China Herald: Strategies to survive the anti-corruption drive

Rupert Hoogewerf

The anti-corruption campaign by President Xi Jinping has hit entertainment and the gift industry hard over the past years, tells Hurun Rich List founder Rupert Hoogewerf in the Financial Review and details the fallout. “We have seen the emergence of the so-called affordable luxury brands like Coach or Michael Kors."

The Financial Review:

Rupert Hoogewerf, publisher of the Hurun Report, which chronicles the lives and spending patterns of China’s wealthy and is best known for its annual rich list, estimates the money doled out for gifts has fallen 30 per cent over the past two years. “The biggest impact of the corruption crackdown has been on the gifting and entertainment industry,” he says.

As officials reined in their travel and spending, star-rated hotels across the country began to suffer. After reporting a combined profit for 2012 of 5 billion yuan, hotels saw their income tumble into negative territory just a year later, with a 2.1 billion yuan loss, according to the China Tourism Academy. Remarkably, some hotels even sought to lose a star so they could meet the strict new accommodation guidelines of government departments....

Companies are already responding. Casinos, luxury goods retailers, hotels and restaurants are all shaping their business strategies around a new type of consumer, the “premium mass-market” one. “We have seen the emergence of the so-called affordable luxury brands like Coach or Michael Kors,” says Hoogewerf. “These brands have seen huge growth.”

Those at the higher end are also adapting. Earlier this year, Chanel surprised the Chinese market, reducing prices by more than 20 per cent on three of its most popular bags. It became the first big luxury brand to standardise prices between Europe and Asia, citing a weak euro, which had exacerbated the already sizeable price difference for those markets. The Chanel move was quickly followed by Gucci and watchmakers Patek Philippe and Tag Heuer. None of them used the word “discount”. For Gucci it was about running down old stock, while the others used words like “price-equalisation”.

More in the Financial Review.

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