19 Oct 2011
Chinese mainland consumers are increasingly buying jewellery to hedge against inflation
The huge mainland market defies generalisations. The HKTDC revisited a 10-city survey conducted four years ago with Hong Kong suppliers in mind. The survey reveals that the consumption pattern in Guangzhou is vastly different from those in other cities, probably because it’s easier for Guangzhou consumers to travel to and shop in Hong Kong. There were far-reaching changes in consumer patterns for second-tier cities such as Wuhan, Shenyang and Dalian.
Impulse or Planned?
A key consideration for retailers is whether consumers tend towards planned purchases or impulse buying. The HKTDC’s latest survey reveals these buying habits work out at about half-and-half on the mainland, with a slight rise in planned purchases compared to the 2007 study.
Planned purchases were higher in Shenyang, Dalian and Nanjing (above 60 per cent); Guangzhou, on the other hand, had the highest share of impulse buying at 66.2 per cent, mostly with prices being immaterial. Impulse buying is also prevalent in Hangzhou (63.5 per cent), but that tends to be impulse buying with conditions: if prices are above a certain level, respondent shoppers buy with some caution.
Hedge Against Inflation
The number of respondents planning to buy from jewellery chain stores in shopping malls and from hypermarkets is on the rise
Most respondents bought gold jewellery (41.5 per cent), platinum (37.2 per cent) or karat gold (26.2 per cent); whereas in the 2007 survey, most respondents bought jewellery made with platinum (39.3 per cent), followed by gold (33.8 per cent) and karat white gold (21.6 per cent). This indicates that mainland consumers generally now prefer gold to platinum.
Yet, from 2005 until recently, international gold prices have risen 2.6 times while platinum prices have increased less, showing that gold is becoming increasingly popular even as its prices have increased more.
More strikingly, mainland consumers are increasingly buying jewellery to hedge. In 2007, 13 per cent of the respondents said they were buying jewellery to hedge against inflation, but in 2011 the percentage has risen to 24.7 per cent. From a hedging point of view, gold prices fluctuate to a lesser degree than platinum and so gold poses less of a risk. It’s also easier to sell gold rather than platinum jewellery for cash.
Respondent purchasers expect to spend an average of just over Rmb4,500 on jewellery in the coming year, up more than 20 per cent from the budget of Rmb3,783 in the 2007 survey. In Shanghai and Beijing, where per capita incomes are higher, the average budgets of Rmb6,214 and Rmb5,868 respectively are the highest for all cities.
In all the surveyed cities except Guangzhou, the average budget in 2011 is higher than in the 2007 survey. In Hangzhou, Shenyang and Wuhan, there were increases of between 30 per cent and 50 per cent; and in Dalian, the average budget of the respondents is double that of 2007. The average budget for Guangzhou respondents fell 24 per cent from 2007, perhaps because their shopping trips to Hong Kong displaced local spending.
Shopping and Watching
The survey also reveals that the number of respondents planning to buy from jewellery chain stores in shopping malls and from hypermarkets is on the rise. Also on the rise is the impact of media and social contact: the main channels for information on jewellery are TV commercials (57.1 per cent), shopping malls/department stores (52.8 per cent) and recommendations from friends and relatives (46.9 per cent).
Interestingly, the percentage of respondents getting jewellery information from TV commercials and from shopping malls or department stores has dropped respectively from 2007, while those who depend on recommendations from friends and relatives or newspaper and magazine advertorials is higher than in 2007.
Hong Kong Price Premium
Hong Kong brands have a successful track record on the mainland, the survey confirms. Compared to mainland brands that offer similar product quality, the majority of respondents are willing to pay an average premium of 46 per cent for Hong Kong brands. For individual cities, Guangzhou consumers are willing to pay the highest premium of 87 per cent on average, followed by Wuhan and Shanghai.
Furthermore, the respondents say they are willing to buy little-known or new brands if the style is attractive (68.7 per cent), the price is reasonable (45 per cent) and the quality is good (41 per cent). Overall, mainland jewellery consumers are quite receptive to these new brands, particularly respondents from Wuhan, Shenyang and Dalian.
Hong Kong Connection
Service is becoming the determining factor for many sales
Spending power in different cities is also important. For those with lower spending power, appropriate adjustments in style and price would be appropriate. In fact, different prices can be set for different target consumer groups, perhaps by introducing different product ranges under the same brand.
The average budgets of the respondents can be used as a reference, though the actual expenditure could be higher. Regarding purchasing location, department stores are not only popular shopping spots, their neighbourhoods are usually prime areas with extremely high shopper traffic, so setting up concession counters in department stores is preferable for Hong Kong brand owners. In most of the cities surveyed, the proportion of impulse buying was not insignificant, so shops should offer more styles and change their window displays regularly to attract customers.
The mainland is open to brand-building, so that should start in cities with particularly high interest in new brands, such as Wuhan, Shenyang and Dalian, later diversifying to other cities.
The final word concerns service, which is becoming the determining factor for many sales. Hong Kong companies should improve sales and after-sales services or ask their mainland retailers to do so. Customers now expect to go away satisfied with all aspects of a sale.
For more details, please see the forthcoming HKTDC Research report: “Survey on jewellery shoppers in Chinese cities,” which can be ordered at http://bookshop.hktdc.com/.