Luxury Retailers Loving China
Wednesday, September 12th, 2012
By George Leong, B.Comm. for Profit Confidential
China’s economy may be slowing, but a lot of new money is being generated in the country. Just ask anyone in Hong Kong, and you’d likely hear complaints about the daily massive inflow of Mainland Chinese consumers crossing into Hong Kong from Shenzhen and Guangdong, two cities within an hour from the Hong Kong border (you can actually take the Hong Kong Mass Transit Railway to the border of Shenzhen).
The complaints are that these Mainland Chinese consumers, who have tons of cash, are scooping up high-end luxury goods in Hong Kong, since these items are much harder to find in China. When I was in Hong Kong, a friend of mine told me of shoppers from the mainland going into one of the many Rolex stores in Hong Kong and buying 10 expensive watches with cash. China is extremely brand-conscious. (Read “Apple & China Mobile Raking in the Profits in China.”)
The amount of cash available for spending in China is unbelievable.
The Organization for Economic Cooperation and Development (OECD) predicts China will grow its economy by 8.2% this year and rebound to 9.3% in 2013. While China’s GDP growth is lower than the previous year’s, it is well above the global economic growth averages of 1.6% and 2.2% in 2012 and 2013, respectively. (Source: OECD)
In the retail sector, makers of luxury items, whether they are automobiles, clothes, or jewelry, are clamoring to expand their footprint in China, being fully aware of the country’s pent-up wealth. Of course, there are fake luxury brands, which are becoming a thriving market in Asia.
China is expected to report an estimated $27.0 billion in sales of luxury goods by 2015, which will pass Japan as the top luxury-goods market in the world, according to McKinsey & Co. (Source: McKinsey Quarterly, April 2011)
The strong demand for genuine luxury goods was demonstrated by the establishment of a new e-commerce web site called aolai.com (sorry, but it’s mainly in Chinese) that will market lesser-known luxury brands to the 2.4 million or so members. When browsing the web site, you’ll notice the “genuine” icon indicating the goods are verified as a product from a real luxury brand. So far, about 80 brands have signed on with Shangpin, the operator of the $60.0-million site that counts The Walt Disney Company (NYSE/DIS) as an investor.
The top luxury retailers in China at this time are outlined below.
Coach, Inc. (NYSE/COH) is seeing strong sales in China. A seller of high-end bags, purses, and accessories, Coach operates shops within Chinese department stores along with flagship, retail, and factory outlet stores. Same-store sales from China grew at double digits versus a muted 1.7% in North America. The growing importance of Asia is crucial, as Coach has 317 stores in Asia.
Luxury jeweler Tiffany & Co. (NYSE/TIF) is also keen on the Chinese market for high-end goods. The retailer plans to open most of its global stores in China by 2013 with around 25–30 stores.
One of the fastest growing luxury brands in the U.S. is high-end clothing retailer Michael Kors Holdings Limited (NYSE/KORS), estimated sales growth of 36.9% in fiscal 2013 and 25.3% in fiscal 2014. The company has five stores in Mainland China but plans to open 15 stores in greater China (Mainland China, Hong Kong, Macao, and Taiwan) by the end of this year. It also has ambitious plans to grow its network to 100 stores in Greater China within three to five years.