China | What downturn? Chinese expected to buy more luxury goods

What downturn? Chinese expected to buy more luxury goods

December 16, 2015 3:14 PM (UTC+8)

 

China’s luxury market is growing along with its middle class, even as the economy’s growth rate continues to decline, Morningstar said in a report released last week.

Chinese shoppers at luxury outlet
Chinese shoppers at luxury outlet

The Chicago-based research firm said because of China’s immense size, as long as its economy keeps growing, so will its high-end consumer market, which could result in significant profits for many luxury brands such as Ralph Lauren, Tiffany, Burberry, Coach and Swatch.

Already, Chinese consumers make up 30% of the global luxury-goods purchases, and the number of wealthy and upper-middle-class consumers keeps growing.

As more consumers enter the middle class, “we believe Chinese consumers will behave like their Western counterparts, with more frequent lifestyle purchases of aspirational luxuries on a per-household basis and fewer purchases of status symbol goods that were often a store of wealth,” wrote Morningstar equity analyst Paul Swinand in the report.

Swinand said he sees continued long-term growth in Chinese purchases of luxury goods both at home and abroad. Even as the macro economy experiences slower yet positive growth, the report said luxury brands should experience above-average growth.

As the middle class grows in size, so will its spending power, Morningstar forecasts revenue growth between 5% and 8%.

Foreign luxury cars are hot in China
Foreign luxury cars are hot in China

Like most in the western press, Morningstar believes the Chinese are overstating their economic growth. Using macroeconomic data to corroborate official state gross-domestic-product growth rates, Morningstar’s economic research said the deceleration of the GDP growth rate has stabilized.  The firm forecasts annual economic around 5% by the end of 2015.

Even so, Morningstar’s analysts predict Chinese consumption will grow by 7%, and luxury spending will top that by growing 8%.

The report says that consumers will flock to brands that differentiate on lifestyle appeal and offer products that respond to evolving consumer tastes and preferences. The report expects the following areas to benefit most; footwear, cosmetics, ready-to-wear brands, and more frequently purchased consumable luxuries.

Morningstar concluded by saying Chinese consumers will drive healthy global sales increases for internationally recognized western brands.

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