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Luxury retailers worst hit as spending cut

By Pan Xiaoyi | February 13, 2009, Friday | Print Edition

CHINESE consumers are getting jittery about household finances and job security as a world recession gathers pace around China, with luxury retailers likely to be the worst hit as people rein in spending.

Sixty percent of consumers have already curtailed their personal spending or plan to tighten their purse strings this year, according to a recent survey by DDMA Market Research & Consulting. Shanghai retail sales during the recent Chinese New Year period fell to single digit for the first time in three years.

"The financial crisis has made me more cautious because there are so many uncertainties and I lack a sense of security," said Rachel Feng, who has worked for nearly four years at Watson Wyatt Consultancy (Shanghai) Ltd.

Feng said her company hasn't announced any job or salary cuts yet, but she still feels edgy about the future. She cancelled plans for an overseas holiday in favor of a cheaper domestic trip, and now said she might cancel even that.

"Consumer sentiment is low, with consumers concerned about the immediate outlook for the economy," said Sam Mulligan, founder and director of DDMA Market Research & Consulting.

DDMA surveyed 4,500 medium and high-income consumers in the major cities of Shanghai, Beijing, Guangzhou, Chengdu and Shenyang, asking them about their willingness to spend this year. The state of the economy topped the list of concerns and apprehension about job security wasn't far behind.?

The job market is deemed tight and employment is expected to become harder to find in the next six months. That makes people with jobs nervous about their options should they be laid off.

"Although my job and salary are safe for now, I am scheduled for a month of unpaid leave in May, so I have to save more money in advance of that," said Annie Dai, who works in one of the four leading accounting firms. "Our firm has started cutting jobs."

Happy retailers

Sales revenue in Shanghai during the week-long Chinese New Year holiday rose 8.4 percent from a year earlier to 4.27 billion yuan (US$625 million) at 389 large and medium-sized retailers, the Shanghai Commercial Information Center reported. Growth was 12.1 percentage points lower than last year.

Mulligan attributed the more subdued growth to smaller, or no, annual bonuses, which traditionally fuel holiday spending. Despite the downturn, China still is one of the most buoyant consumer economies in the world, said Phil Davis, an advisor at DDMA Market Research.

The prospect of leaner times ahead is causing a shift in shopping patterns, according to the marketing research survey. Many shoppers are either delaying purchases in anticipation of greater discounting or are seeking bargains in more down-market venues. Conspicuous spending is on the wane.

"I used to shop in specialty shops but now I purchase on Taobao," said Dai, referring to an online auction Website offering discount prices.

Richemont, the Switzerland-based owner of luxury retailers Cartier and Montblanc, described current market conditions as the worst it has seen in 20 years, while?Bulgari of Italy forecast a "very difficult" 2009.

It's not just working women like Dai who are feeling the pinch. Chinese millionaires, who were once happy to splash out cash for big-ticket luxury items, cut their spending to about 2 million yuan apiece last year, according to a survey by Hurun Report, China's leading luxury business magazine. They had been forecast to spend about 5 million yuan before the stock market slump and a worsening economy eroded the value of their assets.

Spending hit

Report Chairman Rupert Hoogewerf said spending on luxury goods worldwide has been adversely affected by the global financial crisis. Although China has not escaped the trend entirely, it still remains one of the most important growth markets for luxury brands, he said.

Hurun Report surveyed 345 people with assets of more than 10 million yuan, including 131 who reported their wealth in excess of 100 million yuan.

"China?is the world's fastest-growing market for luxury brands, expected to rank second only to Japan by 2015," Hoogewerf said.

Hurun's annual "Rich List" showed 1,000?people?with?wealth of US$100 million or more?and 800,000 millionaires. The largest proportion of their spending goes to luxury goods, especially cars and watches.

Hoogewerf said the market for yachts and cars is under pressure, but growth in sales of watches and jewelry continues at a 25-percent pace.

"Almost every company will be hurt by the economic downturn, more or less," said Josephine Chien, general manager of Cartier China east region. "But the luxury sector has been less affected than expected. Keen to flaunt their social status, the rich won't cut spending on luxury products entirely."

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