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China Luxury Goods - Dec'13


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China Luxury Goods - Dec'13

  1. 1. China Luxury Goods All rights reserved. This publication is protected by copyright. No part of it may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic mechanical, photocopying, recording or otherwise without the prior written permission of the publisher.
  2. 2. Overview Figure-3: Share of China in Global Luxury Goods Sales (2012 & 2017) 32 0 Figure-2: Global - Personal Luxury Goods Market (Billion EUR), 2010-2013 & 2017 22 5 Europe 37.0% Asia-Pacific 21 0 China 6.5% 19 0 12.5% 5.0% Rest of the World 17 2 9.0% 30.0% Japan Americas 2010e 2011e 2012e 2013e 2017f Source: RNCOS Europe 33% Asia-Pacific China 8% 13% 5% Rest of the World 9% 32% Japan The global luxury goods sector has continued to soar to post-crisis heights in 2012, with its third year of double-digit growth. Globally, luxury goods sales (includes apparels, accessories, footwear, jewelry, leather bags, cosmetics and perfumes) is anticipated to reach EUR 320 Billion by the end of 2017, with a CAGR of around 9% during 2013-2017. Spending by Chinese consumers on luxury products is growing tremendously, making it second largest luxury market in the world after Japan. China has become the paramount driver of growth in this sector, with purchases by Chinese both at home and abroad accounting for over 7% share in global sales in 2012 which anticipated to 8% share by the end of 2017. Americas Source: RNCOS China Luxury Goods
  3. 3. Market Size and Growth Rate Share of Luxury Goods Market by Product Category (2012 & 2017) Figure-4: Personal Luxury Goods Market (Billion EUR), 2010-2013 & 2017 6% .0 5% .0 18 5% 15 30% 13 .0 14 .8 7% 10 .0 10% 23% 14% 2010e 2011e 2012e 2013e 2017f Source: RNCOS Watches Jwellery Cosmetics, Perfumes & Personal Care Footwear Leather Bags Womenswear Menswear Accessories 6% 5% 5% 30% 7% 10% 14% 23% Watches Jwellery Cosmetics, Perfumes & Personal Care Footwear Leather Bags Womenswear Menswear Accessories Personal luxury goods sales in China estimated to reach around EUR 15 Billion in 2012 with around 12% luxury consumption growth y-o-y in 2012, down from 30% in 2011. The slowdown was partly attributable to a weaker economic growth in China, as well as the growing trend of shopping luxury goods abroad. Besides that, the recent ban on spending public funds on luxury items for gifting might also have a negative impact on luxury sales in China. Moreover, the personal luxury goods market in China is anticipated to reach around EUR 18 Billion till 2017 with a CAGR of more than 6% during 2013-17. In 2012, it is estimated that overseas consumption of luxury goods accounted for around 60% of the total Chinese luxury spending, with watches, jewelry and leather goods winning the top spots. In domestic market, among the major product categories, the y-oy growth rates of cosmetics and personal care products, women’s wear and menswear were more resilient in 2012. Watches and jewelry, on the other hand, saw a notable growth deceleration in 2012 which is expected to decline further on the account high taxes. Source: RNCOS China Luxury Goods
  4. 4. Opportunities & Challenges Opportunities • Rising number of affluent consumers which are just attaining middle-class status is increasing at an explosive rate as incomes head upward. • Figure-1: Per Head Personal Disposable Income (US$), 2010-2013 & 2017 CAGR 14.22% 1890 2010 2320 2011 2690 2012 5310 3120 2013e 2017f Source: EIU • Ongoing urbanization and rising luxury demand in smaller cities. • Opportunities due to economic slowdown in European countries as many luxury brands are now focusing on Asian market (especially China) to compensate for the loss. • A surge in the number of credit card users is likely to stimulate immediate consumption of luxury goods. According to China Banking Association, in 2011, China’s credit card transactions totaled CNY 7.75 Trillion, up 48% yoy; the number of credit cards issued was 285 Million, up by 24.3% yoy. MasterCard forecasted the number of credit cards in China to reach 900 Million by 2020. China Luxury Goods
  5. 5. Challenges • As part of the anti-corruption campaign, in July 2012, the State Council promulgated the Regulations on the Affairs and Administration of the Government Agencies effective 1 October 2012. According to the regulations, government agencies are prohibited from purchasing luxury goods. • The high costs of luxury goods in China is mainly due to stiff government taxes, which leds the consumner to make purchases abroad. Table-1: Consumption tax and import tariff on selected luxury products (2012) Category Cosmetics Jewelry and precious stone Luxury watches Consumption tax 30% 5%-10% 20% Import tariff 6.5%-150% 0%-130% 11%-100% Source: China Customs • Digitally challenged online retailing market is also a challenge to the luxury market in the country as over two-thirds of Chinese use the internet to research brands, but most luxury firms have pitiful digital strategies. • Increasingly sophisticated consumers shifting from overexposed logo brands to absolute quality products. China Luxury Goods
  6. 6. Future Outlook In future, despite the cooling in the growth rate of Chinese luxury spending, the demand of luxury goods is anticipated to remain robust on the back of rising number of very wealthy consumers, who have a marked tendency to trade up to more expensive and more luxurious products. At the same time, new entrants into the luxury category which are just attaining middle-class status are also increasing at an explosive rate as incomes head upward. Further, a rapidly-growing share of Chinese luxury shoppers are doing their purchasing abroad which is expected to rise in future. Although Hong Kong and Macau rank among their favored shopping destinations, now Europe is also rising quickly in popularity. Increasing foreign travel by Chinese is one important reason for this trend; so is the fact that luxury goods are not nearly as expensive overseas as they are in the Mainland, where the government imposes stiff taxes on such goods. To overcome this problem, the government of China is going to soon slash import duties on opulent items to encourage wealthy local shoppers to buy more pricey cosmetics, watches and liquor. The move will encourage shoppers to shop more in the domestic market than to abroad. China Luxury Goods
  7. 7. Key Players China’s luxury goods market is largely dominated by foreign players. Most Chinese luxury consumers tend to favor foreign brands that have long history and unique brand heritage. To further expand their brand portfolio and increase their presence in the China market, some foreign luxury retailers are looking for opportunities to invest in local luxury companies that have strong identity and growth potential. For instance, in December 2012, French luxury group, PPR acquired a majority stake in Qeelin, a Chinese fine jewelry brand. And earlier in February 2012, L Capital Asia, a private equity fund financed by the French luxury giant LVMH, acquired a 10% stake in Ochirly, one of the top fashion brands in China. L Capital Asia also co-invested with the Chinese apparel company Xin Hee Co., Ltd. in a mid-priced apparel brand QDA, and its first store was opened in Beijing in March 2013. International Luxury Players Domestic Luxury Players • • • • • • • • • • • NE-TIGER • Shanghai Tang • Qeelin Burberry Dior Louis Vuitton Chanel Hugo BossHermes Gucci Tiffany & Co. Armani Prada Fendi Recent Developments • Louis Vuitton has initiated a grand strategy for Beijing with its new store. With this new store, the company is taking a step further and providing adapted shopping experience and service for its sophisticated clientele. • Prada, the Italian fashion house, is expanding to smaller Chinese cities as its global growth slows. • Prada SpA’s first-half 2013 sales growth fell to a third of 2012’s as China luxury demand cooled amid a slowdown in the world’s second-largest economy. • Giorgio Armani’s operating profit rose 20% in 2012 as the Italian fashion retailer expanded its retail network and continued to develop its presence in China. The company had begun a push into China and other parts of Asia well before an economic slowdown hit Europe. • Emporio Armani banks on watches and jewelry rebound In China. Following the grand opening of its first Hong Kong flagship exclusively for watches and jewelry in February 2013, Giorgio Armani diffusion line Emporio Armani is setting its eyes on the Mainland. China Luxury Goods
  8. 8. Looking for an in-depth study Our Proposition RNCOS is a leading Business Consultancy firm helping its clients to enter new geographies and in attaining growth by developing market strategies for them. GROWTH PARTNER We help you make informed decisions through the practical application of research, hand holding you to your success… Critical questions that businesses need to address: • • • • Where should you set up your business? Who should be your distributors? What is the current market structure & size? Who should be your customers? We understand your immediate needs and your long-term goals and objective and work with you on how to accomplish them. RNCOS blends the best of strategy consulting with the best of market research to provide organizations with accurate, succinct answers to their most important business questions. Our offerings Product Segments Market Insights • • • What is the market size Structure of the market Who are buyers • • Identification Competitive Assessment • Most suitable distributors and channels for your business. • Analyzing their strength, credibility. Similar products in the market Features, attributes & market share of these products • Customer preferences • Price range of these products • Financial & strategic analysis of existing competition • Acceptance level among customers China Luxury Goods
  9. 9. For more information on how we can work with you, contact MARKETING TEAM RNCOS E mail: Website: Phone: +91 120 4224700 /01 / 02/ 03