October 15, 2012 6:59 pm

Luxury goods to slow as Chinese spend less

Growth in the luxury goods market will slow this year as Chinese consumers spend less at home and give fewer gifts as they await the imminent change in Beijing’s government, according to the consultancy Bain & Co.

The value of the total luxury goods market is expected to rise 5 per cent at constant exchange rates to €212bn, compared with increases of 13 per cent last year and 8 per cent in 2010, Bain said on Monday.

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The mainland Chinese market, excluding Hong Kong and Macau, was expected to grow about 18 per cent after jumps of 30 per cent and 35 per cent of the past two years.

Bain is forecasting growth for the world market of 4-6 per cent from 2013-2015 at constant exchange rates, bringing the total to €250bn by the middle of the decade.

“Fundamentals for growth remain strong, but it’s going to be a bumpy ride,” said Claudia D’Arpizio, a Milan-based partner and author of the report at Bain & Co.

LVMH, maker of Louis Vuitton bags, Dior perfume and Dom Pérignon champagne, confirmed the slowing trend in the luxury goods industry on Monday when it said organic sales growth in the third quarter had fallen to just 6 per cent.

This compared with 15 per cent growth during the same period last year. The company – which is the largest luxury goods group by sales – did not provide any geographic breakdown on sales, but said that the US “continued to demonstrate solid momentum” though the “business environment in Europe and Asia was mixed”.

The slowing growth of underlying sales is part of a recent trend at LVMH. In the second quarter, organic sales growth fell to 8 per cent and it was 12 per cent in the first three months of the year. Its third-quarter sales were €6.9bn.

However, the Paris-based company said it remained confident about 2012 ”despite the background of an economic slowdown in Europe” and pointed to 22 per cent reported sales growth for the first nine months of 2012 to €19.9bn.

Bain’s findings and LVMH’s slowdown support the warnings issued recently by a growing chorus of fashion retailers that the maturing Chinese market will grow more slowly than it has over the past decade.

Gildo Zegna, chief executive of Italian fashion house Ermenegildo Zegna, told the FT that companies will have to adjust to 10-15 per cent growth in China rather than the 20-30 per cent that has been common for many brands in recent years.

While mainland China ranks fifth after the US, Japan, Italy and France, greater China, which includes Hong Kong and Macau, surpassed Japan for the first time to become the second-biggest market after the US.

In a sign of the increasing importance of Chinese shoppers abroad, one-third of all luxury purchases in Europe last year were done by Chinese tourists.

Including exchange rate fluctuations, the growth of the total market will be 10 per cent this year, according to the Bain & Co report, which was prepared in conjunction with Italian luxury goods association Altagamma.

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