Luxury Chinese Rabbits

Written by Zennon Kapron || February 08 2011

China, for once, is relatively quiet – well in certain respects. Today, we’re nearly mid-way through the two week celebration of Chinese New Year as we move into the year of the rabbit. The streets for the past week have been somewhat quiet and offices were closed as millions of Chinese returned to their hometowns to celebrate the lunar calendar new year.

Although the days have been relatively quiet, the evenings have been roughly punctuated by the noisiest of the Chinese inventions: fireworks. Throughout the day, there are firecrackers being lit on small streets or in the outside common areas of apartment flats and then from about 9pm in the evening until 1am, there is an incessant cacophony of snaps, crackles, and pops.

The fireworks, beyond their basic entertainment value to those lighting them (and annoyance to everyone else around them), serve a spiritual purpose. First and foremost, they have traditionally been used to keep away spirits, but on the 5th day of the Chinese New Year, they actually serve to attract a spirit called Guan Yu. Guan Yu is also known as the Chinese god of war and considered the greatest general in Chinese history. During his career, he is told to have one over 100 battles and because of this admirable record, is also known as the God of Success or the God of Wealth. This holds special symbolism to Chinese businesses who, on the 13th day, will pay homage to Guan Yu to bring the companies and employees success and wealth in the new year.

Guan Yu has been listening – the wealth is coming. A recent report from CLSA Asia-Pacific Markets states that China will be the world’s largest market for luxury goods by 2020. Living in Shanghai, perhaps the wealthiest city in China, it’s obvious that the rich are getting richer. While still a far cry from the car shows that you see in some of London’s more upscale areas, Bentleys, Rolls Royce and Porsche’s are common on the streets today. The cars outside though are only part of the story, the real story is inside.

Across the city, incredibly upscale shopping malls have sprung up. Packed with marble flooring and amazing fixtures, Cartier is likely the lowest end of stores you will see in some of these malls where a Patek watch store selling a limited edition $100,000 watch sits next to a Burberry with a kid’s section. The more amazing thing about these shopping centers is not the fact that they are there – they wouldn’t be out of place in any major city, but the fact that they are crowded with consumers that, instead of just looking, like they would have five years ago, are opening up their wallets and buying. The ‘build it and they will come’ strategy doesn’t always work, but in this case it seems to.

Fundamentally, the upper-end Chinese consumer is getting rich and starting to show their wealth through luxury goods. The CLSA report estimates that by the end of 2019, the Chinese will account for 20% or about US$100 billion of the global luxury market – eclipsing the approximately US$70 billion that the US, the luxury leaders, spent last year. Hand in hand with the wealthier consumer is the development of the private wealth industry to support them.

For many years, due to cultural considerations, fear of losing money and a number of other reasons, the wealthy Chinese were uncomfortable with the notion of private banking. Most managed their money themselves or relied on close friends or acquaintances to manage it for them. Only now are we finally starting to see wealth management grow in China. In fact, in our top-10 trends for 2011 report, we noted that online banking will be a key trend for 2011, and more specifically online banking wealth management services - more and more domestic banks are now offering high-net worth and private banking services online.

This trend is unlikely to change anytime soon - sitting on another year of double-digit GDP growth, the Chinese consumer is only getting wealthier. Similarly, the opportunity for wealth management providers has been and will continue to be large. Local banks and vendors, while understanding the local culture, struggle to provide the level of product and solutions that are available in western markets. Technology isn’t really the road-block here, the local providers are able to develop robust solutions, but it’s really knowledge.

Banks are somewhat limited by regulations in terms of the products that can provide, but often for more complex ones that they do want to provide, the local technology just doesn’t have that product/solution built in yet. Additionally, most local solutions aren’t really focused on client experience. So getting an advanced web based flash enabled front-end that can say, display the complete cross-asset client portfolio at once, is rare. Foreign wealth management vendors bring a distinct competitive advantage with their knowledge of foreign markets. Being able to point to successful deployments in some of the global wealth management / private banking hotspots like Switzerland and Singapore, is key.

However, even with this knowledge in hand, having a detailed understanding of the market and the decision making process of your potential customers is key.

Now if you’ll excuse me, I have to go light some fireworks.

Happy Chinese New Year!

Zennon Kapron