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Published: Sunday December 22, 2013 MYT 12:00:00 AM
Updated: Sunday December 22, 2013 MYT 7:16:16 AM

Luxury market cooling down

Slipping sales: A couple walking past a soon-to-open luxury watch shop in in Shanghai. Luxury watch sales fell in the key Chinese market this year in the face of a crackdown on corruption and extravagance, a global consultancy said. — AFP

Slipping sales: A couple walking past a soon-to-open luxury watch shop in in Shanghai. Luxury watch sales fell in the key Chinese market this year in the face of a crackdown on corruption and extravagance, a global consultancy said. — AFP

The government’s anti-corruption and frugality campaign has been cited as one of the major factors dragging down growth in the country’s high-end goods market.

BEIJING: Growth in luxury spending on the Chinese mainland is expected to cool to just 2% in 2013, down from 7% last year and a staggering 30% in 2011, according to Bain and Co’s annual “China Luxury Goods Market Study” published on Tuesday.

The growth in China is moderate compared with global expansion of 6%. Total luxury spending of 116 billion yuan (RM63.45bil) in the country represented just 7% of sales worldwide.

The impact of the government crackdown on graft and extravagant spending is starting to have an effect, as is evident in the precarious drop in the sales of luxury watches and men’s wear, two categories that featured prominently in gift purchases.

Watches, which make up more than one-fifth of the domestic luxury market, witnessed an 11% decline in 2013. Men’s wear also shifted from being a growth category in prior years to slipping 1%.

“An interesting finding is that the higher the price for watches, the higher the decline,” said Bruno Lannes, a Bain partner in China and lead author of the study.

Lannes said such momentum is likely to extend into 2014.

Gifting has long been identified as a major reason for luxury purchases in China. This year’s research, however, found a significant drop in gifting among first-tier city consumers.

High-end businesses are feeling the pinch as stern government measures cut deeper into revenues.

LVMH, the world’s largest luxury group by sales, suffered a 6% cut in net profit in the first half of 2013.

Handbag and accessory maker Gucci’s quarterly growth of 0.6% was the slowest in four years.

This is largely attributable to “a consumer environment in China that has become more negative”, Jean-Marc Duplaix, chief financial officer of Gucci’s parent Kering, said during a conference call in October.

Swiss watch exports to China fell 13.9% year-on-year from January to October, according to the Federation of the Swiss Watch Industry.

Investors are therefore increasingly concerned that China’s tightening on customary gifts for favours, which often involved watches, would overshadow related businesses.

Dai Qiming, who recently quit his job as a civil servant at Shanghai’s Xintiandi sub-district office, said he saw a sharp decline in receiving gifts by government officials in the first half of 2013.

“Some companies used to give out high-end bags or watches to my supervisors. Nowadays, none of them dare to receive the gifts because they don’t want to risk losing their jobs,” said Dai.

Despite the slowdown, Chinese remain the largest luxury buyers worldwide, with purchases constituting 29% of the global market, an increase of four percentage points versus last year.

Up to two-thirds of such luxury spending occurred overseas, the study showed, as the quick take-off of outbound tourism nurtured a growing number of price-savvy Chinese customers.

A majority of them are now wising up to the considerable price differences between domestic and overseas markets, which can be up to 40% for certain items, said Qi Xiaozhai, dean of the Shanghai Commercial Economic Research Centre. This has in part squeezed the amount spent domestically, Qi noted.

One bright spot is the prolific growth in women’s categories, with women’s wear and shoes showing robust growth from 8% to 10%, said Lannes.

“Much of this performance stems from women’s increasing sophistication and influence, which has driven men’s and women’s share of luxury spending in China to equal levels in 2013. This marks a rapid evolution from a starting point of over 90% spending by men in 1995,” he said.

Tags / Keywords: China; government; corruption; luxury goods

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