Being wealthy is one thing, and being art-buying wealthy is another. Luxury Insider reports that ultra-rich Chinese are beginning to throw their considerable status and wealth around in nontraditional (for Chinese) markets such as art and wine.

The article features a very interesting quote by Kevin Ching, CEO of Sotheby’s in Hong Kong:

“We saw a big surge in Chinese buying in categories that they were not familiar with. We have now seen mainland buying – not in huge quantities – of Western, Impressionist and contemporary art.”

This tells us that wealthy Chinese people are buying items because of their real and perceived worth. They are seeking to become a part of the small circle of western art buyers who spend large sums on buying art. Essentially they are taking cues from the Lambda personalities who they count as their friends or colleagues.

The article also has some key figures that further illustrate China’s growth into a global luxe powerhouse, a crown that once belonged to Japan.

For the first time in Sotheby’s 10-year history in Hong Kong, mainland buyers accounted for nearly 40 percent of Sotheby’s Asian sales during last autumn’s auctions. That figure represents a two-fold jump from 18 percent in the fall of 2008.

Does this newfound interest in expensive art signal a dimming interest in diamonds in Asia? It’s hard to say at this point.

What’s certain is that China’s rapidly growing economy is major impact on the local luxe industry, and that impact is reverberating on the other side of the globe, causing a mad dash by Western’s luxe labels to get a foothold in this booming new luxe market.

The race for the hearts and minds of China’s luxe car buyers is on, as Aston Martin joins BMW and Audi in upping production and overall presence in China.

The China Daily reports that Aston Martin opened its flagship China showroom in Beijing this past week.

The store, located at 66 Jinbao Street, Chaoyang District, is more than twice as big as Beijing’s other two Aston Martin stores and is the largest in Asia Pacific. The 500 sq m showroom will display seven of the luxury vehicles each costing roughly 1.3 million yuan.

Given that Aston Martins are typically more expensive than BMW, Mercedes or Audi vehicles, this move suggests that the demand is outstripping supply. This points to a new opening in the market for the super-rich.

While the entire article is interesting, because it further illustrates the growth in luxury goods and demand in Asia, there’s one quote in particular that is quite revealing of the way luxe brands are thinking about China.

Matthew Bennett, regional director for Aston Martin Asia-Pacific, said the following:

“(Beijing) has a growing appreciation for luxury goods and an authenticity of a product, that’s what we’ve been seeing. … ”This is the place to be.”

The phrasing is interesting, too. The “authenticity of a product” suggests a targeting of the Lambda personalities, who prefer both high quality and an air of exclusivity to their purchases.

Another statistic worth noting is that about 80 Aston Martin vehicles were sold in China last year. Even upping that number to 100 would allow Aston Martin to retain its shine of exclusivity.

Here’s an interesting story about China’s pursuit of luxury goods. Agence France-Presse (AFP) is reporting that increasingly high numbers of wealthy Chinese people are traveling to luxury capitals such as Paris to purchase goods that are discounted.

I wrote previously that the global economic downturn has caused luxe companies and retailers to put products on discount in order the move product. It appears that the Chinese, who have become more involved in the Asian luxury market, are going where the deals are.

The AFP article offers more detail:

The Chinese bought tax-free goods worth 158 million euros (222.5 million dollars) in France in 2009. That was an increase of 47 percent from the level the previous year, according to Global Refund, a company specialising in tax-free shopping for tourists.

The article also notes that this has been part of a larger, growing trend:

Tax-free shopping by Chinese tourists has been increasing for the last two years, rising by 39 percent in 2007 and 23.3 percent in 2008. They now represent 15 percent of sales and 13 percent of transactions.

More Chinese people are going abroad to buy high-ticket items, which suggests a growth in the number of people who might be considered Theta personalities in China.

Year on year increases in the number of Chinese traveling abroad to do this kind of shopping suggest the figures will continue to grow. What will be interesting to watch is the impact this has on China’s burgeoning luxe market.

TIME Style & Design has just come out with an in-depth report on affluent consumer tastes from around the world. The print edition (unfortunately not available online) delves into the appetites of European shoppers—the Spaniards, Italians, French, British, and Germans—who now are considered some of the wealthiest consumers in the world thanks to a strong euro.

Did you know that Italians own more brands than any of their counterparts and outspend them on watches and jewellery? Or that Spain has the highest percentage of “uber lux” consumers, those with high incomes and luxury-market activity?

It is fascinating to juxtapose the tastes and psychologies of EU neighbours, but TIME adds some more food for thought in its online exploration of luxury in the top emerging economies of China, India, and Russia. What does luxury mean to these three countries who for the first time in decades are finding the economic freedom to afford such indulgences?

For China, who accounts for 12% of global luxury sales, luxury is in demand. Designer watches (66% of affluent consumers bought a watch of an average $2,253 in the last 6 months) are high status symbols, as well as skin-care products. The Chinese consumer will spend up to $280 on a skin-care product, which is almost 3 times as popular as make-up.

In India, the luxury market could grow as much as 25% in the next 3 years. Menswear brands top the most well-known luxury list, which is no surprise as many women still wear saris. Interestingly, local brands, such as Park Avenue, Allen Solly, and Reid & Taylor, also rank high, but considering previous high import taxes, it’s no surprise foreign brands aren’t more prominent yet.

And for Russians, with a heightened sense of brand awareness, flaunting one’s economic status is what luxury is all about. While Russians crave luxury fragrances, it’s jewellery that really whets the appetite: Bulgari, Cartier and Tiffany & Co. top the list of most widely owned brands.

It appears as if there are ripe markets to break into and hungry consumers to feed—something luxury retails are well-ready to capitalize on.

Beijing’s luxury shopping market is now competing with Shanghai and Hong Kong as the world’s luxury brands flocked to newly opened stores, in time for the Olympics.

China has come a long way. A luxury consumer market that did not exist 20 years ago is now seemingly on an unstoppable path to dominate top-end retail. China is already the world’s third largest luxury goods market, behind only Japan and the U.S. It is predicted to become the world’s largest by 2015. Beijing’s high-end retail space has expanded by 89 percent in the last two years, according to the real estate service agent Jones Lang LaSalle. There has already been five new mid- to high-end retail projects opened in Beijing in the first half of this year, with a further 24 expected by the end of the year.

Before the Olympics Games, Beijing’s luxury retail market tended to be low-key, especially in contrast with its rival Shanghai. Luxury shoppers would even go as far as swapping the buttons on their designer suits for plain ones to avoid questions about the source of their money. Now we see Beijing leading the way with 3 million square feet of luxury commercial space being developed since 2007.

However, with such a wide variety of high-end shops in Beijing, retail observers have commented that brands are facing a growing challenge to stand out and create a niche for themselves. With the post-Olympic cool down some luxury brands may find it harder to succeed as China’s 300,000 millionaires  increasingly embrace the lifestyles and buying habits common to the world’s wealthier nations, attracting every luxury brand into Beijing and thus flooding the luxury goods market.

The journey to Tibet, which has long filled the popular imagination of the Western adventurer, was made a bit easier in July 2006 when a 1956-kilometer rail line was successfully completed connecting its capital city Lhasa with neighbouring Xining, the capital of China’s Qinghai Province.

As part of this new rail link, the Qinghai-Tibet Railway Corporation (QTRC) announced a new luxury train service running all the way from Beijing to Lhasa.  The train service was to cost 20 times the price of an equivalent journey on a standard service.  It would only carry 96 passengers at a time with private suites, two dining cars, and a separate sightseeing car.

The excitement of a luxury trains service allows for adventure travel without sacrificing comfort, and it elicits all of the visions of Shangri-la yet at safe arm’s distance.  It could satisfy the demand for something unique and something experiential.

The fact that the train has been postponed seems more a sign of poor execution rather than flawed concept.  We’ll just have to wait for updates.

The increasing purchasing power of a certain class of consumer in the developing world has enticed many Western luxury brands to set up shop there, particularly in the fast-developing economies of China and India. This phenomenon has led to sales in Asia surpassing the West and increased concentration of marketing activity outside these brands’ traditional markets.

But what will happen when these emerging markets develop to the point when their local brands press to compete for a share of the luxury market, both at home or abroad? And what if these same brands become rich enough and global enough to seek buy-out opportunities of established Western luxury brands? In other words, will the forces of globalisation be allowed to flow in both directions?

In an article in the Financial Times from 11 January, the authors argue that:

companies from the developing world fight against entrenched perceptions when they attempt to buy high-end western names.

They point to recent examples of the Indian hotel group Taj indicating interest in acquiring Orient Express Hotels, Trains & Cruises and Tata Motors bidding for the Jaguar and Land Rover brands.

As luxury products are often associated with their provenance, the next wave of acquisitions will test emerging market-based multinationals’ ability to finesse their way through luxury brand retailing.

This is the third of six posts documenting an email exchange between Randy Pearson, of Allied Diamonds and Isaac Mostovicz of Janus Thinking.

Is this trend leading to a “new diamond market” where diamonds become once again unobtainable to the masses? At the end of the day, there is little room for efficiency gains, so prices must go up. If indeed the market forces operating on De Beers are such that once they pay for African empowerment, government taxes, extraction costs, exploration costs, stockholder demands, etc. that they simply can not afford to produce on such a large scale, then maybe their future is a smaller scale profitable business that charges what is necessary to make profit. The same is true all through the food chain from the rough dealer to the retailer. Maybe the world should consider that diamonds may be forever, but maybe not for everyone.

Is it healthier in the end to have a much smaller, but healthier industry that supports presenting diamonds to those who can afford to buy them? I know it sounds simplistic, but for the past 40 years the industry has been extending the definition of what diamonds should be accepted by the jewelry buying public and the status of diamond as a luxury statement has eroded by the same magnitude. When Wal-Mart is the world’s largest purveyor of diamonds then we all can smell that something is wrong.

Anyway, this is one of many outcomes possible; emerging markets will play a big role as China is an untapped market and many more exist. De Beers may be able to hold things together, but in my opinion they will need to make some big moves. When SoC began, they needed to find sightholders who could move the type of rough that they were producing. So far, this type of diamond has not performed at the consumer level which is the unspoken problem. This under performance has lead to high debts and many of the current problems. It may be that consumers simply do not want these goods.

As for higher level goods, I see the problem as more short term. At some point the balance will tip and people will decide that it is better to produce less and sit and wait for a price where they can make profit. For those supporting programs, they will be forced to evaluate each individual client and make sure they are profitable on each one and eliminate those who fail. Only then can they justify the investment required to support the initiative.

Anyway, just thoughts from the street level.

Randy Pearson
S. Muller & Sons