09
Jan
2013

The Chinese luxury market confuses international media

After the Christmas holidays, there is a tendency for the media to look at the performance of retailers and find reasons for yet more trouble in the industry. In the past week, a number of international papers have included articles about China and luxury, and that the new President, Mr Xi wants to get his government officials more in touch with the people and how this will be detrimental for the luxury sector.

One specific policy that was introduced in October related to gifting by government officials and receipt of luxury gifts by them, a practice that has been in place for 20+ years, and a difficult one to eradicate. There will be officials who are stripped of their positions or shown up in public, because there must be in order to save face and set an example, although the cynical among us might say that in some cases, these officials were taken to task as a means to move them to one side, or by those who saw them as competitors.

Either way, it is probable that for the first half of 2013 we will see some cases of the new policy being policed and some action being taken, but the reality will be that little changes and gifting will still represent a major income stream for luxury brands in China, and to a growing extent those based overseas. In fact, it wasn’t the introduction of the new policy late last year that affected gifting activities and sales of luxury items, it was the holding pattern that business leaders and officials adopted prior to the party elections. Chinese men in particular are pragmatic, and were waiting for change before making a move.

What most commentators have failed to acknowledge over the past few months is that Chinese affluent and wealthy consumers are still spending their money on luxury, perhaps not so much as before within China, but overseas where they have propped up the sluggish markets in Europe and the US. The money was there all along, but just not applied as it had been in the past.

With a new leadership now at the helm, and stability has been established, so expect 2013 to remain a year for Chinese luxury consumers, but don’t necessarily expect a spending pattern that you saw in previous years.

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