China’s Appetite for Luxury was Waning even before the Virus Hit

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Even before the deadly coronavirus hobbled the Chinese economy, the desire to spend on luxury goods seemed to be weakening in the country, dampening hopes for a sharp recovery after the epidemic subsides.

About 10% of Chinese consumers said they were planning to reduce their luxury purchases in 2020 compared to 6% last year, according to a December survey of 1,599 affluent shoppers by the Consumer Search Group and public relations firm Ruder Finn Asia. It also found that 44% respondents were open to spending more in 2020, down from 46% last year.

These findings were a first in the study’s 10-year history, Consumer Search Group’s Executive Director Simon Tye said in a briefing Tuesday, underscoring the grim consumption outlook. “This is a concern,” he said, because such a mood indicates that “the luxury industry is going to be very challenged.”

The data captured a similar wariness toward splurging more among Hong Kong consumers as well, with a fifth of the 501 respondents saying they plan to spend less this year compared to 12% in 2019.

When Chinese Consumers Stay Home, the World’s Retailers Take Hit

Slowing Appetite

Chinese shoppers were less willing to buy luxury goods even before virus

The findings — based on data collected in December before the novel coronavirus had blown into a full-scale national epidemic — paint a worrying picture for the global makers of luxury goods from watches to perfumes and apparel which have relied heavily on the affluent Chinese buyers in the world’s biggest consumer market to fuel growth.

Worsening Sentiment

Already reeling from the aftermath of the trade war, a slowing local economy and protests in Hong Kong, the consumer sentiment in mainland China has worsened after the viral outbreak. The contagion has already killed more than 2,600, infected over 77,000 in China, forced factories to shut down and might trigger the collapse of millions of local businesses.

 

Luxury goods companies will likely be the worst hit. The virus could wipe out as much as 40 billion euro ($43.3 billion) in sales for these companies in 2020, according to Luca Solca, an analyst at Sanford C. Bernstein, who described 2020 as a “gap year” for the sector. Their global sales may be 6% lower on average this year than previous forecasts, Solca said, with companies heavily exposed to China suffering even more.

 

Shoppers from China accounted for more than a third of the $1 trillion luxury market worldwide and two-thirds of the industry’s growth in recent years. A Bloomberg index of luxury goods companies has slipped more than 10% year-to-date as Chinese spending on premium products grinds to a halt amid quarantine measures.

“The decline in the past month is very drastic and impact on retail industry and high-end food and beverages is very, very profound. Many retail outlets saw footfalls decline by 70% to 90%,” said Gao Ming, senior vice president at Ruder Finn group. “When the epidemic passes, there will be a rebound. But how much the rebound could be, it’s hard to forecast.”

Source: Bloomberg
https://www.bloomberg.com/news/articles/2020-02-25/china-s-appetite-for-luxury-was-waning-even-before-the-virus-hit?sref=KodwJrjT