
Wealthy Chinese are younger than their counter-parts in
 developed economies




                                                                    The average American
                                                                    millionaire is 64 years
 China’s average                                                    old
 millionaire is 39 years
 old




                    With youth comes a deeper affection for internet shopping


Source: Li & Fung
                                                              AMS                      29
Agenda



         •   China and the global market for luxury goods


         •   Role of the internet in Chinese luxury consumption


         •   Driving forces behind online growth


         •   Online luxury goods customer segments


         •   Future trends




                                                            AMS   30
We can obtain a picture of China’s online shoppers by
combining several studies

 •   A number of reports from leading consultancies and
     agencies have provided customer segmentation and
     demographic information on China’s luxury shoppers:
      -Hurun Wealth Report: Demographics on China’s
       emerging elite
      -McKinsey China Insights: Buying habits examining the
       share of income spent on luxury goods
      -Group M – CIC Internet Word of Mouth Social Media &
       Luxury Study: Online behaviours of a range of groups


 •   Each of these reports uses different methodologies
     and has a different focus making them imperfectly
     compatible – however, combining aspects of these
     studies allows us to sketch a more robust picture of
     online luxury consumer behaviour




                                                              AMS   31
McKinsey categorise luxury archetypes based on annual
 luxury spending and share of income spent on luxury

                                                                                  Percentage of annual income
     Annual luxury spending                                                       spent on luxury goods
                150
     RMB150K                                                                              50%
                                                                                                                  42
                                                                                              40

               100
                                                                                              30
                                      70
                                                                                              20                              18
                 50                               45
                                                                                                       11
                                                              20                              10                                           8


                   0                                                                            0
                        Luxury     Fashion       Core   Middle                                       Luxury Fashion          Core   Middle
                         Role      Fanatics     Luxury   Class                                        Role  Fanatics        Luxury   Class
                        Models                  Buyers Aspirants                                     Models                 Buyers Aspirants



McKinsey’s original figures for annual spending, household proportions and share of total consumption are not internally consistent; and
imply a different total market size. Information should not be used for market-sizing.
Source: McKinsey Insights China (2010)                                                                    AMS                                  32
Luxury role models




                     AMS   33
Luxury Role Models are likely to be a driving force of
 online purchasing




                                                                                                       AMS
Image Credit: Lifeisnothingwithoutstyle.com;Source: Hurun Wealth Report; Group M; China Daily, iResearch, McKinsey & Company   34
Fashion Fanatics




                   AMS   35
“Fashion fanatics” are likely to be online opinion leaders




                                           AMS                36
Source: Group M/CIC, McKinsey
Core Luxury Buyers




                     AMS   37
“Core Luxury Buyers” are likely to shop offline but
 broadcast purchases online




                                          AMS          38
Source: Group M/CIC, McKinsey
Middle Class Aspirants




                         AMS   39
“Middle Class Aspirants” are more likely to search for
discounted goods




                                         AMS             40
Summarising: these four groups likely have very different
behaviours online

  • Luxury role models          • Likely to purchase online
                                 • Price insensitive
                                 • Range and service focused

  • Fashion fanatics            • Online opinion leaders
                                 • Weak likelihood to purchase
                                   online due to love of shopping
                                   experience
                                 • Style focused

  • Core luxury buyers          • Shai-sharers and online
                                   researchers
                                 • Influenced strongly by fashion
                                   fanatics and moderately by peers
                                 • Unlikely to buy online


  • Middle class aspirants      • Uncertain of purchases
                                 • Heavily reliant on online research
                                 • Likely to buy online only
                                   via off-price channel
                                            AMS                         41
Agenda



         •   China and the global market for luxury goods


         •   Role of the internet in Chinese luxury consumption


         •   Driving forces behind online growth


         •   Online luxury goods customer segments


         •   Future trends




                                                            AMS   42
Brands need a digital vision of luxury


      The digital space is becoming crowded. A surge of private equity
      and venture capital investment has led to a number of high profile
      third party retailers attempting to address China’s digital luxury
      consumers. Full-price and off-price offerings abound.


      Active online followings have the potential to benefit brands. But
      luxury brands face the challenge of managing their relationship with a
      highly engaged digital population, whilst maintaining an aura of
      exclusivity. Employing common buzz-based digital techniques
      pioneered by FMCG brands will run counter to overall values.


      The over-riding challenge is to deliver a distinctive, high quality
      service that differentiates the excellent from the good. Those
      that discover how to do this using bits and bytes rather than leather
      and gold will lead the coming era.



                                                           AMS                 43
Beyond exclusivity

To re-create the sensation of
luxury in a digital setting we must
first appreciate the essence of
luxury

To many, luxury means “rarity”

But in a digital world, rarity is
artificial: abundance is a CTRL+V
away

So brands and designers must
find a deeper appreciation of
luxury to convey




                                      AMS   44
Beyond
craftsmanship
In the seams of a fine coat or the
workings of a fine watch, the
sensation of craftsmanship and
excellence become palpable


But in the digital world, the scope
for differentiation through quality
is limited. Flawless operation is a
prerequisite for even the humblest
of websites; and flamboyant
technical genius is often perceived
as an intrusion or barrier.




                                      AMS   45
Perhaps…


       AMS   46
AMS   47
The essence of luxury lies in emotion and
storytelling

 Beyond rarity and craftsmanship, the value of luxury goods stems from an
 emotional power


 If…
 luxury goods are an embodiment of fantasy in consumable art


 Then perhaps ownership buys…
         the freedom to redesign our self image;
         to borrow the manna of a designer or craftsman;
         to absorb the physical characteristics of fine leather or metal


 In the digital space where the physical becomes imperceptible, the promise of
 luxury goods must be established through a different narrative – stories and
 experiences that lend us the same ability to dream or elevate ourselves



                                                           AMS                   48
The luxury brand of the future is the
digital storyteller




                                   AMS   49
Matt Hunter is a digital marketing specialist with 8 years
experience. He previously worked at management consultancy
Bain & Company in London, Johannesburg and Sydney before
heading digital marketing and product development at
Confused.com, a successful UK internet business.

He specialises in digital marketing, product development and
strategy.

He holds an MA in Economics & Management from the University
of Oxford, an MSc in Strategic Information Systems from Cardiff
University and is currently completing the MIT-Tsinghua MBA in
Beijing, China.

<< Available for opportunities in digital marketing, tech start-ups or
PE/VC funds; and roles with Asian exposure. >>


 Email:            ProfessionalEnquiries@Gmail.com
 LinkedIn:         http://cn.linkedin.com/in/digitaldirector


        matthunter.com
         DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY
                                               AMS                       50
Appendix: Combining estimates from Bain & Company
and iResearch suggests ~13% penetration




                                       2010                                        2011                                        2012

China                                    9.6                                        12.9                                        15.2

China Online                             0.8                                         1.4                                         2.0

China Online %                         8.6%                                       10.8%                                       13.1%

ROW                                    163.4                                       178.1                                       185.1

ROW Online                               3.7                                         4.2                                         5.5

ROW Online %                           2.2%                                        2.4%                                         3.0%
  •   China online figures understate sales by excluding direct retail by major brands. 2012 Figures include linear extrapolation based on YOY
      growth rates from 2010-2011. Data from Bain & Company (Global total, Global online, China total); iResearch (China online)




                                                                                                      AMS                                        51
matthunter.com
    © 2012 Matt Hunter

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Chinese digital luxury retailing

  • 1. AMS 1
  • 2. AMS 2
  • 3. Important Notice All third party information featured in the presentation slides remains the intellectual property of their respective originators. All use of information is done under the fair use copyright principal, and I do not assert any claim of copyright for any quotation, statistic, fact, figure, data or any other content that has been sourced from the public domain. Whilst efforts are made to ensure accuracy, no warranties can be given. I do assert a claim of copyright for my domains, matthunter.com, my site design, slide design, database design, look and feel, and my logo (“the cube”). The core material in this work is shared under a creative commons licence [attribution 3.0 unported (CC by 3.0)]. Readers are free to share (copy, redistribute, transmit) and remix (adapt the work), including for commercial use; but must properly attribute the original work to me. Such attribution should not suggest that I make any endorsement of the user or their derived use of my material. Further viewing of this presentation indicates your understanding of and consent to these conditions. Image Acknowledgments: Front cover: ChinaLuxuryNetwork.com Introduction: FT Tilt matthunter.com DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY AMS 3
  • 4. Agenda • China and the global market for luxury goods • Role of the internet in Chinese luxury consumption • Driving forces behind online growth • Online luxury goods customer segments • Future trends AMS 4
  • 5. A Chinese Obsession? Globally the luxury goods market is thriving. China has emerged as a major driving force behind this vitality. In recent years, Chinese luxury goods purchases have surged. The domestic market is growing rapidly, as young, rich elites are reaching out to embrace finer fashions. The markets of Greater China continue to boom. And Chinese travelling abroad are becoming the leading consumers in major fashion destinations. Chinese consumers are fast becoming central to the global luxury goods industry AMS 5
  • 6. The market for luxury goods is seeing exceptional growth globally Worldwide Luxury Goods Market by Area Luxury Spending CAGR 09-11 €200B 191 13% 171 5% 150 150 Other 26% Japan Asia-Pacific 100 13% Americas 50 Europe 9% 0 2009 2010 2011E Source: Bain & Company AMS 6
  • 7. As China’s domestic economy has surged, demand for luxury goods has grown rapidly. Areas such as Shanghai’s bund abound with high-end stores for luxury brands of all descriptions. AMS 7
  • 8. China’s domestic market has grown twice as fast as the global market • China’s luxury goods market Chinese Personal doubled in size between 2009 and Luxury Goods Spending 2012 €20B • Extensive growth: luxury goods becoming more widely available 15 -In 2011, China saw almost as many new 15 openings of luxury retailer branches as Europe 13 and the USA combined - Luxury retailers have pushed out from the major (“tier 1”) cities to begin colonisation of tier 2 and 10 10 tier 3 cities - 66% of YOY growth comes from new customers 7 5 • Intensive growth: luxury consumers spending ever more on luxury goods -33% of growth comes from existing customers 0 increasing purchases 2009 2010 2011 2012E -Small high-end clientele developing heavy purchasing habit -Significant aspirant middle-class now spending above Western norms Note: 2011 estimate as per Bain; 2012 revenues estimated at 18% YOY growth from 2011 as per McKinsey forecast AMS 8 Source: Bain & Company (China Luxury Market Study 2011); McKinsey & Company (McKinsey Insights China)
  • 9. Consequently, Mainland China’s luxury goods market became the 5th largest in the world in 2010 Personal Luxury Goods Market – Ranking by In-Country Spending (2010) Source: Bain & Company; China Luxury Market Study 2011 AMS 9
  • 10. However on a global scale, Chinese luxury purchases are even more significant Luxury goods purchases in Chinese Mainland consumers Chinese societies total €26.6B spend > €6B in Euro markets China €12.9B Taiwan €3.9B HK Macao €5.8B €0.8B Paris €4.3B Milan €2.0B S’pore €3.2B Note: Data based on 2010 revenues AMS 10 Source: Bain & Company; China Luxury Market Study 2011
  • 11. 50% of luxury goods purchased in Milan and Paris are bought by visiting Chinese Note: Data based on 2010 revenues AMS 11 Source: Bain & Company; China Luxury Market Study 2011
  • 12. Chinese consumers are fast becoming the main driving force of global luxury Including purchases in Mainland China, Taiwan, Hong Kong, Macau & purchases by Mainland Chinese when travelling abroad, Chinese consumers drive 25% of all global luxury purchases AMS 12
  • 13. Agenda • China and the global market for luxury goods • Role of the internet in Chinese luxury consumption • Driving forces behind online growth • Online luxury goods customer segments • Future trends AMS 13
  • 14. Chinese consumers are more reliant on the Internet than other nationalities to… -…discover luxury brands -…research products -…and complete their purchases And consequently, the internet accounts for an unusually large share of total purchases AMS 14
  • 15. The in-store experience is still the most important factor in determining purchases AMS 15
  • 16. However, the internet is the next most important influence in persuading Chinese to buy luxury goods Purchase influencers Note: Derived from regression of whether consumers purchased products from a luxury brand with whether they experienced a certain touch point and how the information was received (positively or negatively). Internet specific responses scaled to 100%. Survey products include RTW, Bags, Shoes, Jewellery & Watches. Based on a survey of 2,422 consumers. NB: McKinsey survey therefore largely assumes correlation is causation AMS 16 Source: McKinsey & Company; McKinsey Insights China (2010)
  • 17. Amongst internet interactions, paid advertising and social reviews are of near equal importance in persuading shoppers to buy Purchase influencers: Internet only Note: Derived from regression of whether consumers purchased products from a luxury brand with whether they experienced a certain touch point and how the information was received (positively or negatively). Internet specific responses scaled to 100%. Survey products include RTW, Bags, Shoes, Jewellery & Watches. Based on a survey of 2,422 consumers. NB: McKinsey survey therefore largely assumes correlation is causation AMS 17 Source: McKinsey & Company; McKinsey Insights China (2010)
  • 18. When researching, social media is the channel most commonly used to obtain information on luxury goods “Which channels of the Internet do you normally get information on luxury goods from?” Note: Social Media includes: SNS, Weibo (Chinese Twitter-style micro-blogs) and Blogs AMS 18 Source: Bain & Company; China Luxury Market Study 2011
  • 19. Although China has a vigorous and well established fashion press… AMS 19
  • 20. …Online fashion bloggers are even more influential AMS 20
  • 21. Chinese consumers’ opinions on luxury brands are heavily shaped by fashion blogs Consumers who say their opinions on luxury goods and brands are shaped by fashion blogs Source: Altagamma AMS 21
  • 22. After researching online, Chinese luxury consumers are exceptionally likely to make purchases online % of Luxury Consumers Making Purchases Online Source: Altagamma AMS 22
  • 23. As a result, the online share of luxury spending is far higher in China than elsewhere % of Luxury Consumers Making Purchases Online Note: China online figures understate sales by excluding direct retail by major brands 2012 Figures include linear extrapolation based on YOY growth rates from 2010-2011 Source: Data from Bain & Company (Global total, Global online, China total); iResearch (China online) AMS 23
  • 24. These figures imply China has the world’s leading online luxury goods market AMS 24
  • 25. What does this really tell us? • 13% online penetration vs. 3% online penetration as a global average is a tremendous difference • Given the uncertainty in measurement and differences in categorisation of “luxury” it’s possible the true figure is significantly lower However, we can reasonably conclude that the online market is significantly more important in China than in established markets AMS 25
  • 26. Agenda • China and the global market for luxury goods • Role of the internet in Chinese luxury consumption • Driving forces behind online growth • Online luxury goods customer segments • Future trends AMS 26
  • 27. Unique factors have led to accelerated development of China’s online market • Luxury brands are rapidly increasing their store footprint across China. However, this development has lagged growth in domestic demand and in many cases Chinese stores fail to match the range and experience offered by overseas stores. Underserved Chinese customers have turned to the internet to fulfil their needs. • Online behaviour varies by customer type. An unusually young, rich elite uses the internet as a tool of convenience to order luxuries as simply as ordering commodities. Fashion fanatics develop sizeable online followings from eager aspirants. And a growing core market turns to the web to flaunt their latest purchases, much as a peacock fans its feathers. • Collectively these factors make the online environment exceptionally important as a researching and purchasing medium for Chinese luxury shoppers AMS 27
  • 28. A relatively undeveloped network of stores has contributed to the growth of online • Luxury brands have accelerated store roll-outs across Mainland China in recent years, with China receiving as many store openings in 2011 as the US and Europe combined • However, surveys suggest this roll-out is long overdue and that many luxury retailers are failing to provide an adequate level of service in their Chinese stores… -45% of Chinese who travel abroad to purchase luxury goods do so because they find the service and shopping experience superior - 69% say they find more variety when shopping overseas • For customers unimpressed with store service or located in un-served towns, online has grown in prominence Source: World Luxury Association 2012 AMS 28
  • 29. Wealthy Chinese are younger than their counter-parts in developed economies The average American millionaire is 64 years China’s average old millionaire is 39 years old With youth comes a deeper affection for internet shopping Source: Li & Fung AMS 29
  • 30. Agenda • China and the global market for luxury goods • Role of the internet in Chinese luxury consumption • Driving forces behind online growth • Online luxury goods customer segments • Future trends AMS 30
  • 31. We can obtain a picture of China’s online shoppers by combining several studies • A number of reports from leading consultancies and agencies have provided customer segmentation and demographic information on China’s luxury shoppers: -Hurun Wealth Report: Demographics on China’s emerging elite -McKinsey China Insights: Buying habits examining the share of income spent on luxury goods -Group M – CIC Internet Word of Mouth Social Media & Luxury Study: Online behaviours of a range of groups • Each of these reports uses different methodologies and has a different focus making them imperfectly compatible – however, combining aspects of these studies allows us to sketch a more robust picture of online luxury consumer behaviour AMS 31
  • 32. McKinsey categorise luxury archetypes based on annual luxury spending and share of income spent on luxury Percentage of annual income Annual luxury spending spent on luxury goods 150 RMB150K 50% 42 40 100 30 70 20 18 50 45 11 20 10 8 0 0 Luxury Fashion Core Middle Luxury Fashion Core Middle Role Fanatics Luxury Class Role Fanatics Luxury Class Models Buyers Aspirants Models Buyers Aspirants McKinsey’s original figures for annual spending, household proportions and share of total consumption are not internally consistent; and imply a different total market size. Information should not be used for market-sizing. Source: McKinsey Insights China (2010) AMS 32
  • 34. Luxury Role Models are likely to be a driving force of online purchasing AMS Image Credit: Lifeisnothingwithoutstyle.com;Source: Hurun Wealth Report; Group M; China Daily, iResearch, McKinsey & Company 34
  • 36. “Fashion fanatics” are likely to be online opinion leaders AMS 36 Source: Group M/CIC, McKinsey
  • 38. “Core Luxury Buyers” are likely to shop offline but broadcast purchases online AMS 38 Source: Group M/CIC, McKinsey
  • 40. “Middle Class Aspirants” are more likely to search for discounted goods AMS 40
  • 41. Summarising: these four groups likely have very different behaviours online • Luxury role models  • Likely to purchase online • Price insensitive • Range and service focused • Fashion fanatics  • Online opinion leaders • Weak likelihood to purchase online due to love of shopping experience • Style focused • Core luxury buyers  • Shai-sharers and online researchers • Influenced strongly by fashion fanatics and moderately by peers • Unlikely to buy online • Middle class aspirants  • Uncertain of purchases • Heavily reliant on online research • Likely to buy online only via off-price channel AMS 41
  • 42. Agenda • China and the global market for luxury goods • Role of the internet in Chinese luxury consumption • Driving forces behind online growth • Online luxury goods customer segments • Future trends AMS 42
  • 43. Brands need a digital vision of luxury The digital space is becoming crowded. A surge of private equity and venture capital investment has led to a number of high profile third party retailers attempting to address China’s digital luxury consumers. Full-price and off-price offerings abound. Active online followings have the potential to benefit brands. But luxury brands face the challenge of managing their relationship with a highly engaged digital population, whilst maintaining an aura of exclusivity. Employing common buzz-based digital techniques pioneered by FMCG brands will run counter to overall values. The over-riding challenge is to deliver a distinctive, high quality service that differentiates the excellent from the good. Those that discover how to do this using bits and bytes rather than leather and gold will lead the coming era. AMS 43
  • 44. Beyond exclusivity To re-create the sensation of luxury in a digital setting we must first appreciate the essence of luxury To many, luxury means “rarity” But in a digital world, rarity is artificial: abundance is a CTRL+V away So brands and designers must find a deeper appreciation of luxury to convey AMS 44
  • 45. Beyond craftsmanship In the seams of a fine coat or the workings of a fine watch, the sensation of craftsmanship and excellence become palpable But in the digital world, the scope for differentiation through quality is limited. Flawless operation is a prerequisite for even the humblest of websites; and flamboyant technical genius is often perceived as an intrusion or barrier. AMS 45
  • 46. Perhaps… AMS 46
  • 47. AMS 47
  • 48. The essence of luxury lies in emotion and storytelling Beyond rarity and craftsmanship, the value of luxury goods stems from an emotional power If… luxury goods are an embodiment of fantasy in consumable art Then perhaps ownership buys… the freedom to redesign our self image; to borrow the manna of a designer or craftsman; to absorb the physical characteristics of fine leather or metal In the digital space where the physical becomes imperceptible, the promise of luxury goods must be established through a different narrative – stories and experiences that lend us the same ability to dream or elevate ourselves AMS 48
  • 49. The luxury brand of the future is the digital storyteller AMS 49
  • 50. Matt Hunter is a digital marketing specialist with 8 years experience. He previously worked at management consultancy Bain & Company in London, Johannesburg and Sydney before heading digital marketing and product development at Confused.com, a successful UK internet business. He specialises in digital marketing, product development and strategy. He holds an MA in Economics & Management from the University of Oxford, an MSc in Strategic Information Systems from Cardiff University and is currently completing the MIT-Tsinghua MBA in Beijing, China. << Available for opportunities in digital marketing, tech start-ups or PE/VC funds; and roles with Asian exposure. >> Email: ProfessionalEnquiries@Gmail.com LinkedIn: http://cn.linkedin.com/in/digitaldirector matthunter.com DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY AMS 50
  • 51. Appendix: Combining estimates from Bain & Company and iResearch suggests ~13% penetration 2010 2011 2012 China 9.6 12.9 15.2 China Online 0.8 1.4 2.0 China Online % 8.6% 10.8% 13.1% ROW 163.4 178.1 185.1 ROW Online 3.7 4.2 5.5 ROW Online % 2.2% 2.4% 3.0% • China online figures understate sales by excluding direct retail by major brands. 2012 Figures include linear extrapolation based on YOY growth rates from 2010-2011. Data from Bain & Company (Global total, Global online, China total); iResearch (China online) AMS 51
  • 52. matthunter.com © 2012 Matt Hunter