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November 6, 2009

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Smaller cities to propel China luxury market

CHINA'S luxury goods market will remain robust, defying the sluggish global economy, and it will be driven mainly by new consumers especially in the second- and third-tier cities, an industry report showed.

Sales of luxury products on China's mainland are forecast to grow 12 percent this year from US$8.6 billion yuan last year, compared with a projected 8 percent slump globally, according to a study by consultants Bain & Company.

"The creation of luxury brand stores in lower-tier cities created the appetite for luxury products," said Bruno Lannes, a partner at Bain & Company China. "And these cities are becoming the battleground for expansion."

Consumers in China's second- and third-tier cities are very similar to those in first-tier towns in terms of purchasing power and attitudes, Lannes said.

For instance, the urban disposable income per capita in third-tier cities such as Taizhou in Jiangsu Province and Foshan in Guangdong Province rose to US$2,000 last year, almost the same as the figure for Shanghai.

China's strong economic growth is creating an increasingly wealthy population and asset values, laying the foundation for continued growth in wealth and luxury consumption, the report said.

"Consumer confidence almost remained intact, while the government's measures to boost consumption have propelled the growth effectively," Lannes said.

The growth in the domestic luxury market this year will be driven mostly by leather goods and cosmetics, which are estimated to surge by as much as 20 percent. Watches, cosmetics, perfume and personal care remain among the top categories, according to the Bain report.

Louis Vuitton, Channel and Gucci were the most desired luxury brands in China this year.

The US$8.6 billion luxury market did not include spending overseas by Chinese.

In fact, as the country's consumers still prefer to buy abroad, the domestic figure was only 40 percent of the total spent by Chinese on luxury goods.

Globally, Bain & Company predicted lackluster growth of 1 percent in 2010 and did not foresee a full recovery until 2011 when the industry is expected to jump by 4.2 percent. International sales for 2009 are estimated to come in at around US$227 billion.

Of the 300 estimated store openings globally this year, 15 percent will be on China's mainland, the report said.




 

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