Sparkle Roll Group, the Hong Kong-listed distributor of Lamborghini, Rolls-Royce and Bentley cars in mainland China, is developing a presence for high-end luxury Danish consumer electronics company Bang and Olufsen (B&O) as part of a new strategy to capitalise on the country’s improving living standards and spending habits. It currently holds a 12.79 per cent stake in B&O, having acquired 6.5 million of its shares in late 2016. The Danish company was the largest contributor to Sparkle Roll’s revenue besides its car brands, according to its midyear report for 2019. Revenue from sales at B&O increased by 1.05 per cent to HK$116.1 million (US$14.85 million) in the six months ending September 30, Sparkle Roll said. “While the luxury car business is still our top priority, running the B&O brand in China will be our focus for the coming few years,” Zheng Haojiang, the company’s chairman and chief executive, said in an exclusive interview. The company is banking on China’s rising middle class. Urban households with more than 140,000 yuan in disposable income had grown from 8 per cent in 2010 to about half of the mainland’s population in 2018, US consultancy McKinsey said in its China Consumer Report 2020. Spending by these urban consumers now accounted for 60 per cent of the country’s GDP growth, the report said. Moreover, Beijing has introduced a series of tax cuts to boost domestic consumption. Starting on October 1, 2018, individual taxpayers’ annual tax-free threshold was increased to 5,000 yuan a month (60,000 yuan annually) from 3,500 yuan a month, expanding the income range for lower tax brackets. Breakfast at Tiffany's? How luxury shops are tapping China's foodies “This is a consumption upgrade. It’s not that consumers don’t like the B&O brand, but it might be too expensive for them. Once they are [better off], they are willing to spend more money to buy it,” Zheng said. “We have made sufficient preparations in the past two or three years to grow the brand in mainland China, and have seen stable and rapid development. “After the tax reduction, our B&O sales have maintained very good growth and seen greater market penetration in different regions in China through online sales,” he added. The company’s luxury car dealerships accounted for 90 per cent of its business. Sales of Lamborghini cars grew by HK$286.4 million, or 360 per cent, in the six-month period ending September 30. This came on the back of the company’s Urus sports utility vehicle, which was launched at the end of 2018, Zheng said. Luxury brands like Burberry are booming in China as they struggle in Hong Kong A total of 72 Lamborghini models were sold in the first half of its financial year, an eightfold increase compared with the nine cars the company sold in the same period a year earlier. Rolls-Royce recorded a 25 per cent increase in the number of vehicles sold, from 95 models to 119 models, in the same period. Bentley, however, reported a 40 per cent decline in sales, but Zheng said the company’s March 2020 pre-orders were already sold out. When asked about the financial difficulties Qi Jianhong – a Chinese billionaire who owns a controlling stake in the company – was facing according to the Chinese media, Zheng said he was not involved in Sparkle Roll’s financial operations. “Some of Mr Qi’s personal problems in mainland China have generated negative sentiment, but it has nothing to do with the overall operation and business of the company,” he added. Luxury retailers such as Hermes report resilient revenues despite protests Zheng said he was optimistic despite a slowdown in the mainland Chinese economy. “We believe our business will see stable growth over the next two or three years. The addition of new brands to our portfolio will also bring prospects for greater profit growth. And we believe this will bring the prospect of better returns to our shareholders,” he said. Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A. Offer valid until 31 March 2020.