China and Global Market for Luxury

wine china

It was only when I met a charming lady who specialises in promoting luxury goods at the Brazilian embassy in London last year that I realised the potential for Chinese interest in luxury goods, she explained the potential for this sector both domestically in China, but also for firms across the world willing to sell products, companies and brands to the Chinese.

China was a nation starved of luxury for many years, the idea of Rolex watches, Hermes Scarves or Gucci bags under Mao would have been unthinkable, but the rise of capitalism in China and the lifting of old restrictions inevitably led to huge demand for all the watches, clothes, perfume and other goodies which had been forbidden for so long. However this sector has recently suffered a major setback as there was major government crackdown on gift giving in China with banquets crashed and diners forced to kneel and beg forgiveness. Extravagant present giving has been frowned upon, all because a new generation of leaders wanted to make a mark and assert their authority, as a result the luxury goods market has suffered a great deal.

But this is just a temporary correction as the new President and Prime Minister ensure the worst excesses of conspicuous consumption do not alienate an increasingly unequal Chinese society. In the medium and long term demand for watches, wine and whiskey will return in force and this is just the internal market, as Chinese travellers go abroad, they will shop for luxury items and Chinese companies will look to buy foreign high-end brands.

Watches

I chatted to the manager of the exclusive Cartier watch store in London’s Bond Street over a glass of their in house “Cartier Champagne”, he explained how Chinese visitors would be attracted by the history of the brand and that select groups of potential customers would watch a presentation about the history of Cartier watches. As we sipped our drinks he told us how elaborate dinners above the shop would be followed by a talk on the history of the watches and how they were made and finally a display of older and unique timepieces, all of which would result in significant sales. The main issue he faced was getting wealthy Chinese tourists and business people to commit to the dinner, as these people typically had extremely busy business and pleasure itineraries whilst in Europe.

Wine

Wine consumption has taken off in a big way across China with red heavily favoured over white, many stories mock Chinese drinkers lack of sophistication, saying they mix Bordeaux with Coca Cola and act like typical nouveaux riches failing to appreciate the wine. While there is some truth in this many Chinese wine lovers are taking a more serious look into vintage bottles and collections, which means big purchases at the top end of the market, as well as a serious interest in vineyards across the globe, as vinophiles look for both taste and tangible profits.

Fine Art

In November 2013, China’s richest man Wang Jianlin broke the record for a Chinese buyer in New York, snapping up Picasso’s impressionist portrait of his children Claude & Paloma for US $28.2 million. On the same night he also brought Picasso’s Woman in a Hat, a snip a just US $2.7 million.

Chinese people are buying more art, while this has been heavily focused on the domestic market – with purchases of domestic art and classical on the rise, often for money laundering or tax evasion purposes, but also the result of a frothy economy. Chinese millionaires, like the rich all over the world, like to look beyond financial capital, and to build cultural capital. Purchasing, displaying and showing off art to their friends and partners is all part of showing you are not just about money, but something more substantive and timeless.

Chinese buyers have not stopped at home, but they have been breaking records in European and US auction houses, buying up classic Chinese art (the country’s past), but also the old masters, such as Monet, Van Gogh and the rest of the canon. Chinese (and other Asian buyers) have been a bright spot in an otherwise depressed market, and as capital controls in China relax further and Chinese investors look to spend and invest more abroad, it is inevitable that Chinese (particularly the very wealthy) will look to buy art with the intention of looking at it and appreciating it, as well as using it as an investment, particularly as it is a flexibly valued one, useful for less than honest business people. Others will look to buy classical Chinese art – to return it back home – others will look to buy European art, both old and new. This is a path trodden by the newly rich of every era, Russian tsars, English nobility, American Plutocrats all collected art at the height of their nation’s power and wealth. China is no different in this respect, and given the country is in the ascendant we can expect Chinese buyers to continue their search abroad.

As the country becomes wealthier its people seek more esoteric and non-essential items – this has not gone unnoticed by the world’s luxury brands who have piled into the country with the expectation of selling big. It has not all been plain sailing, the recent crackdown on corruption and excess gift giving meant that there was a sudden drop off in purchases of expensive perfume, clothes, watches etc. Luxury brands have also sometimes struggled thanks to the widespread forging and faking that occurs across the country and the fact that Chinese people are avid savers rather than consumers (at least compared to the west).

Opportunities Abound

As we have learnt Chinese firms are not yet adept at building international brands, which in this sector is absolutely key, this means to progress they will be on the look out for names which they can connect to their production capabilities, so whether you are a top Milan fashion house or a boutique label in Moscow, there could be serious money to be made by selling your bag, fashion label or hand made toy range to these buyers.

Galleries, dealers and artists should be ready to tap into the Chinese market, as it continues to expand buyers will want both Chinese antiques (bringing cultural heritage home), but also Chinese contemporary artists whose work has sold abroad.



Categories: China Goes Global

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