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CONSUMER MARKETS

Luxury experiences in China
A KPMG study
kpmg.com/cn

2 | Section or Brochure name

© 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Luxury experiences in China | 1

Contents

Introduction Executive summary The luxury experience Digital strategies Succeeding in a crowded market Managing a robust tax environment Customs approaches for luxury companies Working with partners and vendors to protect brand value TNS Research International China About KPMG Contact us

3 5 6 16 22 28 34 40 42 44 45

Case studies Cartier Pernod Ricard Shang Xia Salvatore Ferragamo Glamour Sales Hiersun Bally Patek Philippe Sotheby’s Bowers & Wilkins

© 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

2 | Luxury experiences in China Section or Brochure name

© 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Luxury experiences in China | 3

Introduction

China’s role in the global luxury market is becoming more significant year by year. Many international brands are starting to see a recovery in their global sales after three very tough years, yet despite this China remains one of the brightest growth prospects. Luxury companies are pursuing very different strategies according to the scale of their operations, and the scale of their ambitions. The traditional entry route for international companies has been through partnerships with local franchises and distributors. In recent years, as the business landscape has become more open and transparent, many companies have fully acquired their retail operations in China, at least in the most developed cities such as Shanghai, Beijing and Guangzhou. For some, local partners are still important in tier-two and tier-three cities where market conditions are less familiar. However some Western brands have entered these markets directly with a wholly foreign-owned enterprise (WFOE) model. A long-held perception of luxury consumers in China is that they are driven by status seeking and overt demonstrations of wealth. Yet clearly in such a large and complex market this is a huge simplification. In many respects the white collar professionals and time-pressed executives in Beijing and Shanghai resemble their peers in other major capitals and financial centres as much as they do the wealthy business owners and entrepreneurs of second- and third-tier cities. If anything, it is in these cities that the greatest share of wealth (and disposable income) lies and it is here that we see consumption growing fastest. This year’s report focuses on the rise of experiential luxury and how consumption is being driven by a desire for self-reward as well as status. The report also explores the role that the internet and digital media can play in brand building and considers whether more domestic Chinese brands may succeed in the luxury sector as tastes change. Finally, we draw out some of the tax and customs planning strategies for companies to consider as they grow or develop their strategy in China. The themes from our survey are also very strongly validated in our ten case studies, which feature a selection of prestigious brands. We would like to thank the executives who took the time to share their insights with us.

Nick Debnam Asia Pacific Chair Consumer Markets KPMG China

Ellen Jin Partner in Charge Consumer Markets KPMG China

Hélène Beguin Partner in Charge KPMG’s Global Luxury Group KPMG Europe (LLP)

© 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member...
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