Luxury brands bank on China as virus lays waste to global demand

Spending on high-end brands has surged in China as shoppers forgo overseas travel to centers such as Paris and Milan. (AFP)
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Updated 01 October 2020

Luxury brands bank on China as virus lays waste to global demand

  • Top-selling fashion labels embrace e-commerce and race to open Chinese outlets amid worldwide spending slump

BEIJING: On the southern Chinese island of Hainan, a duty-free shopping paradise, mainland tourists keen to splurge will often patiently line up for an hour or more to enter a Gucci, Tiffany or other luxury brand store.

“I’m mentally working on a shopping list,” says Zeng Rong, 34, a Beijing-based auditor who is looking forward to her upcoming Hainan trip. “I’d like to buy a Bottega Veneta bag as well as a coat and a down jacket from Moncler before the weather gets cold.”

With the coronavirus pandemic having sent most of the world’s luxury spending into a tailspin and China the only major economy expected to show growth this year, high-end brands now depend more than ever on Chinese consumers like Zeng for sales.

Their spending largesse, which extends across China’s biggest cities, is spurring luxury brands to double down on the Chinese market — embracing e-commerce and pushing ahead with store openings whereas in most other countries such plans have been postponed or scaled down.

Lavish events are also back. Louis Vuitton menswear designer Virgil Abloh held a spring/summer fashion show before a live audience in Shanghai last month. Prada hosted private viewings of its new collection last week — also in Shanghai, the country’s fashion capital which has begun to replace Hong Kong as the favored shopping haven for domestic tourists.

Driven by well-heeled consumers forsaking their usual overseas trips to places like Milan and Paris as well as pent-up demand that built during lockdown, spending in China on luxury goods has surged.

Prada has said the group’s China sales jumped 60 percent in June and 66 percent in July, while LVMH noted that in some weeks since March when the country came out of lockdown, Louis Vuitton and Dior have seen China sales more than double.

“Mainland China has become the place where all the purchase power is trapped,” said Mauro Maggioni, Asia Pacific CEO at Italian luxury sneaker and apparel brand Golden Goose which has 21 stores in mainland China. It also opened stores on China’s top e-commerce sites last month and plans a new shop in Hainan soon.

As luxury spending in China reaches new heights, the Chinese are set to account for around half of all global spending on high-end brands in 2020, up from 37 percent last year, according to McKinsey & Company.

That said, industry executives say it will not be enough to make up for the near absence of Chinese tourists abroad, who have been responsible for two-thirds of Chinese luxury spending. Total global luxury spending is expected to plunge as much as 35 percent from last year’s $300 billion.

Meanwhile, China is the place to be. Store numbers for top luxury brands there rose 4 percent in the first half of 2020, while those for cosmetics brands jumped 8 percent, according to a report by property consultancy Savills.

“I can see the continuous potential of the Chinese market,” Michele Norsa, executive deputy chairman at Italy’s Ferragamo, said this month. The luxury shoe and accessories maker is reviewing its store network with a view to closing some in Europe and opening more in China.

Helping stoke domestic demand, the Chinese government has long sought to bring some of the money splashed abroad by its citizens overseas back home. It cut import tariffs in 2018, enabling luxury brands to reduce their China prices, while this year in Hainan, it has expanded the amount of duty-free shopping allowed to 100,000 yuan ($14,650) from 30,000 yuan.

Also, unlike many other countries where luxury spending tends to be the domain of older generations, China skews younger with many luxury consumers aged between 25-35 — often the only child of the family and armed with money from indulgent parents.

Younger Chinese shoppers also prefer e-commerce and the world’s poshest brands have started wading into online sales in China, putting aside concerns about the potential for counterfeiters to take away their sales.

Researchers say new model shows Turkish inflation well above official tally

Updated 22 October 2020

Researchers say new model shows Turkish inflation well above official tally

  • Since last year, opposition lawmakers have raised questions about the accuracy of official inflation data
  • Year-on-year inflation was 11.75% according to the official tally announced earlier this month

ISTANBUL: Turkish monthly inflation was more than triple the official rate in September, according to a new model developed by a group of academics and researchers based on more frequent data than the government statistics office.
Veysel Ulusoy, a professor at an Istanbul-based university and head of the independent Inflation Research Group (ENAG), said the model collects “several times more” price data than the official Turkish Statistical Institute (TUIK) tally, and is meant to complement it.
Since last year, opposition lawmakers have raised questions about the accuracy of official inflation data, arguing that the published rate was lower than the market realities.
According to ENAG’s first published finding, consumer prices in September rose 3.61% from the previous month, compared to TUIK’s calculation of 0.97% increase.
Year-on-year inflation was 11.75% according to the official tally announced earlier this month. ENAG has not yet published a year-on-year figure.
TUIK was not immediately available for comment.
“We observed price differences and volatility in almost all groups in the basket,” Ulusoy said in an interview. ENAG brings together academics from multiple Turkish universities.
“TUIK collects 550,000 prices for all the basket items in a month. ENAG calculations include several times more than that, constructing a richer set of data,” Ulusoy said.
Turkish annual inflation has remained in double digits this year despite a sharp economic contraction in the second quarter due to the coronavirus pandemic. High prices and a record low lira prompted the central bank to raise interest rates last month, and it is expected to hike again on Thursday.
The ENAG model can calculate inflation as frequently as every hour, meaning it can fill gaps for researchers and investors, Ulusoy said. It weighs items in the same way as TUIK, but excludes price data from health, education spending and alcoholic drinks.
The September calculation showed that school-related items had the most price spikes including computers, tablets and mobile phones, as well as children’s’ clothing and some agricultural goods.
Ulusoy said the ENAG model showed that tablets and computer prices were up more than 30% in September from August due to school reopenings, while TUIK put these items at around 4% month-on-month.
Last year opposition parties submitted parliamentary questions to Finance Minister Berat Albayrak over claims that TUIK tweaked inflation data for political reasons, claims dismissed as groundless by the head of the institute.