Why China’s Luxury Market Will Not Cool

on September 4 2013 | in Trends | by | with No Comments

Breguet, luxury

In the long run, says the Bangkok Post, China’s crackdown on public officials’ extravagance and lavish gift-giving is not going to snuff out the white-hot luxury market. While a report by the Economist Intelligence Unit (EIU) says that that the crackdown coincides with slowdown – not only in China, but also in the foreign cities that tourists like to shop in, such as Paris and London – longer-term projections show that Chinese market growth is being driven by increased household incomes.

“The EIU points to the longer-term projection that the number of households in Asia with annual income of more than US$150,000 (equivalent to 385,000 baht per month today) will rise from 2.5 million at present to nearly 27 million by 2030,” reports the Bangkok Post.

“Fears of a slowdown have been heightened recently by China’s crackdown on displays of wealth and Japan’s shifting exchange rate,” said John Copestake, chief retail and consumer goods analyst at the EIU, “But even in this climate, some luxury firms have continued to deliver strong sales. With Europe stagnating and North America subdued, the focus is firmly on Asia’s potential.”

The EIU’s report found that the most affluent customers prefer to shop overseas. Harrods of London has installed 75 China UnionPay terminals, and has hired 75 Mandarin-speaking employees. While that’s not a surprise, it is interesting to note that the report also records how luxury consumption in Asia is split between men and women, where in most other parts of the world, women dominate the market. Gender disparity in incomes, as well as men’s tendency to give gifts on the job, accounts for the anomaly.

Finally, the EIU insists that the fake merchandise market is not the threat that it is often presented as. China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) confiscated counterfeit goods worth US$850 million in 2011. Chinese online merchant Taobao is also taking care of business with the aim of being removed from the U.S. Trade Representative’s list of “notorious websites.”

“While cash-strapped youngsters still love counterfeits, those over 30 with higher incomes tend to buy the genuine brands. People are starting to be ridiculed if they are spotted with a fake Gucci handbag,” said Chen Junsong of the China Europe International Business School.

Domestic luxury brands are also starting to capture some of the luxury market. Chow Tai Fook, the Hong Kong jeweler, stands out in this regard. Not unlike Tiffany’s in the U.S., the brand targets the affluent and the middle class’s love of gold. With 1800 points of sale, the brand has more than double the revenue of its famous American rival. The report says, “Local Chinese apparel and accessory brands are emerging, including fashion brands such as Dorian Ho, Mary Ching and Omnialuo, the latter of which has more than 200 stores in China. Some Asian brands are now even looking to go global.”

photo credit: simon q

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