If there is a slowdown in China’s economy, someone forgot to tell the folks at German watch-and-pen maker Montblanc.
The luxury retailer launched its biggest store in the world in Beijing this month – a four-storey monolith – with a champagne-and-celebrity studded party for 1,000. Inside the store, customers can perch on a replica palace throne or browse a multimedia installation featuring the namesake of the company’s new Princess Grace of Monaco-themed jewellery collection.
“You have to distinguish between the long term and the short term. I believe in the long term, this market will continue to strive forward,” Montblanc chief executive Lutz Bethge told reporters in Beijing. “Even if at some point in time there will be a dip in the China market … in the long term, I see China as a continuing, huge opportunity for us.”
He isn’t the only one. The Chinese capital has seen many grand openings in recent weeks, as designer brands race to get in on what is soon to be the world’s largest luxury market. Consulting company McKinsey estimates China’s luxury good sales will grow 18 per cent annually to reach $27-billion – earning the title of world’s largest luxury-goods market – by 2015. Already, Gucci and Prada make one-third of their world sales in China.
The result is over-the-top efforts to acquaint the Chinese wealthy with foreign luxury. French design house Lanvin recently staged an opulent runway show, second only to its Paris Fashion Week show; Giorgio Armani himself came to Beijing for his One Night Only runway show and after-party in the city’s art district.
The festivities come against the backdrop of a softening of China’s retail sales growth. Retail sales overall saw their slowest rate of growth last month since February, 2011, at 13.8 per cent year-on-year. Sales of garments were up 19 per cent, down significantly from their 12-month high of 27.6 per cent in September, 2011; jewellery sales rose 18.2 per cent in May year-on-year, compared to a 12-month high of 44.4 per cent in August, 2011.
Research firm CLSA last week issued a special report warning of the slowdown, adjusting its forecast for jewellery sales growth in particular to between 16 per cent and 20 per cent this year, down from last year’s jump of nearly 50 per cent.
Slowing economic growth is part of the problem, as are shaky consumer confidence and the tendency of wealthy Chinese to buy abroad rather than paying the luxury taxes on the same, more expensive goods at home.
A government-fuelled crackdown on corruption is also making its mark; according to research cited by CLSA, as much as 16 per cent of luxury sales over all, and 37 per cent of accessories and jewellery sales, are thought to be for business-related gift-giving. “We believe that the recent slowdown in high-end consumption may be partially due to the heightened scrutiny,” the report said.
Still, in a country with an estimated 600 U.S.-dollar billionaires, 63,500 individuals worth $100-million or more, and 2.7 million millionaires, there is an appetite for luxury leather, diamonds and stilettos. Although purchases of personal jets and luxury yachts might be put off after a few bad weeks on the stock market, comparatively small purchases remain largely unaffected.
Thus, the long-term optimism for luxury goods. “The absolute numbers are still growing. There is a sense that [high-end consumption] has slowed down, but it hasn’t disappeared,” said Rupert Hoogewerf, chairman and chief researcher at Hurun Reports Inc., which compiles an annual list of China’s wealthiest people. “People still have money to burn.”