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China's luxury market recovers

News, 02 May 2017
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BEIJING/NEW YORK: Luxury brands have detected an upturn in China, although observers have cautioned that the nature of market has changed since the last boom and that brands will need a different approach to be successful.

Hermès, for example, reported last week that demand for its handbags was growing rapidly in Asia.

"We've really seen a recovery of China and the beginning of growth again in Hong Kong and Macau," said Axel Dumas, Hermès chief executive.

That sentiment was echoed by Jean-Jacques Guiony, chief financial officer at LVMH. "Our pulse is the Chinese customer," he said. "It made the sector worse a couple of years ago and it has made it better now."

Such optimism is one reason that Bain Consulting Group believes the proportion of global luxury consumption accounted for by Chinese consumers will increase from the current 30% to 35% by 2020.

A previous boom was fuelled in part by business gifting, a practice that suffered during a government crackdown on corruption. But, according to the Financial Times, there are signs that the campaign is easing – or having the desired effect – as the number of officials disciplined fell in the first quarter compared to the same period last year.

"Watches have been under pressure from the anti-corruption campaign, but watches are coming back," stated Mariana Kou, an analyst with brokers CLSA.

The nature of the luxury retail world has changed in the interim, however, with the influence of digital becoming increasingly important, as a recent analysis of the global market for luxury watches by Digital Luxury Group found.

"Today's luxury consumer is more digitally savvy than ever before and luxury brands have adapted themselves accordingly, with 20-50% of their budget dedicated to digital activities depending on the market," explained David Sadigh, Digital Luxury Group CEO.

Luxury brands also face a new set of rivals: they are now "competing with the plastic surgeon and the luxury travel agent," according to Erwan Rambourg, Global Co-Head of Consumer and Retail Research at HSBC.

"For a similar price you can have a Louis Vuitton handbag, a facelift or a trip to the Maldives," he told the Financial Times. "The business model of luxury has completely changed."

Data sourced from Financial Times, WatchPro; additional content by WARC staff

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