Diamonds are Forever… in China, at least

Isaac Mostovicz writes that the Chinese luxury market goes from strength to strength, even as demand in the Eurozone languishes...

In the wake of diamond producer De Beers’ recent profits, an article in Finance Asia states that even a recession will not impact the growth of the global luxury market.

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The research company CLSA predicts that whilst the rest of the world is tightening its purse strings, the global luxury market will increase by 8% during 2012, largely driven by the appetite of the Chinese for luxury items – where it is predicted to grow by 25% by the end of the year.


“We think that the demand for luxury goods in China and Asia is driven by the rise of the middle class, and that is a structural story,” Aaron Fischer, Asia-Pacific head of consumer and gaming research at CLSA, told FinanceAsia in a telephone interview last week.


Fischer added that even if the economic slowdown were to impact the Chinese market directly, this would have no impact on their consumption of luxury goods.


Fischer’s team carried out this analysis based on the Japanese market, which in the past experienced a very similar explosion of luxury goods consumption. However, it acknowledged that the Chinese market has far more room for growth due to the increased number of outbound Chinese tourists travelling to luxury European hotspots like Paris, London and Milan.


Hong Kong has attracted multiple IPOs from Prada and Samsonite amongst other international luxury brands, all attracted by the successful Chinese growth story. But not all Chinese are welcoming the increased presence of luxury brands in their country, as it does highlight the growing income gap between rich and poor. Reportedly, Beijing has put in place controls around luxury advertising, asking companies to remove words such as “luxury,” or royal from their marketing materials.


Yet there’s no doubt that China is still one of the strongest markets in terms of demand for luxury goods – with Latin America, the Middle East and other emerging markets following not far behind.


“I don’t want to rule out Latin America and the Middle East. They are attractive markets as well,” Fischer said. “And over time there’ll be more opportunity in India and Indonesia, and some other Southeast Asian countries like Vietnam.”




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Update on Japan’s luxury market

Isaac Mostovicz writes...

Retail sales in Japan have plunged in the biggest drop in 13 years. According to the latest data by the trade ministry, sales fell by 8.5% last month compared with March 2010. This data shows the affect that the disaster has had on consumers. Symptomatic of an uncertain economic future, consumers have avoided non-essential spending, such as luxury items and consumer electronics.

However, in the luxury sector, optimism is abundant. Dior’s Chief Executive has joined other executives from top luxury brands in the belief that Japan is on the mend. Christian Dior told Reuters that luxury goods sales in Japan are improving and are likely to recover to a normal level.

The earthquake and subsequent nuclear power station crisis hit sales in Japan by 25 percent in March 2011, according to luxury goods company LVMH. Burberry is another brand that has shown confidence, despite their stocks taking a 4% knock after the earthquake. Japan is the third-largest market for luxury goods globally, after the US and China.

Yet despite these luxury houses having no fear about their future success in Japan, it is likely that this attitude of careful spending may remain in Japan for a long time – not only as a precaution, but also as a consequence of a terrible disaster putting into perspective what luxury can really mean to the individual.

tiffany silver says of this article...

Yet despite these luxury houses having no fear about their future success in Japan, it is likely that this attitude of careful spending may remain in Japan for a long time – not only as a precaution, but also as a consequence of a terrible disaster putting into perspective what luxury can really mean to the individual

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Luxury brands feel the effect of Japan’s disaster

Isaac Mostovicz writes that Japan's recent humanitarian disaster is having share price implications for some of the world's best known luxury brands...

While it can perhaps seem distasteful to discuss stocks and shares in the aftermath of a humanitarian disaster, the impact can be significant, and when the disaster has hit a nation such as Japan which is said to account for 23 per cent of the global market for luxury goods (according to MF Global), it can have severe implications for exposed brands.

In an understandable reaction to Friday’s crisis in Japan, Japanese investors dumped stocks: Japan’s Nikkei .N225 shed 10.6 per cent on Tuesday. The UK’s stock markets fell a fraction of that amount, but luxury names suffered. Shares in some of the world’s biggest luxury goods companies fell amid concerns that high-spending Japanese consumers will, at least in the short-term, stop shopping.

Burberry was down 6 per cent in Monday morning trading; Japan accounts for 7 per cent of Burberry’s sales. In Paris, shares in LVMH, which relies on Japan for 9 per cent of sales, were down more than 3 per cent, while Gucci and Yves Saint Laurent owner PPR, which relies on Japan for 16 per cent of sales, was off nearly 2 per cent.

Having experienced limited growth during the past decade, luxury brands have shifted attention from Japan to emerging Asian markets such as China, but as the above numbers show, Japan is still crucial to many of these companies.

With the world’s attention now focused on a potential nuclear disaster, analysts have suggested that luxury spending may be curbed for some time.

“While not all parts of the country were equally affected physically, recent events will almost certainly dampen the consumer mood,” Nomura Securities analyst Paul Lejuez said in a research note.

The worry for markets now is that the disaster will affect buying and shoppers’ likelihood to spend elsewhere. Luxury sales depend on people’s confidence; if the crisis continues to develop in Japan this could effect spending on a global scale.

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When does luxury become a commodity?

Isaac Mostovicz writes that luxury products are at risk of becoming a commodity quicker than ever before ...

A recent article in the Washington Post highlights that when new and exciting high-tech gadgets launch, it isn’t long before the wider market follows and attempts to replicate the sought after product. As industry players join the market, the cost of components goes down and competition intensifies.

As a general rule, increased competition forces companies to improve their offer and quality of product – benefitting the customer. As is identified, the natural evolution of a product means it isn’t long before what is considered luxury becomes a commodity. A process all the more exacerbated by today’s pace of trend and innovation.

For Lambdas who look to differentiate themselves with the luxury they buy, how to stay ahead of the curve is an important consideration. Time must be dedicated to research the ‘next new thing’. By the time a product is popular, it may be considered a commodity; this observation suggests all Lambdas are likely to be ‘early adopters’.

In the early stages of a product’s life cycle, early adopters usually focus on the benefits and new features, leading to weak price elasticity and are happy to pay more money for a product to get it ‘now’.

Ofcom’s fifth International Communications Market report suggests that there are perhaps nations of ‘early adopters’; in the USA, 44 per cent of households have HDTV services with access to 404 HD channels, followed by Japan (43 per cent of households and 130 channels), France (42 per cent and 55 channels) and then the UK (13 per cent and 50 channels).

Japan consistently emerges as a leading nation in adopting emerging technologies, while this is partly down to its heritage and reputation for technological innovation, does this also suggest that such a culture draws synergies with the Lambda personality type?

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