Business World

Tuesday 30 September 2014

Chinese driving sales of luxury goods to €250bn

Published 23/01/2013 | 05:00

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Perhaps Taiwan is as good a litmus test as any for sales of luxury goods in Asia. Some of the world's biggest fashion firms, from Hermes to Dior, have a significant presence on the island, which is home to 23 million people.

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They generate sales not only from well-heeled locals, but from wealthy visitors from China.

Last year in Taiwan, fashion labels from Burberry to Coach opened or refurbished what are some of their biggest stores in the world.

But demand in Taiwan has cooled of late. Sales of luxury watches and jewellery fell 30pc last year, though sales of softer fashion items such as cheaper accessories rose 5pc. Coach said its sales in Taiwan were flat during 2012.

Asian markets have become hugely important for global fashion houses. US consultancy group Bain & Co reckons the total global luxury goods market was worth around €212bn last year, which was about 10pc more than in 2011. That growth represented the third straight year of double-digit growth.

Sales in Asia-Pacific, driven by China, were expected to climb 18pc in 2012, and in the Americas by 13pc. In Europe, however, the rate of growth was expected to slow to 5pc.

The pivotal part that Asia plays in the luxury goods market was brought into sharp relief earlier this week for Cartier owner Richemont.

Shares in the Swiss group slumped more than 7pc on Monday after its third-quarter revenue fell short of estimates due to a halt in its sales growth in Asia-Pacific.

It was the first time in four years that the group's sales did not climb in Asia-Pacific, based on constant exchange rates, and that unsettled investors.

Richemont said its total revenue rose 9.3pc to €2.86bn between October and December, missing a €2.91bn forecast laid out by analysts. It generated €1.1bn of those sales – or 38pc – in Asia-Pacific, excluding Japan.

Cautious

The company told investors that its retail partners in Hong Kong and mainland China have taken a more cautious approach in the past few months.

Watches – which accounted for €784m in Richemont sales in the last quarter – were possibly hit by the change in leadership in China, where they're often given as business presents. The leadership changeover in China will not be completed until March, and that could have delayed some gift transactions.

"At this stage it is unclear how business patterns may develop and how the business in the Asia-Pacific region will evolve in the near future," the company said this week.

"Richemont takes a long-term view in managing its business and will continue to invest in the development of its Maisons."

Bain & Co said a quarter of the world's global luxury goods purchases are made by Chinese consumers either in their home country or abroad. A report last week from KPMG noted that 72pc of China-based respondents in a survey it did bought luxury goods on their last trip abroad.

Interestingly, one brokerage reckons Chinese men account for 55pc of spending on luxury goods in their home country – way above the global average, where men account for 40pc of such spending.

That's put down to the fact that so many purchases are made as business gifts. But Chinese consumers – who already pay more for luxury watches at home than they would in Taiwan, for instance – are set to see the price of such goods rise further in the domestic market.

On cosmetic products, brands such as Chanel and Christian Dior (which is part of LVMH) are raising prices in China this year. Some retail experts think luxury goods firms are doing so to generate additional revenue to offset slowing growth in markets such as Europe.

Despite Richemont's latest performance in Asia-Pacific, it is not mirrored by others. Burberry said last week that its sales in the region grew 16pc to £242m (€289m) on a constant currency basis in the quarter to the end of December.

Even as some concerns are raised about the prospects for Asia-Pacific, the industry has had positive news. This week, the head of Christian Dior, Sydney Toledano, said there had been a strong rebound in US sales last year. He said there had been a "strong rebound" in spending on high-end luxury items in 2012.

The longer-term health of the luxury goods sector does not appear in doubt, according to Bain & Co. It has estimated that it will be worth between €240bn and €250bn by 2015. Get the champagne out.

Irish Independent

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