Friday, January 17, 2014

Luxury in China loses lustre as wealthy flee

Luxury in China loses lustre as wealthy flee

HONG KONG Thu Jan 16, 2014 4:32am EST


 

 

 

Jan 16 (Reuters) - Wealthy Chinese are likely to buy fewer luxury goods again this year after the steepest cut-back on spending in at least five years, changing the game for high-end retailers like Louis Vuitton which have staked their growth onChina.
Overall spending by wealthy Chinese fell by 15 percent in 2013, the third consecutive year of decline, according to a survey by the Hurun Report. Spending on gifts in particular also declined by a quarter.
The drop coincides with a government crackdown on corruption and gifting, as well as an a growing penchant for travelling and shopping overseas to circumvent Chinese consumption taxes on luxury goods as high as 40 percent.
One in three so-called high net worth individuals have already left, or are planning to leave,China, the report showed, a factor that has also reduced luxury spending.
Most of these rich have emigrated, or considering it, to seek better opportunities for their children's education, a 2011 Hurun survey showed.
"In terms of traditional luxury - leathers, accessories, watches - this year is going to be flat if not a little bit down," Hurun Report founder and chief researcher Rupert Hoogewerf told Reuters.
"For luxuries like tea, healthcare, even education, we are still looking at a booming market."
The crackdown on conspicuous spending, which began in 2012, is part of a vow made by Chinese President Xi Jinping to be tougher on graft. He has focused in particular on gifts made to government officials often in exchange for preferential treatment or contracts.
As a result, many wealthy Chinese now buy luxury goods for themselves, rather than as gifts, Hoogewerf said.
Products by Hermes, Chanel, LVMH's Louis Vuitton brand, Apple Inc and Gucci remained among the most sought-after brands for gifting, the survey showed.
Less popular were Bulgari - another LVMH brand - Salvatore Ferragamo, Tiffany and Co and the fiery baijiu liquor made by Chinese firm Kweichow Moutai Co Ltd, once the top tipple of Communist Party officials.
SAVVIER CONSUMERS
Luxury firms are already grappling with a slowing economy in China and a more sophisticated clientele that shops online for the best price globally and eschews in-your-face logos.
Affluent Chinese have also become more confident about mixing high-street clothing andaccessories with branded goods for an individual look.
"There is a much savvier consumer out there," Hoogewerf said. "There will be more purchasing done overseas than in China. For a brand that's global it's fine."
Over two-thirds of luxury spending by mainland Chinese was overseas in 2013, a factor that contributed to the United States overtaking China as the world's fastest growing luxury market, according to a study by consultancy firm Bain & Company released in December.
China's super-rich are also avid collectors - 70 percent of wealthy Chinese rank collecting as a hobby - but what they are coveting is changing.
Ancient calligraphy last year surpassed luxury watches as the most-collected, knocking watches out of the No. 1 spot for the first time in five years, the Hurun report showed, which could mean revenue losses for top watch makers but a boon for auctioneers.
Patek Philippe remained the most popular watch brand for collectors for the seventh year running while Christie's was the top ranked foreign auction house, the report showed.
Besides spending less at home, more rich Chinese are leaving the country. The number of wealthy Chinese who have emigrated or are planning to do so rose to 64 percent from 60 percent in the previous year, the survey said.
Most of those leaving, or planning to, are looking for permanent residency overseas - the United States, Europe and Canada are top picks. Very few want to give up their nationality, perhaps because their outlook for China is improving.
The report showed millionaires' confidence in China's economy rose for the first time in five years but those who felt "extremely confident" still accounted for only 31 percent of those surveyed.
The survey's results are based on responses from 393 Chinese millionaires, or those with personal wealth of at least 10 million yuan ($1.65 million). The Hurun Research Institute has conducted the survey for the past 10 years.

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