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China is in the Limelight

06 may 2009

While the developed world tightens its belts and focuses spending on daily necessities, the big luxury companies are looking to China's new rich to buy their jewelry, clothes and bags, says Rapaport in a commentary with reference to Xinhua. "There is no doubt that luxury brands will come to China and grab a piece of the huge potential market," says Guo Zuli, director of the World Luxury Research Center, which operates luxury goods website www.luxee.com.

The Chinese market shows remarkable resilience in the financial crisis because it has an increasing number of people able and willing to buy luxury goods, says Guo. "Unlike the mature traditional markets, demand in China is far from saturated either materially or psychologically."

The high-end market, which was once believed to be immune from economic downturn, has seen weakening sales growth and even declines in the traditional markets of the U.S., Europe and Japan, analysts say. A study by consultants Bain & Company in October predicted that global luxury goods sales growth would slow sharply to 3 percent, hitting $220 billion (EUR 175 billion) in 2008. The slower growth rate stood in sharp contrast with 6.5 percent growth in 2007 and 9 percent in 2006. The study also forecasted that the luxury sector would face its first recession in six years in 2009, with sales declining by up to 7 percent. A report from Deutsche Bank said that the market will contract between 5 and 10 percent in 2009.

However, experts say the Chinese luxury goods market remains resilient. China's impressive economic growth and rising number of new rich have drawn many luxury companies, says Huang Siwei, director of the www.neeu.com website, a Beijing-based luxury and lifestyle portal.

An estimated 415,000 Chinese had more than $1 million in disposable assets in 2007, more than any other country, according to the Merrill-Lynch Asia-Pacific Wealth Report released in September. "The spending power in China is spectacular," says Daisy Moon, assistant PR manager of Tiffany & Co. China, which achieved its sales targets last year and seems little affected by the financial crisis.

A Gucci spokesman said in an e-mail to Xinhua that China represented one of the most dynamic areas of retail growth for the firm, with 2008 sales growth on the mainland at 42 percent. Global profits for the company edged up 0.2 percent from a year ago. Gucci had 25 stores in 17 Chinese cities as of January, when it opened three new stores. It is looking to open its Shanghai flagship store in May.

LVMH claims that its business profit was up 2 percent from a year earlier to $4.8 billion (EUR 3.6 billion) in 2008, but sales in the U.S. fell 4 percent and in Japan 5 percent last year. However, the group stressed in its annual report that performance in China was "solid" and strong. Cartier, the French jeweler and watchmaker, is planning more stores in first- and second-tier Chinese cities after posting double-digit growth in 2008.

Yan Jun, managing director of Beijing-based Ecole Fashion & Luxury Consulting Ltd., says the expanding middle class constitutes an important group of consumers who desire and can afford luxury goods. "Aged between 25 and 40 and living in developed regions, they are fashionable, mature and passionate about lifestyle and quality," he says.

Up to 170 million people, or 13 percent of the population, can afford luxury brands, and the number will reach 250 million next year, according to the China Association of Branding Strategy. The government aims to build "a well-off society" by 2020, with per capita GDP of $3,000. Developed regions, such as Shanghai, Beijing, Guangzhou, Shenzhen, Suzhou and Wenzhou, with a total population of more than 300 million, will see per capita GDP exceed $15,000.

Bain & Company predicted that the Chinese luxury market would see growth of 20 to 35 percent in the next five years. The Ministry of Commerce says China will become the world's largest luxury market by 2014, accounting for 23 percent of global business.

"It is almost certain that China has surpassed the U.S. to become the second largest luxury market after Japan. There is still a lot of room for development," says Yan Jun.

He believes the huge potential will definitely attract more brands. "I am going to Italy to give a lecture about luxury management in China this June. I have been told a lot of executives of luxury companies will attend and they are eager to know more about the Chinese market and how to enter the market," says Yan. "The Chinese market is so desirable that international luxury companies are speeding up their quest for a share."