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    China Luxury Demand Rallies, But What Does It Mean For 2013?

    Following a significant dip in demand for some major luxury brands in China over the past six months, recent figures project a strengthening in the first quarter of 2013, even for beleaguered high-end watchmakers.
    Brands need to take a long-term approach to marketing to Chinese shoppers
    Jing DailyAuthor
      Published   in Fashion

    Luxury Demand Expected To Show Stronger Rebound In Q1 2013#

    Following a significant dip in demand for some major luxury brands in China over the past six months, recent figures project a strengthening in the first quarter of 2013, even for beleaguered high-end watchmakers. As Bloomberg notes today,

    Concern over slowing Chinese growth [is] waning, which might help luxury shares, said Joerg Lorenz of Zuercher Kantonalbank. Sales in the second-biggest economy had risen since the summer, and spending abroad was now “more aggressive”, Francesco Trapani, the head of LVMH’s watch and jewellery unit, said.



    Richemont’s first-half profit beat analyst estimates, as a weaker euro spurred Asian spending on luxury goods in Europe.



    “Markets seem to assume that China growth is bottoming out and there’s even more of a rally in store for luxury goods,” Lorenz said. “The latest watch export statistics support this view.”

    Despite rising sentiment, the world's largest luxury groups aren't out of the woods quite yet. While Richemont is no doubt pleased by an Asia-led 13 percent increase in its luxury watch exports month-on-month, LVMH raised prices at its top fashion and leathergoods brands in Europe following reports that indicated its lowest sales increases since 2009. With raw material costs continuing to rise, the luxury giant is set to increase jewelry prices next year. However, we don't expect the increases to dissuade Europe-bound Chinese tourist-shoppers, as prices will remain significantly lower in Paris than Beijing.

    In 2013, the question for China remains what kind of growth leading luxury groups like LVMH and Richemont can realistically expect. According to the average estimates in a recent Bloomberg survey, China's economy should expand around 8.1 percent in 2013, up from 7.7 percent this year but down from 9.3 percent in the luxury boom year of 2011. Though more conspicuous brands like Rolex and Louis Vuitton should perform better than expected in 2013, owing to continued third- and fourth-tier expansion, we expect the most significant growth stories in top-tier cities like Beijing and Shanghai t0 be among boutique luxury brands, independent high-end designers (via e-commerce and brick-and-mortar), and even a handful of domestic jewelers.

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