Luxury goods consumption in China slumps for the first time

Luxury goods demand is extremely elastic and strongly pro-cyclical.

Javier Santacruz. 29/01/2015
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Ha caído el consumo de bienes de lujo en China
It has fallen consumption of luxury goods in China

According to the latest data released by the American international consulting firm Bain & Company, luxury goods consumption in China Mainland has declined for the first time in 2014 as China’s ongoing anti-extravagance campaign hit sales hard. Premier Li government is taking some measures to fight against corruption and promoting austerity as the main form to demonstrate honesty.

In 2014, Chinese mainland’s luxury goods consumption has reached 115 billion Yuan (18.79 billion US dollars). This is 1% below with respect to 2013, compared with 2% growth in 2013 or 7% growth in 2012 (with an important slowdown in luxury watches (-13% year-on-year or -10% in men’s goods). Luxury goods demand is extremely elastic and strongly pro-cyclical. But these relationships have changed with the “new normality” on Chinese Macro.

 

The author of this report, Mr. Bruno Lannes (partner at Bain & Company office in Shanghai), highlights that “the Government campaign encourages frugality and is cracking down on corruption across the country to put a dent in gifting, which had been one of the major growth engines for the sector”. (Words collected by the public Chinese news agency Xinhua).

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The decline has been particularly evident in luxury watches. Click to buy

The report also said 70% of luxury brands bought in China by Chinese consumers are purchased abroad (in order to save a really high trade tariffs) or through intermediaries. They are shopping agents who stockpile the goods before selling them at a profit to buyers back home.

As our luxury industry analyst Mr. Abel Amón says, the luxury market in China has grown faster thanks to the hike in the number of billionaires. According to the latest report made by Credit Suisse, the number of billionaires in China is at 2.4 million. Some research services are forecasting a growth of annual 20% for the next years.

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