“It’s all about mass luxury goods in China this year, not the super luxury,” said Joohee An, Asia Pacific portfolio manager at Mirae Asset Investments. “The country wants to grow a bigger middle class.”
One area that is particularly feeling this trend is the watch industry. “The sales of luxury watches with a price tag of 50,000 yuan or above will slow this year,” Zhang Yuping, chairman and founder of Hengdeli, the retail partner of Swatch Group in China.
However watches from Longines, the Swiss brand owned by Swatch Group, are doing well, attracting the burgeoning Chinese middle classes with price tags around $1,500. Because of lower commissions paid to the brands, mid-priced watches can have higher profit margins. Sales of mid-priced watches are expected to grow at “strong double-digits” this year, he said, without elaborating.
Hengdeli plans to open 40 to 60 new stores in China this year, predominately in second- and third-tier cities to target mid-range buyers. The company currently operates 405 stores.
“We are already the biggest watch retailer in China, my only concern is to prevent our market share from slipping,” Zhang said. “In that case, we need to look at different ways to expand our sales network.”
Chinese Premier Wen Jiabao set a 2012 economic growth target of 7.5 percent on March 5, lower than an 8 percent goal in place since 2005. Wen pledged to adjust taxes as the nation seeks to end the economy’s reliance on investment and exports. According to Zhang, government policy to increase domestic spending will help boost watch sales in the long term.