GENEVA — Luxury goods brands in fashion, cosmetics, jewelry, leather goods and watches are forecast in a new study to post solid growth in China, driven by the anticipated sharp increase in consumption spending.
The study, “The Rise of the Chinese Consumer,” projects aggregate consumption spending for the world’s most populous nation to reach $3.7 trillion in 2014, up from the 2004 level of $704 billion.
“The Chinese consumer is therefore likely to have displaced the U.S. consumer as the engine of growth in the world economy,” said Jonathan Garner, managing director at Credit Suisse First Boston and lead author of the report, which also draws on a consumer survey that collected individual and household data based on interviews in eight major Chinese cities on a range of products, including luxury goods.
Asked about planned purchases in the near future of luxury goods, 11 percent of respondents said they expected to purchase fashion/ready-to-wear, 10 percent said premium perfumes and cosmetics, 7 percent said jewelry, 6 percent said leather goods/bags/accessories and 5 percent said watches.
Over the past three years, 27 percent of the survey respondents said they had purchased at least one luxury item. Of those, nearly half said they bought fashion/rtw.
Analysts stressed that at the moment, “no individual luxury goods brand has a large market share,” and added the brand with the largest share in China is Pierre Cardin, with 5 percent.
The study concluded that China represents “a great opportunity for luxury goods,” as the urban household expenditure is projected to grow by 17 percent per year over the next decade. It points out that as China’s population ages during the coming years, luxury goods conglomerates “will be strongly positioned to satisfy its needs.” But the challenge for luxury goods companies “will be to retain the current customer base and extend the age range of their market as time goes by.”
The Credit Suisse study points out, however, that unlike other major markets such as Japan, the U.S. and Europe, “China is a volume and not a margin market.”
As a result, Garner and his team of China research analysts feel that companies like LVMH Moët Hennessy Louis Vuitton, Swiss watchmaker Swatch and Burberry are best positioned to capture Chinese spending at an earlier stage in development of personal disposable wealth in the nation as they offer “luxury products” at lower price points compared with the super- premium leather business of Hermès or the jewelry business of Bulgari and Richemont.
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The study contends the fashion/rtw segment “is highly fragmented with a preponderance of access fashion brands. The penetration of European luxury goods brands appears particularly low and, in our view, the number of local and leisure names mistaken for luxury products shows lack of product awareness,” it said.