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How China's Elite Spends

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[Photo of Pierre Lannier]Nowhere is the idiosyncratic preference of the Chinese more apparent than in their purchase of a watch.

Perhaps, the spending patterns of rich Chinese do not reflect those of the majority of China's 1.3 billion citizens; but for the global watch industry, Class-A spending in the world's most populous nation is of paramount interest these days.


At the 28th Hong Kong Watch & Clock Fair, which ran from September 2 to 6, the talk was about luxury revenue streams drying in up in many parts of Europe and North America, as well as in Asia's dragon economies. Watch manufacturers and traders at this year's event say they have, more and more, looked to the mammoth Chinese market to keep the wheels of the luxury watch business churning.


So it was no surprise that the Chinese luxury market and the spending patterns of its high-end consumers was the topic of this year's Asian Watch Conference, held on the penultimate day of the fair.


Keynote speaker Noel Wong, Asia Pacific managing director at A. Lange & Söhne, began by announcing that, in just the last five years, China has become the biggest market for luxury goods, capturing a total of 23% of the global market.


Japan and the US were the biggest luxury markets in the preceding decade. Wong reminded the delegates that because the “Chinese market is still in the infancy stage, consumers have very little references and still respond positively to advertising.”

Face You Can Trust

Still not jaded, eager for information, willing to spend—these are the most noteworthy characteristics of the upscale Chinese consumer. And this consumer will “buy a watch they never heard of before based on how much they like the salesperson,” observed Wong, who is also a well-known watch critic and columnist of several watch magazines distributed throughout Greater China.

He recalled cases at A. Lange & Söhne where inquiries turned into purchases due to knowledgeable and credible salespeople. Watches as expensive as 100,000 RMB (US$) were snapped up because the customer liked the salesperson. “Face matters,” quipped Wong. “Training is necessary, [but] customers also like someone they can trust.” This is especially true of government officials, who wish to remain low key and only patronize retailers they are comfortable with.

Due to this idiosyncrasy, “National marketing is less useful than personal marketing,” Wong noted. He further advised watch firms, “Do not tackle the market as one nation, but tackle a city or province one at a time. Choose the city you want and start there first.”

Wong also admonished retailers to “Display as many products as possible, with price tags. He explained that displaying price tags are regarded as honest practice.

[Photo of Montroa]What Men (and Women) Want

The Chinese watch buyer regards a good quality leather strap as the height of luxury. This was one consensus among the conference panel made up of Wong, Enicar of Switzerland's Geoffrey Edward Kao, and John Wong, chairman of The Federation of Hong Kong Watch Trades and Industries.

The leather strap has long been a staple in elite circles not only for its price and beauty but also for its practicality. If a Chinese man buys a watch for US$45,000, he wants to be able to easily replace the strap once it shows signs of wear. He may briefly switch to a bracelet watch during the hot summer to avoid damaging the leather, but for fall and winter, maybe even spring, the leather watch will be a mainstay once more.

The panelists agreed that a watch is a great way for the Chinese to display new wealth, while still being functional about it. Kao laughingly recalled seeing wedding photos with all the men wearing watches OUTSIDE their shirts! This quaint fashion-cum-social statement is still seen in mainland streets today, he said.

Federation chairman Wong commented that “Steel is difficult to sell” and was no match for a timepiece with a soft leather strap that shouts luxury.
Noel Wong agreed and pointed out that, some years back, “White gold watches were not too popular because they resembled steel watches too much.” Bestsellers were gold-case timepieces with leather straps. Things have changed, however, according to the watch critic because a growing number of rich Chinese prefer to be low key. And what better way to display subtle luxury than white gold?

Subtle or not, luxury should be somehow apparent to please the Chinese elite. Both men and women look for seven things when investing in a high-end timepiece.

1. Gold – Rose gold or pink gold for the ladies
2. Embellishments – “Diamonds are always welcome,” remarked Noel Wong, as it is the most popular way to show status. “Jewelry watches are doing well, especially with diamonds in the bezel.”
3. Uniqueness – A bespoke watch or limited edition timepiece where only 50 to 100 pieces are produced (As Noel Wong explained, “Possessing something that other people cannot have is too good to miss.”)
4. Function – Hence the popularity of automatic watches. John Wong noted the Class A market thinks “The more functional, the more special.”
5. Simplicity – The classic look is preferred, meaning no date and second hand, Noel Wong advised. John Wong concurred, saying the Chinese do not like complicated watches.
6. Movement – Mechanical watches that invest in the movement are doing better in China, revealed Noel Wong.
7. Pair watches – Popular wedding or anniversary gifts, according to Geoffrey Kao, but couples also buy them even without there being a special occasion.

[Photo of Romago]Less Is More, Sometimes

Noel Wong narrowed down the list to three basics a Chinese watch buyer looks for: brand, quality, and function. But he emphasized the Chinese want a classic look with basic functions.

“Many chronograph watches, although good for Europe and the Middle East, are not selling well in China,” Wong reported. “They are just too complicated.”

He clarified that this premium on simplicity holds true for the purchase of a first watch. “But if they keep buying, reading more about watches in magazines, or knowing more from salespeople, they may go for more complicated watches.”

Meanwhile, John Wong, who is also managing director at John Kaiser-Time Limited, suggested that watchmakers provide the female Chinese consumer with a wider color palette. He said women shoppers tend to buy several fashion watches and, although rich, do not mind if the watch is not that high-end. He suggested that retailers sell more colorful watches with fashionable crystals at lower price points to attract female buyers.

Kao pointed out that while the high-end watch buyer ratio is still 70% male to 30% female, the upscale market for women's watches is increasing. He said part of the reason for this is, while men previously shopped for watches on their own, buyers now shop for watches as a couple; which also explains the popularity of pair watches.

But Noel Wong cautioned against marketing a brand as male or female. Unisex watches sell best, he said, especially since big watches have become fashionable for ladies in the past three years.

When Is Shopping Season?

The panelists mentioned Chinese New Year as a top watch-buying season, when wealthy Chinese buy dozens of watches as gifts. Having luxury timepieces available at mainland outlet stores saves them the trouble of going overseas, so there is a tendency to purchase more pieces.

For middle class, young couples, “Christmas and Valentine's Day are big turnover seasons,” disclosed Noel Wong. Despite there being no Christmas holiday in China, the panelists said people get caught up in the atmosphere and the shopping spirit.

Kao remarked that Christmas season nowadays is even better than the Lunar New Year when the Chinese travel quite a bit. He added that September to October “is fairly good too because it's back-to-school season.”

What about historical events such as the Beijing Olympics? “I'm sorry to say, I didn't see much benefit from the Games,”  Noel Wong candidly replied.

High-end brands did not benefit from the Olympics, Wong explained, since the Games were open to everybody; that is, the masses. “During the Beijing Games they covered all the logos in the shops, because [sponsors like] Omega and Panasonic may have been promised by the Chinese government that they would get exclusivity.”

“Even in boutiques,” continued Wong, “you couldn't see brands that were not official sponsors.” Wong cited another reason why the luxury market failed to get a boost from the Beijing Olympics: The massive influx of people expected to visit Beijing did not materialize. “The Beijing government restricted entry and it was difficult to get in,” he lamented.

[Photo of ECCO Watches]Which Brand Wins China?

Despite—or, perhaps, because of—the personal marketing Wong recommended instead of the usual national campaign, Kao said Chinese advertising cost is very expensive and “US$1 million will not go far.”

While launching marketing campaigns has gotten pricier, total revenue has dropped considerably in the wake of the global crisis. Wong noted that the pre-crisis definition of a high-end watch put it in the range of 200,000–300,000 RMB. After the meltdown, “high-end” became more affordable at 100,000 RMB.

However, Wong declared the mid-range (50,000 RMB) and low-end markets to be unaffected by the crisis. On the contrary, they are “doing well, even better than last year.”

Lower end (2,000-3,000 RMB) Tissot, Omega, and Longines watches broke their turnover records, selling even more this year after the downturn, Wong revealed.

Pressed to admit which prestige watch brands sold the most in China, the panelists mentioned brands with a longstanding history of Chinese patronage as undoubtedly having an edge. Among 19th century brands, the watch experts mentioned Patek Philippe as being much sought after.

But the luxury market leader is still Vacheron Constantin, which traces its loyal following in China all the way back to the Shang Dynasty. It does brisk business despite the very hefty price tag because, as Kao said, “the Chinese are already familiar with the brand.” Vacheron Constantin, founded in 1755, is the world's oldest watch brand.

print ed: 10/09

 

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