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While annual growth in sales of luxury goods in Mainland China is still
strong, market observers are wondering if the pace will be less break-neck
in future years. Overall, luxury goods sales in China rose at a slower pace
last year than in 2011.
According to a recent report by Bain and Company, a consultancy in the
United States, luxury goods sales rose 7 percent last year, compared with
30 percent in 2011.
“The impressive double-digit growth rates we have witnessed
probably will not be replicated in the future,” says Daniele Zito, a Bain
consultant in Milan.
There are good reasons for a smaller growth spurt. First, China’s
economic expansion eased during 2012, with GDP rising 7.8 percent,
compared with 9.3 percent in 2011.
Second, a national campaign against extravagance, and increased
emphasis on thrift and prudence – particularly for public sector employees –
may have discouraged conspicuous consumption.
Such changes have hit the stock price of some luxury goods makers and
analysts are less bullish about the sector’s prospects. “ We believe [these]
significant changes will send an alarm to the luxury sector,” says Dionne
Cheung, an analyst with Quam Securities in Hong Kong.
Additionally, the government’s proposed ban on the advertising of
certain luxury products, announced last month as part of its crackdown
against extravagance, may affect future sales.
These policies are alarming because China is an increasingly important
market for luxury goods makers in Europe and the Americas. A McKinsey
& Co. report released in December 2012 showed that Chinese consumers
accounted for about US$18.6 billion in worldwide luxury consumption, or
12.8 percent of the estimated US$145 billion global market that year.
An earlier PricewaterhouseCoopers report last year forecast that China
would overtake the U.S . as the world’s largest luxury goods market by
2015. “Half of luxury goods sales are made to customers in emerging
markets, led by China,” Nicola Anzivino, a PwC partner in Milan, noted in
the report. “[Retail] expansion is mainly driven by new openings in China.”
Some individual sectors, such as vehicles, reflected more modest
expansion. According to ChinaAutoWeek magazine, six major super-luxury
car marques — including the Bentley, Rolls-Royce and Lamborghini brands
distributed by Sparkle Roll Group – sold 5,557 cars in 2012, an increase of
12.8 percent over 2011, but far short of the 94 percent year-on-year growth
seen the previous year.
Although high-end sales and auctions of fine Bordeaux and Burgundy
moderated in 2012, China remains the world’s fifth-largest wine market,
with the equivalent of 155.4 million nine-litre cases sold in 2012. The
market expanded more than 24 percent last year, far outstripping growth in
other major markets. Sales of Bordeaux rose 55 percent by volume in 2012.
The watch market remains robust, with Hong Kong maintaining its
position as the No. 1 importer of high-end watches from Switzerland, by far
the largest source of luxury timepieces. The Mainland is the No. 3 export
destination, after the U.S . However, Swiss watch exports grew just 0.6
percent last year to total 1.65 billion Swiss francs (HK$13.72 billion).
Bain estimates that about 60 percent of luxury purchases by Chinese
consumers occur outside the Mainland, especially in Hong Kong and
Europe. The numbers of Mainland visitors to Hong Kong in 2012 increased
24.2 percent over 2011, according to the Hong Kong Tourism Board.
Luxury world counts
on China demand
gust 2010 after his time at SJM did much
to raise Mok’s profile in Hong Kong’s busi-
ness community. “I’d been in finance and
accounting for 25 years so my name might
have been recognized in some places. The
chairman of Sparkle Roll [Ivan Tong] called
me and asked if I was interested. I thought:
‘Rolls-Royce! That ’s great!’ ”
Despite the seemingly unlimited future of
luxury brands in China, Mok says his job
is not without its challenges. “I think one
is how to control the cash f low and inven-
tory levels,” he says. “Luxury goods have a
high value and we cannot keep too much on
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