China, Socialism & Consumer Behavior: Chinese middle class to fuel global luxury spending
Millions of consumers entering the middle class in China will help to hold the pace of growth in global luxury spending at 10 percent annually for the next four years despite a slowing economy.
After an “incredible” 2011 during which the global luxury products market grew 14 percent, the boom in emerging markets may boost the value of the market to 261 billion euros (US$340 billion) by 2014, CLSA said in Dipped in Gold, its annual report on the industry.
Jewelry companies enjoyed the strongest sales growth last year, with Hong Kong’s Chow Tai Fook seeing an exuberant 79 percent rise in sales between April and September, compared with the previous year, driven by consumers on China’s mainland, the report found.
Despite recent signs of a slowdown in luxury products companies’ first quarter results, the global market will expand by 10 percent this year to 216 billion euros, CLSA found. Across China as a whole demand will rise by 24 percent this year, a slowdown from 39 percent last year.
The power of the middle class in emerging markets means that by 2020 these countries may account for 73 percent of all luxury products purchases, CLSA said. By 2015 the BRIC nations – Brazil, Russia, India and China – will be home to 1 billion middle class consumers, a rise of 378 million people in five years. China’s middle class will account for 45 percent of its population by 2015, up from 27 percent in 2010.
“We can see that luxury products market growth has become more correlated to emerging-market growth,” author Aaron Fischer wrote in the report. “Consumers in these countries today account for around half of global luxury products sales.”
Despite the rapid pace of growth, vast swathes of China remain untapped by the luxury brands.
In the mainland market 15 billion euros was spent on luxury products last year, representing only at 4.6 percent of total consumer expenditure on clothing, cosmetics, jewelry and travel goods. This compares with more developed economies such as Singapore and Hong Kong, where luxury spending made up 27 percent and 22 percent of consumers’ spending respectively.
In a country where luxury products import taxes already mean prices are between 30 percent and 70 percent higher than elsewhere, companies raise the cost of goods by an estimated 5 percent to 10 percent year on year, CLSA found