2 May, 2012

Renting Catches On As Most Chinese Want, But Cannot Afford, Branded Goods

By Zhao Ying (China Daily)

Beijing, 2012-05-01 – Ren Jiansong puts paying his rent ahead of buying the pricey luxury goods he so adores – prompting the 26-year-old fashionmonger to frequently rent luxury goods from a Beijing-based boutique. His most recent rental was a Louis Vuitton Damier Naviglio. The brown and tan messenger bag retails for about $1,600, but Ren paid 180 yuan ($29) to borrow one for three days. He also paid 90 yuan to rent a $700 Louis Vuitton wallet for three days.

“I can afford to buy any of them, but I don’t think the prices are acceptable,” says Ren, whose annual income is nearly 220,000 yuan. “I need high-end bags for parties and business meetings, because they help refine my image,” he explains.

The Beijing native knew little about luxury brands before he started working for a fashion store in 2009. He purchased two bags – one by Chanel and one by Dior – and a Cartier ring for a total of 63,000 yuan. In 2010, he registered his own company aimed at helping globally acclaimed brands promote sales in Chinese shopping malls and on websites.

Today, the sales agent travels across China to organize marketing activities for his clients, which include Louis Vuitton, Bvlgari and Chanel.

But he stopped buying high-end goods in 2010 after discovering V2, a fashion boutique in downtown Beijing’s Guomao area.

In addition to selling new and gently used luxury bags, V2 also offers shoppers a chance to lease used luxury goods – a rare service in China. To rent goods, a customer must put down a full-price deposit and pay a daily rental fee of about 3 percent of the item’s retail price.

To date, Ren has spent more than 60,000 yuan at V2. “Ordinary people don’t have many occasions to use luxury products, so why not just rent one when you need it?” Ren says.

While Ren frequently rents his luxury goods, his peers have become obsessive buyers of such products.

China is the world’s fastest-growing market for luxury goods, thanks to years of stable economic growth that has boosted the spending power of superrich consumers.

Forbes magazine reports China had a total of 146 billionaires in 2011 – up 14 percent from 2010 and second only to the United States, which boasts 413 billionaires.

“Actually, many buyers are just attracted by the logos and don’t know much about the brand culture,” Ren points out.

Chinese people enjoy flaunting their wealth in public and believe quality products emblazoned with world-famous logos represent dignity. But they prefer to own, not rent, says Kong Liang, manager of Oursjia Rental Service Co Ltd’s branch in Jiangsu province’s capital Nanjing.

“Some rich people show off wealth using luxury goods, while some salaried workers skimp on daily expenses to buy high-end products,” Kong says.

The joint venture, which operates dozens of shops in China’s mega-cities, offers a wide range of products for lease, including home appliances, furniture, digital products, vehicles and luxury goods. The daily charges for similar goods are almost identical among different shops, so customers do not worry about bargaining, market researcher and V2 co-founder Yang Xu says.

Regular disinfections and repairs also improve customer satisfaction, Yang says. Yang and his friends opened V2 seven years ago, but the first year was a disaster. Few customers turned up.

Yang kept marketing online. He opened a boutique on China’s largest Internet trading portal, Taobao.com, and regularly updates his micro blog to promote the new business model.

Rentals have increased by about 5 percent annually for the past several years. Handbags, purses and suitcases are the most popular choices, Yang says.

But V2 still depends on sales, as the rental service accounts for only about 3 percent of its overall trade volume. “I don’t expect profits from the rental deals,” Yang says. “The service meets the demands of a small group but may bring in more potential buyers.”

He believes it will take time for people to become familiar with and accept this new consumption mode. A major challenge is the omnipresence of counterfeits, which causes people to doubt the authenticity of rental luxury goods. And some customers try to dupe rental services by returning fake bags.

Yang says he has learned to distinguish counterfeit goods after many years of practice. V2’s rental contracts stipulate that any customer who replaces V2’s genuine products with fake goods will not have their deposit returned. The rental contract also requires customers to foot the bill for minor damages, but Yang says most customers take good care of the items.

Ren has traveled throughout the country and says he has yet to find another service outside Beijing. Ren’s girlfriend, Tian Jing, is also a luxury brand devotee and disciple of his service.

Before the couple met, the China Minsheng Banking Corp Ltd employee, who earns more than 10,000 yuan a month, blew more than 120,000 yuan on handbags and jewelry from Hermes, Chanel, Dior, Prada and Cartier during overseas tours. “My colleagues carried luxury handbags and suitcases during our annual travels arranged by the bank, and I had to catch up with them,” Tian says.

“But I found renting is perfect for meeting occasional needs and saves a lot of money. My friends and many bank staff members also like the service very much.” Zhu Li, manager of a luxury store near Beijing’s high-end SCITECH Plaza shopping center, says: “By leasing, salaried workers can enjoy luxury brands. It saves resources and maximizes the use of high-end products.”

The business’ peak seasons are around holidays and year-end periods, when individuals and companies need luxury products for parties, banquets and celebrations, she says. Wang Shijia, a 28-year-old clothing wholesaler, regularly visits Zhu’s shop to rent handbags for banquets.

Wang, who was born to a wealthy family, owns nearly 50 products from a range of luxury brands but prefers to rent. “After I started my career, I realized that it’s not easy to earn money, so I’ve stopped squandering,” says Wang, whose monthly income is nearly 50,000 yuan.

“If one can afford it, luxury goods can help to show one’s taste and dignity. Otherwise, it’s shameful to spend so much for nothing more than vanity.”

Yang and Zhu share optimism about the luxury brand market and believe in Chinese wealth’s growing momentum.

China is expected to replace the United States as the world’s biggest consumer of luxury brands by 2012, a report by Ipsos’ China office said last October. Most buyers are younger than 40.

Mainlanders purchased $9.4 billion worth of luxury products in 2009, and the figure increased by 14 percent the following year, global market researcher Zheng Wenliang says, citing the report.

Global consulting firm McKinsey & Company estimates luxury sales in China will grow by 18 percent annually to reach $27 billion by 2015, when it will account for more than one-fifth of the global luxury market.

While praising the fledgling luxury goods leasing industry, experts have called for leasing options to cover daily consumption and production equipment to meet diversified social needs.

State Council research fellow Chen Wenling puts it like this: “Renters should offer services at various levels to cater to clients from different walks of life.”