Thursday, February 28, 2013

Puttin’ on Less Ritz

Those who have been following the luxury goods buying trends of cashed-up mainland Chinese consumers have already detected a slowdown in the past year of a market that had been ripping along like a Maserati on an open highway at 4 a.m. These days, the malls in Hong Kong are looking a bit more hollowed out, with more idle sales clerks playing Candy Crush Saga on their smartphones. There are far fewer cases of a consumer walking into a Gucci store in Shanghai, pointing at a rack of ladies’ handbags and loudly commanding, “everything except that one with the frilly pom pom”, then slapping down a fat wad of RMB. More frequent looks of indifference - dare I say ennui? - come over the faces of Chinese buyers when brands such as Prada or Chanel are mentioned. As a consequence, an increasing number of luxury goods companies, including Gucci, LVMH and jeweler Chow Tai Fook, are reporting sharply lower sales growth in 2012.  
This Caixin Online article confirms and provides updates on the slowing trends. Of particular interest is the report’s focus on the importance of gift-giving to officials in return for political favors and the corresponding impact of the announced ban in 2012 of luxury goods purchases by all government agencies. The article estimates that close to 25% of all luxury purchases have been as gifts. Often, in order to disguise who was purchasing what, intermediaries were used to buy in bulk watches, leather products, or suits that cost as much as US$18,000 each. Invoicing was done more flexibly, sometimes to pass off the purchase of dozens of handbags as “office supplies.” Store exchange policies were loosened, as gift recipients seeking to swap an ill-fitting suit for a leather briefcase were unable to produce receipts.  
Despite the slowdown, no one is expecting that China will not soon be the largest luxury market in the world. China’s taste for expensive kit will not likely fade away. Luxury companies are continuing to bet on the enduring appeal of their products to mainlanders. However, the country will be better served if these hoity-toity goodies can be valued for what they are – badges of individual personal success, however garish their display – rather than a currency for the trading of corrupt practices.

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