Tuesday, January 15, 2013

2012 Luxury Market in China – Winners and Losers

Still in.

Also still in, but with less bling.

2012 was a mixed year for the luxury market in China, given the slower economic growth and global macro risks. Below is my re-cap of 2012 winners and losers in the luxury goods market related to China. For more on this, check out Jing Daily’s Year in Review article of luxury and art trends. http://www.jingdaily.com/jing-daily-2012-year-in-review-five-key-luxury-art-trends/22872/

Winner: Ultra-high end luxury. Loser: Everyday luxury.
The top global brands such as Prada and Hermes recorded strong 20-50% sales gains among Chinese consumers, despite the nervous markets. Yacht sales also remained very strong. More “common” foreign brands such as Burberry, Cartier and some LVMH brands experienced slower to no growth.

Winner: Germany. Loser: Japan
German car brands – Porsche, Audi, BMW – continued to show strong demand for their cars, registering annual growth of 30%. Japanese manufacturers, on the other hand, were hit (sometimes literally) with Chinese fury over the territorial rights with Japan related to the Diaoyu (or Senkaku) islands. Driving a Lexus in China was a hazardous endeavor for much of the year.

Winner: Bricks and Mortar Stores. Loser: Luxury e-commerce
There were a large number of high profile store openings across China and Hong Kong, including the following names – Aston Martin (Shanghai), Phillip Lim (HK), Richemont (Shanghai), Zegna (Shenyang), Harry Winston (Shanghai), Montblanc (Beijing), Gucci (Chongqing), Christian Louboutin (Beijing), Saint Laurent Paris (Shanghai), Hublot (Xiamen). GILT-like e-tailers and other e-commerce operators on the mainland continued to founder, despite best efforts of entrepreneurs and brand owners to try to establish strong direct sales through the internet. E-tailing still felt kinda “wild west”, and not in the Ralph Lauren sense, either.

Winner: Burgundy. Loser: Bordeaux
Thankfully for much of the wine world, the First Growth Bordeaux bubble burst in 2012, with prices (as measured by the Liv-Ex 100 wine index) falling as much as 30% from their 2011 highs. Of course, one party’s gains are often another party’s losses. Buying interest shifted over to the top-flight burgundies, particularly DRC and Henri Jayer wines, raising already-lofty prices for these rarities further into the stratosphere. Oh well, at least now we have more egalitarian usury at play.

Winner: “Coal bosses”. Loser: Government bureaucrats.
The nouveau riche of China continued to shop till they dropped, snapping up uber-expensive cars, watches, jets etc. Politicians, on the other hand, got slapped in July with anti-corruption laws that prohibited civil servants from spending government funds on luxury goods. Pity the poor bureaucrats who have lost their regular supply of fine leather goods, gold belt buckles, premium wine and jewelry.

Concluding Winner: China. Concluding Loser: US
If it has not become abundantly obvious already, China is rapidly overtaking the US in its place among the top two luxury markets in the world. Or so says Bain and BCG consulting groups. China’s luxury market could be $87 billion strong by 2015, or 23% of the global market, according to BCG. The China art and wine auction markets have already eclipsed New York’s. With the US’s ongoing struggle with its fiscal situation and stagnant growth, the overtaking has a clear air of inevitability about it. What is less clear is whether this is a good thing or bad.

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