beyondbrics

Watching three malls open within a square mile over the past year and a fourth preparing to follow, all with their share of luxury boutiques, Beijingers may think that soon their city will have as many Louis Vuitton and Salvatore Ferragamo stores as bank branches or McDonalds restaurants.

But things might be on the verge of changing. Although 2011 is shaping up as another good year for luxury goods sales in China, luxury brands are turning a bit more cautious after fierce expansion in the country over the past few years, according to a new research report.

“Some brands are making conscious decisions to reduce the pace of expansion and focus more on store performance improvement,” said Bain&Company in its latest report on China’s luxury market. The management consultants say growth gradually softened in the fourth quarter and quote luxury brand company executives as saying they are only “cautiously optimistic” for next year as they “don’t have enough visibility”.

In 2010, luxury goods sales inside the mainland grew 27 per cent to hit Rmb87bn ($14bn), according to Bain. This year, the firm forecasts sales to rise by about 26 per cent to Rmb110bn, but predicts that growth in the leather goods segment will level off from 30 per cent last year to 25 to 30 per cent this year, and luxury watch sales growth will slide from 45 per cent last year to 40 per cent.

Growth rates in shoes and in the cosmetics, perfume and personal care segment are also expected to stagnate, at up to 20 per cent and 22 per cent respectively. However, menswear and womenswear are forecast to grow even faster than in 2010.

That doesn’t mean that affluent Chinese are less likely to buy luxury goods. They just continue to do it the smart way. Due to the Renminbi’s recent appreciation, rich consumers continue to prefer buying abroad as this gives them more value for money. Hong Kong and Macao still account for more than half of Chinese luxury consumers’ overseas spend, and that trend is expected to continue next year, according to Bain.

Inside the mainland, luxury brands are starting to focus on the details. While the lion’s share of growth still comes from new customers, existing customers are expected to account for 37 per cent of sales growth in 2011, up from 33 per cent last year.

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