Why Not All Luxury Brands Are Experiencing a Slowdown in China

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

Tiffany's, Tiffany & Co., Luxury brands in China

Those who follow the news are familiar with the media’s pronouncement of a China luxury slowdown. Yet, Blouin News reports that the experience of Western brands in the world’s largest luxury market, China, varies quite a bit.

While all luxury brands face the same crackdown on government corruption, and a slowing market that may or may not be related to calls for frugality, China is still a worthwhile place for many brands to refine their position. “There is simply too much wealth being generated in the country for people not to want to spend it richly,” said Paul Maidment of Blouin. But just what they are buying is shifting the landscape.

While Tiffany & Co has credited its increased share of the global market in its third quarter sales to Chinese jewelry buyers, the French spirits label Remy Cointreau announced that its full-year operating profit would fall by 20 percent as a result of the Chinese government’s call to reduce ostentatious spending. Premium spirits and high-end watchmakers are suffering the most from this mandate.

Now, as middle class China becomes a “me”-centric market dominated by twenty- and thirty-year-olds, luxury brands from the West must play a balancing act: they must heighten their image in the marketplace to attract young buyers while simultaneously toeing the line of decorum for the sake of the campaign against corruption. They are accomplishing this by muting logos and branding on their products, and by emphasizing the quality of the product rather than out-and-out vanity.

“If China’s luxury market follows the traditional pattern of development, the longer-term trend will see spending veer towards big-ticket items perceived to have high intrinsic value: real estate, art, gems, and well-engineered cars,” said Maidment.

As reported by WSJ, luxury cars in particular are in-demand right now. Between January and October of this year, Audi saw China sales—including Hong Kong and Macau—total 399,330 cars. This is approximately a 20 percent increase over sales during the same period last year. BMW was a close second, selling 295,452 cars for a similar percentage.

Dietmar Voggenreiter, president of Audi China, that in the long run, growth potential for the luxury-car segment would be higher than the currently forecasted 10 percent. He said that in more mature markets, luxury cars often account for 13 to 15 percent.

“Future growth will come mainly from locally produced cars,” said Karsten Engel, president and chief executive of BMW’s China region.  Needless to say, the downturn that German automakers predicted for China has not come to pass. While the soaring heights of consumer spending in China may never return to what it once was, it is clear that Chinese buyers are still interested in products to enhance their lives and social status.

image credit: tiffany & co.

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