The Luxury Bubble
The anti-corruption measures and the political instability in Hong Kong, are some of the causes of the stagnation in the luxury demand.
The publication of the accounts of the global luxury companies shows the damage of the slowdown of the Asian demand. The adjustment process in the Chinese economy, the anti-corruption measures and the political instability in Hong Kong, are some of the causes of the stagnation in the luxury demand. Right now, China is the first global consumer of luxury goods.
The first signal of impairment is given by the publication of Q3 LVMH income statement, the owner of some of the most important luxury brands such as Louis Vuitton, Givenchy or Dior. In the last quarter, sales have dropped 3 per cent in Asia ex-Japan, leaving aside the «eternal growth» time between 2010 and 2012. The results are supported thanks to the American and European business.
As we note before, the most important factor of explanation of this situation is the set of anti-corruption measures approved by the Chinese government and its head, the Premier Li Keqiang. Chinese politicians and businessmen have stopped buying expensive gifts for business partners or government officials, which has been a habit for years. In this sense, this has led to lower sales in several luxury categories such as watches and men’s clothing.
Thanks to corruption, the growth of Chinese luxury market was very strong in the last years. Especially, sales growth in 2012 was strong when it climbed 20 per cent year-on-year. According to the figures released in a report by the consultant Bain & Co, Mainland China luxury sales will drop 2 per cent while Russian sales will decrease 18 per cent year-on-year. The so-called«luxury bubble»has been burst.
The biggest luxury companies, looking at the behaviour of the Chinese demand, are leaving their investment plans. This is the case of Hermés, Jimmy Choo (which is recently listed at the London Stock Exchange), Richemont, Prada or Burberry. As a consequence, the growth of global luxury goods sales will slow to 2 per cent in 2014 (USD 282 billion).