World's luxury labels target free-spending Chinese

Chinese shoppers with designs on luxury goods are proving rich pickings for world's top brands

PUBLISHED : Saturday, 22 December, 2012, 12:00am
UPDATED : Saturday, 22 December, 2012, 3:37am


Clad in a black and orange Prada winter coat with a diamond-shaped pattern she bought on a trip to Milan, Jennifer Ren embodies China's nouveau riche.

For the 27-year-old exhibition planner, accessories such as Dior handbags, Chanel perfume and necklaces by French jewellery house Van Cleef & Arpels are daily fashion essentials.

"Luxury goods have become a necessary part of my life," said Ren, who earns about US$960 a month but gets virtually unlimited financial backup from her wealthy mother, a successful businesswoman.

"Once you start buying them, it would be hard to step down to lower-end products," she said.

Free-spending mainland consumers such as Ren have so far proved a blessing to big name labels trying to buck global woes.

Sales of personal luxury goods on the mainland surged a spectacular 56 per cent last year to US$19 billion, after a 35 per cent climb in 2010, data from CLSA Asia-Pacific Markets showed. In comparison the world economy grew just 2.7 per cent last year.

The investment group expects China's luxury market growth to slow during the rest of this decade, but still predicts it to average an impressive 20 per cent a year over the period.

Chinese consumers are now the world's biggest buyers of luxury merchandise, according to a report last week by management consultancy McKinsey.

Another consulting firm, Bain & Company, found they account for a quarter of all such purchases globally.

This year growth has been restricted by slowing expansion in the Chinese economy and repressed gift-giving among and between officials and businessmen - a key element of building relationships, even at middle and lower levels.

The practice remains widespread, but has been affected by mounting scrutiny of corruption, along with political uncertainties linked to the country's once-a-decade leadership transition. But global luxury brands still see plenty of long-term potential in the world's second-largest economy, pinning their hopes on the rising middle class.

Louis Vuitton launched its first China Maison in July, a four-storey megastore selling jewellery, leather goods, clothing and other products in the commercial hub of Shanghai. It is its biggest store anywhere.

In November, New York-based Coach unveiled a Chinese-language version of its official internet store. And this month PPR, the French owner of brands including Gucci and Yves Saint Laurent, acquired a majority stake in rising Chinese luxury jewellery brand Qeelin.

Easing domestic luxury sales this year have prompted warnings that the lightning growth rates of previous years are unlikely to be sustainable given the economic slowdown.

Over the past 35 years, the mainland economy has grown nearly 10 per cent annually, but Beijing has cut its target to 7 per cent a year for the five years to 2015 as it tries to reduce reliance on exports and have domestic consumers play a bigger role.

"Luxury consumers do not see the future of their economy as 'cloudless' as it was a few years ago," said Elan Shou, China chief of Ruder Finn Public Relations.

As visa restrictions ease, more consumers are also making their luxury acquisitions overseas to take advantage of cheaper prices, lower purchase taxes and the strengthening yuan.

Still, mainland households with annual post-tax income of US$16,000 to US$34,000 are expected to grow 12-fold in just a decade, from fewer than 14 million in 2010 to 167 million by 2020.

Claudia D'Arpizio, of Bain & Company, said: "There is a lot of room for optimism because the fundamentals of rising affluence remain in place."

And as mainland consumers' tastes diversify, the market is likely to become more nuanced.

Kevin Liu, a 25-year-old marketing executive in Beijing, said he only buys less pricey niche products for himself.

But when it comes to friends' weddings, goods like Gucci purses are de rigueur.

"I think that is a rational spending pattern," he said.