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The rise and fall of China’s luxury boom Add to ...

The booming market for luxurious watches, handbags, clothing and jewellery has survived a Wall Street meltdown, a global recession and a European debt crisis. But can the trade in conspicuous consumption withstand what’s going on in China?

China has driven companies like LVMH, Prada, Gucci, Burberry and Richemont to new heights as the upper echelons of the world’s second-largest economy have exploded. According to Boston Consulting Group (BCG), the number of Chinese millionaires last year hit 1.4 million, more than three times as many as in the United Kingdom. Those with lots of yuan have been looking for ways to show it, and Gap khakis and a Timex just won’t do. Call it rampant materialism or just trying to look your best–either way, affluent Chinese have been very good for luxury retailers, at home and abroad. In the case of LVMH, the makers of high-end fashion brands including Louis Vuitton and Fendi, sales in Asia (outside of Japan) grew 27 per cent in 2011. Asia has become the company’s biggest source of revenue, and that doesn’t take into account all the Chinese tourists throwing their money around Europe.

But there are signs of trouble in luxury land. China’s economy is slowing down, fuelling fears that things could get rough if the overheated real estate market turns cold. Consumers might also be shifting tactics. Cartier watches were considered a symbol of success until earlier this year. But, following the ouster of Bo Xilai, the Communist Party boss whose wife was convicted of murder, high-end accessories are viewed as the toys of corrupt officials. Bo and his wife, along with their Porsche-driving, Harvard-educated son, appeared to enjoy a lifestyle that exceeded their official incomes. China has also introduced new measures preventing civil servants from accepting lavish gifts.

Some companies’ fortunes are already changing. Burberry reported in September that its quarterly same-store sales were flat, and it blamed China. The share price fell 20 per cent on the day the news hit. LVMH and Richemont have each tumbled about 10 per cent from their highs as investors concluded that Burberry wasn’t an isolated case of languishing luxe.

The question is whether this is a head-fake or something bigger. BCG estimates China will overtake Japan and the United States as the world’s biggest luxury market by 2015. So if luxury sales crater in China, the dip had better be brief.



Follow on Twitter: @dberman_ROB

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