Inside Out | Luxury goods down but not out with another 100m consumers in waiting
China's rich now account for almost one third of global luxury spending, and it is likely HK will prosper from their affluence for years to come
As a balding, 65-year-old English male, brought up in a working-class Methodist household in Britain's uncharismatic Midlands, it should be clear that I and the luxury goods industry do not sit easily together. I don't understand it, and it does not understand me.
I find it incomprehensible that a woman can splash out HK$100,000 on a Birkin handbag - even though I recognise there is a strange chemistry between a woman and her handbag that a man can perhaps never comprehend. All my fuses exploded when I discovered the watch on a colleague's wrist cost more than my parents' house. But I am resigned to the reality that it is me that is the odd one out. Maybe I am simply driven by envy.
You can nevertheless understand when I say I am unmoved by the news that the world luxury goods industry has hit upon hard times. And as in so many other areas of the global economy, it is the Chinese that are being blamed for the downturn. If there were not so many hundreds of thousands of hard working people's jobs on the line, I would not shed a tear.
After all, would the world really be worse off without one of Imelda Marcos's diamonds? Or a red-soled Christian Laboutin shoe? Or an eighth Ferrari in some guy's oversized garage?
To ask such a question in Hong Kong is of course walking on Faberge eggshells. We may be home to a million people living below the poverty line, but we are also home to some of the hardest-spending luxury addicts in the world. That is why Christies and Sotheby's thrive here, and why more fine wine is traded here than anywhere else in the world. And it is where our mainland "nouveaux riches" come to get their first taste of luxury.
The speed with which China's emergent rich have become the world's biggest luxury spenders is quite staggering. According to consultants Bain & Company, the world's total of luxury consumers exploded from 140 million in 2000 to 350 million today. In 2000, Chinese luxury spenders accounted for barely 2 per cent of their spending, but this year they will account for almost one third.
On the back of this explosion, the world's luxury-goods industry has flocked into China. Brand names like Louis Vuitton, Chanel, Prada and Gucci have proliferated across China's top cities. But paradoxically, in spite of explosive sales growth for most of the past decade, these China-based stores have struggled. This is because over 65 per cent of the US$65 billion luxury goods bought by Chinese in 2014 were in fact bought outside China - either during overseas holidays (there were 120 million by Chinese last year), or through a shadowy daigou network. These daigou are based in key cities like Paris or Milan, and take orders for whatever the Chinese tai tai demands, then mailing the goods back to China below the radar of frustrated customs officials.