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As markets drop, will the Chinese still shop?
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The designer outlet mall of Bicester Village is set in the English countryside near Oxford, but it might as well be in China.
Quiet Mandarin chatter fills the air. Most of the shoppers are Chinese 颅鈥 and so are half the sales assistants.
In the Burberry store, many try on the brand鈥檚 signature trench coats, which go for at least 600 pounds (US$925) after discounts. Some punch numbers into their smart phone calculators to work out the exchange rate; more take photos of the goods on offer, likely to message friends at home for a nod of approval.
Over the past decade, Chinese customers 颅鈥 at home but most crucially abroad 鈥 have become a powerful market force in the global trade in expensive clothes, jewelry, watches, perfumes, drinks and handbags.
But the stock market plunges of the past few days on the Shanghai exchange have raised the question: Will the drop in the Chinese economy be worse than expected? And how will it affect the Chinese shopper?
John Guy, a luxury goods analyst at financial services group MainFirst in London, says there has been some shift in demand away from the very high end of prestige brands, for example for watches.
鈥淭he crackdown on gift-giving means you鈥檙e no longer buying gifts, you鈥檙e purchasing for your own consumption, and that has led to a shift in terms of the selling prices being effectively lower,鈥 he said.
But other data, such as increasing outbound travel, suggest 鈥渢he traveling Chinese consumer is still there.鈥
He noted that the income of the middle class in China is forecast to grow faster than the economy. Chinese authorities are trying to shift the economy鈥檚 focus on manufacturing and exports toward consumer spending 颅鈥 something that could sustain shoppers鈥 ability to buy Western goods over the longer term.
And while the Chinese economy is slowing, it is doing so from a high level. It was growing seven percent annually at last count, much faster than Western countries.
Gerald Celente, a business consultant who publishes the Trends Journal, takes a gloomier view of China鈥檚 economic downturn.
鈥淚t鈥檚 going to have the same kind of effect that it has in any nation 颅鈥 retail slows down,鈥 said Celente. 鈥淵ou鈥檙e seeing the people that made it big quick, lose it fast.鈥
Already before the stock market turmoil, demand for luxury goods was waning in China. The Bain & Co. consultancy predicted this spring that China鈥檚 luxury sales would drop 4 percent this year.
Pernod-Ricard, a drinks firm that owns Glenlivet whisky, Absolut vodka and several champagne and wine brands, this week said its 12-month sales were down 2 percent in China, adding to a 23 percent drop the year before.
French luxury firm LVMH, the maker of Givenchy, Louis Vuitton and high-end drinks, reported destocking of higher quality cognac in China, and described the market there for its wines and spirits as 鈥渃hallenging.鈥
Yet much shopping takes places outside China 颅鈥 in places like Bicester Village and Europe鈥檚 capitals.
Currency differences, combined with high taxes and markups for imported luxury goods at home, mean that Chinese shoppers are confident they are getting goods for some 30 percent cheaper in continental Europe. The Chinese government has recently cut import tariffs, and producers have lowered prices in some cases, to encourage more spending inside China. But many of the shoppers here say they鈥檇 still rather come to Europe.
鈥淚t鈥檚 still cheaper here than back home, even after the government measures to reduce prices,鈥 said Andy Cao, who works in logistics.
Chinese spending in Britain is not growing as quickly as it used to, but the Chinese are still the top overseas spenders in the country, according to Global Blue, a Switzerland-based tax refund company that works in over 40 countries. In 2013, Chinese spending in Britain grew a whopping 34 percent compared with the previous year. In 2014, that slowed to a 6 percent growth rate. In mainland Europe, a weak euro has served as an added attraction for international shoppers, including the Chinese. LVMH Chief Financial Officer Jean-Jacques Guiony said that 鈥渕ost of our brands are benefiting from a strong momentum from the Chinese client base. It鈥檚 particularly true for Fendi and Celine.鈥 Louis Vuitton has seen stronger demand as well.
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