LI, Tao @ Hong Kong

The demand for luxury goods has never gone out of style in affluent Hong Kong, but now mainlanders are joining in on the act. And their significance to the local market is increasing.

According to a report released recently by Bain & Company, the mainland’s luxury goods market is expected to grow 23 percent to 84.3 billion yuan this year. But it is also a well known fact that the amount of money spent on luxury goods by mainlanders outside of the mainland is even greater still. And a lot of it is being splashed about in Hong Kong.

Though specific numbers are difficult to find, James Tien, chairman of the Hong Kong Tourism Board, said in April that visitors from the mainland spent HK$83.47 billion in 2009 – or a whopping 70 percent of total visitor spending for the year.

“The Hong Kong retail market would be absolutely devastated if mainland consumers stop visiting,” said Kevin Lai, an economist at Daiwa Capital Markets Hong Kong. “Half the crowds in those shopping areas would disappear.” Meanwhile, Emperor Watch & Jewellery Ltd, one of the major players in the city’s luxury good retailing sector, is capitalizing on these new developments.

“The mainland customers’ purchasing power is surprising,” said managing director Cindy Yeung. “Ten years ago I was wondering if they could help with our business. Nowadays they’ve become the main force for our sales growth in Hong Kong.”

Hong Kong’s free trade policy has given it the well deserved reputation of a “shopping heaven”, where products are usually sold at cheaper prices compared with other markets that impose import duties.

Yeung said that since Emperor only sells luxury watches and fine jewelry which are normally in the price range of tens of thousands of Hong Kong dollars – if not more – the price discrepancy due to import duty actually becomes rather modest.

All their salespeople have to converse in Mandarin properly as 70 percent of customers visiting their shops speak it, Yeung said.

“Hong Kong people still love luxury goods, but as there is a fast growing demand from the vast population on the mainland, the city locals’ contribution to our business inevitably slides all the way down these days in comparison,” Yeung added.

The mainland is currently the world’s second-largest luxury goods market, accounting for 27.5 percent of the global market, according to Bain & Company, which has forecast that China will take the top spot within the next five years.

The Asia-Pacific Wealth Report 2010 released in September also pointed out that the “rich” population on the mainland – defined as those who own more than $1 million of disposable assets – grew 31 percent last year to 477,000, the second largest in Asia following Japan’s.

“The number of rich people in China grew the fastest in Asia, and it will continue to maintain its strong growth momentum,” said Wilson So from Merrill Lynch Wealth Management Asia-Pacific who prepared the report.

Although the introduction of the Individual Visit Scheme in 2003, which allows mainland travelers to visit Hong Kong on an individual basis, has made shopping in the city far more convenient, Emperor has not been content to rest on their laurels. Realizing the potential, they started opening stores on the mainland two years ago.

Since opening its first shop in Beijing, Emperor currently operates 37 retailing outlets in 11 mainland cities. These include Shanghai and Guangzhou as well as some second-tier cities such as Suzhou and Kunming.

The younger generation on the mainland has also become a target market due to their strong awareness of watch branding and jewelry design.

Emperor is planning to open more shops in second-tier, or even third-tier cities such as Hohhot, in the coming years.

“And I wouldn’t mind openingmore than one store in a single second or third-tier city at a later date, like Shenyang,” said Yeung. “In a country where the the number of wealthy people is growing fast, there are just too many business opportunities for us to explore,” she added.

China Daily

(HK Edition 11/13/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-11/13/content_11544609.htm