June 2, 2013 10:31 pm

China: Presidential couple leaves mark on business of luxury

Chinese president Xi Jinping and his wife Peng Liyuan arrive in Moscow©Getty

Chinese president Xi Jinping and his wife Peng Liyuan arrive in Moscow

From the moment Xi Jinping’s aircraft touched down in Moscow in March, it was clear that the world of Chinese luxury would be sent into flux. The plane’s door opened to reveal President Xi linking arms with his wife, Peng Liyuan, a famous singer, dressed in a designer navy blue overcoat with matching handbag and a light turquoise silk scarf.

Within seconds, China’s tumultuous social media was in thrall. All elements of her couture – both in Moscow and later in Tanzania where she wore pearl earrings and a light Chanel-style suit with matching handbag – were scrutinised, with millions clamouring to know which brands Ms Peng had chosen. As the answers emerged, it became clear that Ms Peng had made more than just a fashion statement – she had personified Beijing’s preferred vision for luxury in China.

The first lady’s fashion choices were for more affordable, logo-free domestic brands, marking a sharp contrast with the prevalent Chinese taste for foreign, sometimes flashy, luxury items with famous brand names prominently displayed.

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Such an attitude is intimately aligned with some of the key messages in a national campaign, launched by the Chinese leader late last year to promote frugal tastes and smash the scourge of official corruption.

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IN Business of Luxury 2013

While it may be some time before the dominance of foreign brand luxury in China diminishes, the combination of Ms Peng’s allure – which some liken to the “Kate Middleton effect” – and the purposefulness of Mr Xi’s campaigns are already having an impact.

Three important changes are under way: some nascent domestic brands are starting to win a wider following, domestic luxury spending is more furtive and the buying of luxury goods overseas by Chinese outbound travellers is booming.

One of the brands Ms Peng chose was Exception de Mixmind, which was so swamped with interest as a result that its website crashed. Ma Ke, chief designer at Exception, has a simple philosophy that chimes perfectly with the new official zeitgeist. “Today’s fashion is no longer about fancy appearances that follow trends,” she was quoted by China Pictorial, an official magazine, as saying. “Instead, being fashionable should mean pursuing a return to the ordinary. Real luxury lies in the spirit a garment conveys, not a high price.”

Other homegrown brands gaining a profile include Shang Xia, touted as China’s answer to Hermès, led by Jiang Qionger, the daughter of Chinese architect Dong Dayou, who designed the Shanghai museum. The label was acquired by Hermès in 2010 and is planning to open a first international flagship store in Paris later this year. Qeelin is a jewellery label bought by the French group PPR (which is about to change its name to Kering) in December and is best known for combining Chinese cultural motifs such as pandas, goldfish and gourds with the French craftsmanship of its co-founder Guillaume Brochard. Xander Zhou, sometimes billed as the Chinese equivalent of Yves Saint Laurent, was launched in 2007 and trades quirky variations of familiar garments, such as shoulder cut-outs on coats or jumpers.

So far, the inroads made by such brands are marginal. The animating energies of the Chinese luxury market are not to be found within China at all but in a collection of overseas cities that last year attracted about 83m outbound Chinese travellers.

The World Luxury Association (WLA) estimates that of the $50bn spent by Chinese on luxury last year, some 60 per cent was overseas. In the month to February 20 (covering the Chinese New Year period), the divergent trends are striking. While an estimated $8.5bn was spent overseas, up 18 per cent from the same period in 2012, only $830m was spent domestically, down 53 per cent from a year earlier.

According to a survey of some 1,200 Chinese outbound travellers conducted by China Confidential, a research service at the Financial Times, Chinese tourists tend to leave frugality at passport control. The wealthiest 26 per cent of outbound tourists spent an average of Rmb32,628 ($5,318) on their most recent overseas trip, with shopping accounting for almost half the total (Rmb15,699). The survey was conducted in January as President Xi’s frugality campaign got under way.

With luxury goods overseas often costing 45 per cent less than identical items at home, price is an important motivator behind the alacrity of Chinese to pick up bags in Milan, perfume in Paris, coats in London, watches in Geneva and an array of duty free products in international airports. Such sprees are often minutely planned before Chinese leave home with a long list of items that they have pledged to buy for friends, family and colleagues.

Price is not the only factor. A sense that luxury goods bought overseas are likely to be more genuine, safe and high-quality than those on sale in China ranked high among reasons for overseas shopping among respondents to the China Confidential survey.

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James Kynge is principal at ftchinaconfidential.com

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