Hong Kong Luxury Retailers Hope Demand From China Buoys Market

With the global economic slump cutting into consumer sales, makers of luxury goods are starting to feel the bite, with one study indicating the industry will contract next year. But in Hong Kong, high-end retailers are counting on Asia's wealthy to keep spending.

This holiday season it is impossible to walk quickly through upscale shopping centers in Hong Kong. People, many carrying shopping bags, crowd the aisles.

At a small boutique's recent marketing party, Carol Cheng and friends peruse racks of pricey goods by Hong Kong designers.

Like many consumers here, Cheng wears designer labels. This day, she is outfitted in high-end Japanese and U.S. brands.

Cheng says she thinks Hong Kong people will continue to buy luxury goods, even during the financial crisis.

"Yeah. Why not? If you come with the brand then why not? You know this brand. You want this brand," she said. "You get whatever you want."

Hong Kong's main shopping districts are filled with luxury retailers. The city does not tax luxury items such as jewelry, clothes and leather goods, so for decades it has drawn tourists from around Asia looking for bargains.

Luxury retailers are hitting sales targets

This holiday season, some luxury retailers here say they are just hitting their sales targets. And the outlook is gloomy for the global market. A recent study by marketing firm Bain and Company says luxury sales are likely to contract next year.

In Asia, many luxury retailers hope newly rich consumers in China and India will keep buying, and help offset sales declines in markets such as the United States and Europe.

International business consulting firm KPMG says there is room for growth in China's luxury market.

Nick Debnam studies China's consumer markets for KPMG. He says in the past few years more luxury retailers have entered China. And that means more Chinese are becoming familiar with, and buying luxury goods.

"Because there are successful businessmen and successful businesswomen around the whole of China and these guys, once they've got some money to spend, the luxury product is a way of almost showing how successful you are," said Debnam.

Demand for luxury goods is increasing in China

Thibaut Mathieu caters to the growing Chinese taste for fine wines. As marketing manager of ASC Fine Wines of Hong Kong and Macau, he held a champagne tasting recently in Hong Kong.

He said he expects people to keep buying fine foods and wines, even in an economic downturn. He says they did so in 2003, following the SARS outbreak in the city.

"Customers were not going out anymore but they were eating and drinking and entertaining a lot more at home," said Mathieu. "So we might expect something like that. Apparently, in China, it's already happening."

Recently, China announced measures to boost Hong Kong's economy, including allowing more mainlanders to visit. Many Chinese come here specifically to shop.

John Tsang is Hong Kong's financial secretary. He says the rich will continue to buy luxury goods.

"There is a pretty large segment of people who have a pretty good income and they, a lot of them, are pretty good savers so they should be able to continue to spend money during a bad economic period," said Tsang.

Will middle-class consumers offset decline in retail sales?

However, there are concerns that even if Asia's wealthy and middle-class consumers keep their taste for high-end goods, there are not enough of them to offset the decline in sales in Japan, Europe and the U.S.

Japan's luxury market, 12 percent of the global total, saw sales fall seven percent this year.

China's economy also is in decline, after years of record growth. The stock market, consumer confidence and credit markets all have slumped. Businesses are laying off staff.

That may make Chinese consumers even more frugal. The country has no real social security program, and families must pay for schooling and healthcare themselves, plus save for retirement. That means Chinese workers, fearing job losses, are likely to increase savings despite government efforts to spur spending.

Carol Cheng and her friends took away shopping bags of gifts from the boutique's party this holiday season. But that night most of them bought nothing. They said they came to enjoy the free drinks, snacks and entertainment. They did not come to shop.

(Voice of America)

Robb Report lands at China

• to introduce new Chinese millionaires or billionaires to taste high-end luxury products.
• in 2007, 91 U.S.-dollar billionaires found in the mainland and 106 in the Greater China region, which includes Hong Kong, Macau and Taiwan -- more than anywhere else outside the U.S.

SHANGHAI -- The spending choices for China's rich are multiplying as quickly as the world's fastest-growing major economy can mint new tycoons.

In the latest sign of China's rising upper crust and its growing appeal to international marketers, Robb Report, a self-declared catalog of the best of the best for the richest of the rich, is making its pitch here with a Chinese-language edition. The 200-plus-page Chinese monthly, published under the name Robb Report Lifestyle, is packed with news, product placements and advertising that promotes elite brands such as Volkswagen AG's Bugatti sports cars and Lürssen yachts to an audience whose choice of transportation just a generation ago was mainly between bicycle brands.

Sustained economic growth -- especially a boom in property development and export manufacturing -- has created piles of private wealth in recent years, and a class dubbed "Xin Gui," or New Nobility. China, although still nominally socialist, now has hundreds of thousands of U.S.-dollar millionaires and scores of billionaires -- all of them an increasingly irresistible target to companies that target the super rich.

Yacht and plane makers see China's rising wealth spawning a class of weekend aviators and sailors. Maybach, Daimler AG's super-luxury car, has dealers in two mainland Chinese cities, while its better-known rival Rolls-Royce, a unit of BMW AG, has dealers in four -- including the western outpost of Chengdu.

LVMH Moët Hennessy Louis Vuitton SA's Fendi brand, designed by Karl Lagerfeld, paraded its models on the Great Wall in October, around the time a Shanghai art fair boasted a $2.1 million Renoir for sale beside almond-size diamonds. Meanwhile, private-wealth advisers are pushing strategies to keep nouveaux riches' fortunes socked away in the bank.

Robb Report is banking that its snob appeal will translate here, enabling it to attract wealthy readers still learning the finer points of conspicuous consumption. "Most of the Chinese rich guys have no sense about high-end luxury products," says Jacky Jin, chief executive of Robb Report Lifestyle. "By introducing the brands and their culture, we want to create a further sense of living better."

Robb Report Lifestyle, each of whose covers is designed by a Chinese artist, will shortly publish its fourth Chinese issue with a run of 30,000 copies. Mr. Jin, the CEO, says the magazine, which costs about $13.50, will be sold exclusively to people with means, not given away or sold on newsstands where strikingly produced local-language competition -- including Shanghai Tatler, Vogue and dozens of other popular titles -- already chronicles the lifestyles of the well-to-do.

Content in the Chinese Robb Report comes largely from the U.S. editions of Robb Report, published by CurtCo Robb Media LLC in Malibu, Calif.; the Chinese version, however, is published separately by a subsidiary of China's Ministry of Tourism. CurtCo Media also publishes a Russian edition of Robb Report.

China had 345,000 people with financial assets of at least $1 million in 2006, according to a Merrill Lynch-CapGemini report last year. That was up 7.8% from the year before and more than triple the number in India.

In China, people often aren't considered truly rich until anointed by Britain-born Rupert Hoogewerf. In 1999, the Shanghai-based accountant virtually created the now-booming industry of profiling China's wealthiest -- and trying to sell them products. His HuRun Report in 2007 found 91 U.S.-dollar billionaires in the mainland and 106 in the Greater China region, which includes Hong Kong, Macau and Taiwan -- more than anywhere else outside the U.S.

Two women top the most recent HuRun list: Yang Huiyan, the 26-year-old heir to property developer Country Garden Holdings Co., with a $17.5 billion fortune, followed by the family of Zhang Yin, founder and head of Nine Dragons Paper Industries, with $10 billion.

Those sums sound even bigger considering that even an income of $25,000 in China is enough to afford an "affluent" lifestyle -- with regular golf outings or a nice car -- according to a recent HSBC-MasterCard survey. That is good news for Chanel, PPR SA's Gucci and LVMH's Louis Vuitton, which a Bain & Co. survey calls the most desired luxury brands in China.

Robb Report-style aspiration tends toward the toys-for-boys variety, a sector just getting going in China. The 2007 China International Boat Show in Shanghai generated 52 sales of foreign-made vessels -- about one for each marina in the country.

Italian yacht maker Azimut-Benetti SpA chalked up four big China sales last year, including a 98-footer priced at more than $6 million. And although China has only 70 licensed private pilots, one of them, Broad Air Conditioning Co. founder Zhang Yue, boasts a Bell 427 helicopter, two Cessna jets and three smaller Cessnas.

China's frenzied consumerism doesn't always sit well with Communist Party leaders, who worry society may splinter between a small group of ultra-haves and a big, angry mass of have-littles. Similar conditions in the 1930s helped incite a revolution that ultimately brought Mao Zedong's party to power.

But Chinese President Hu Jintao's pledges to make China a more "harmonious" society have done little to discourage the gold rush of opulence purveyors. Even Beijing's "sin taxes" of 20% to 30% on imported jewelry, haute couture and cars simply encourage rich Chinese to shop overseas.

"The upper class is always the decision markers, even if we are living in a socialist country," says Mr. Jin.

The members-only M1NT club of London, Hong Kong and Cannes, France, will shortly unveil a club and hotel at Shanghai's historic riverfront Bund area featuring "all the things the super wealthy really appreciate," says founder Alistair Paton. That means Range Rover limousine pickup service and Aston Martins on the menu -- M1NT says its London and Hong Kong clubs have sold about 20 of the cars.

For all the China buzz, Beverly Hills, Calif., art dealer Kevin Zweyer Anderson says he doesn't yet see refined tastes. The Anderson Galleries president recalls how at a glitzy art fair in Shanghai last October, a prospective client offered half price for his 1895 Renoir painting valued at $2.1 million.

"I think they've got a ways to go yet," says Mr. Anderson. "You can't offer me half." The painting remains unsold.

The Wall Street Journal