How Does a Shifting Economy Impact China’s Luxury Market?

on February 15 2012 | in Trends | by | with No Comments

Bottega Veneta, China,

The seemingly indomitable engine that is the Chinese luxury may now be tapping the breaks as it navigates through a tough global market, but most analysts are unconcerned. The Organization for Economic Cooperation and Development is forecasting that China’s annual gross domestic product growth rate will slip to 8.5 percent, the lowest pace in 11 years.

“We definitely can see that growth is going to slow down. There are valid concerns about the property market and the stock market, exports and things like that, but at the same time, other structural things are in place that will support demand, so I think the sales of luxury goods will slow down but aren’t going to go anywhere near negative or collapsing,” said Aaron Fischer, CLSA’s Hong Kong-based head of consumer research. Fisher cited that over the past 12 to 18 months, many top international luxury brands have grown anywhere from between 40 and 80 percent, doubling in some cases. He’s not the only one who that remains optimistic.

Isabel Cavill, a senior retail analyst with Planet Retail who specializes in the global clothing and luxury retail markets,  says China’s retail market as a whole in 2012 and 2013 will grow at a rate of 14 percent, and luxury retail will continue to grow at an even higher rate of 20 percent over the same period.

“You’ve got to take into account with luxury in China that because it’s still quite an aspirational market, luxury brands still tend to be seen as a status symbol,” she said.

And Irene Yu, a business analyst at China Market Research, insists income isn’t slipping away – it’s just migrating. “We see the fastest growth in luxury spending shifting away from first-tier cities like Shanghai to second-tier and third-tier cities, like Chengdu, where incomes are rising and there is massive pent-up demand,” Yu said.

Top officers on the ground at luxury companies are also feeling a shift, but they don’t seem concerned that the floor is about to fall beneath them. Tomas Meier, creative director of Bottega Veneta, and Vittorio Missoni, chairman of his family’s company, said they haven’t seen evidence of Chinese luxury customers pulling back.

“There is a slowdown in China’s economy, but not in luxury for us, as there is a pickup in understated luxury products. It was much more bling at first, but now it’s changed: There is a lot of demand from a sophisticated customer who is looking for a very strong cultural heritage, quality and tradition, and all more understated,” Meier said.

image credit: jun560

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