Red envelopes

By | Business
Chinese red envelope with money. Credit@wikimedia

The 2017 Chinese New Year, also known as the “Spring Festival”, has started on Saturday, January 28th, initiating another year of the rooster. The Chinese New Year stretches over 15 days and is celebrated in countries and territories with a significant Chinese population, including mainland China, Hong Kong, Macau, Taiwan, Singapore, Thailand, Cambodia, Indonesia, Malaysia, Vietnam, Mauritius and the Philippines. Numerous businesses in China halt their activity in observance of the New Year, offering people the opportunity to vacation, shop and attend family reunions. The stock market trading also seems to reduce as companies in mainland China and in financial hubs such as Hong Kong and Singapore take a break. As a result, the Chinese New Year has become the most travelled holiday in the world, with an estimated economic impact of approximately $14.5billion.

While some Chinese may prefer to spend the New Year in their country, others may travel abroad in pursuit of entertainment and luxury goods in places such as Europe and the United States. The UK, for example, may have the potential to attract Chinese tourists this year due to a favourable currency exchange rate. China imposes a luxury tax on multiple items and, as a result, goods such as designer handbags and jewelry may be purchased abroad at more convenient prices. This tax advantage seemed to have motivated different luxury brands selling their products outside China to create items tailor-made for Chinese customers. London-based luxury department stores Harrods and Selfridges, for example, are selling their own Rooster Year souvenirs and merchandise. Meanwhile, British brand Burberry celebrates the Chinese New Year with a gift assortment of products for men and women, including Scottish-woven Cashmere scarves, which may be personalised with Chinese calligraphy, and made-in-England trench coats.

Based on a survey published by the strategy and marketing company Simon-Kucher & Partners, the Chinese luxury goods buyers seem to have shifted their interest from status symbol items to quality and fashion. Product quality, style and comfort appear to be the main drivers when making luxury purchases, followed by the overall brand image.

Traditionally, red envelopes or red packets are offered during the Chinese New Year celebrations, from married couples or the elderly to unmarried juniors and children. Red packets generally contain money, in even numbers, usually varying from a couple of dollars to several hundred. In recent years there seems to be a growing trend of sending electronic red envelopes via mobile applications, such as “WeChat”, which appears to facilitate money gifting, therefore offering a boost to the Chinese economy during the New Year. “WeChat”, which was developed by the Chinese technology company Tencent, introduced the electronic red envelope service in 2014, and has subsequently gained popularity, with Tencent reporting 2.3 billion transactions on January 1st, 2016 alone. The application offers users the opportunity to send money as virtual credits to other users of the application via WeChat Pay accounts, which may be used for purchases or withdrawn. The app offers two types of red envelopes – “regular red envelopes” (the option explained above) and “red envelopes lucky draw” which allow a user to assign a lump sum to a red envelope made up of a group of smaller red envelopes from within. The grouped red envelope may be then posted to a group chat and the application randomly assigns the amount in each envelope to individual recipients. Since WeChat launched its virtual red envelope campaign in 2014, WeChat Pay has more than doubled its market share.

Although some people may prefer the tangibility and personal touch of physical red envelopes, the electronic version seems to be an efficient option to make gifts, especially to someone living at long distance or abroad. While the Chinese New Year is first and foremost an annual holiday, it also seems to represent an economic opportunity derived from the local and international migration of people which may see as main beneficiaries the transportation, hospitality and personal gifting industries.

What influence may the Chinese New Year have on the global luxury goods market?

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