The real Gucci, Chanel, Hermés and Louis Vuitton products retail at a significant discount to the Chinese mainland because Hong Kong has no sales tax. Luxury items attract between 20% and 70% tax in China, whose decade of rapid economic growth has inflated average incomes and created an aspirational demand for status symbols.
Consultants McKinsey said in a recent report that spending by Chinese consumers on luxury products now exceeds that of any other country. And as the wealth accumulates, so does the appetite for higher-end goods. They say about 60% of Chinese luxury shoppers are women and their purchasing power is rising.
According to McKinsey, getting the in-store vibe right is more important than ever as über-wealthy mainlanders increasingly succumb to impulse purchases, which explains why Wayne, a 20-something from Ireland, is working on his laptop while his friends revel in the Saturday sun. “I design Louis Vuitton stores,” he explains.
VIP handbags demand VIP treatment. Singapore-born Robert Soong is learning how to provide just that. His brother owns a specialist cleaning service for luxury handbags that includes colour restoration, zip, buckle and handle repair. “I believe, you know, my brother is now a multi-millionaire,” he marvels. A trained telecoms engineer, Robert hopes to take the franchise back to Singapore, and perhaps become a handbag-cleaning multimillionaire too.
Mainland Chinese tourists, 23-year-old Beijing-born Angela and her mother, have just returned from the UK. They had bought so many luxury handbags and purses that they could not fit in the overhead luggage racks: there were dozens of them.
Angela, wrestling a wayward burgundy Hermés into submission, said: “They aren’t for us. They are all presents – we can’t go home without them.”
Even with the cost of the long-haul flight, Chinese shoppers can still expect to save when shopping in Paris, for example, where sought-after bags are up to 40% cheaper.
Hong Kongers may grumble at the effect on schools, health and house prices of the influx of the new Chinese super-rich, but their economy increasingly relies on their spending in the city’s mains shopping districts of Causeway Bay and Tsim Sha Tsui.
The Hong Kong Tourism Board said that last year the territory (resident population seven million) played host to 35 million mainland visitors and these tourists account for about a third of all retail spending in the territory. Mainland Chinese shoppers purchased HK$119 billion (US$15.2 billion) worth of goods last year – a 177% rise since 2008, according to official data cited by The Wall Street Journal.
And consumer demand lifted Hong Kong’s gross domestic product by 3.3% between April and June this year, compared with the same period last year, and just over 0.8% higher than the previous quarter.
But Hong Kong’s position as a magnet for cheaper versions of super-expensive goods cannot be taken for granted. McKinsey forecasts that as Chinese shoppers mature, their tastes will change, they will become less flashy and prefer more sophisticated markets. The consultant said Europe could benefit from this shift.
But this could pose challenges for the mega-brands that have already invested heavily in Hong Kong, where sky-high real-estate prices make for extremely high-cost bases.
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