China Slowdown? Don’t Count Out ‘The Bling Dynasty’ Yet, Says HSBC

Growing concerns about Chinese luxury consumption have led to a share sell-off of luxury brands by global investors since the beginning of the month. Yet Erwan Rambourg, Global Co-head of Consumer and Retail Research of HSBC, thinks the situation is “not so dire.” The luxury sector “won’t decline on as steep a slope as the market expects,” the veteran Asia prognosticator predicts.

Rambourg, who famously coined the name for this age of Chinese consumerism “The Bling Dynasty” in 2014, wrote in the latest HSBC research note that the global luxury market would still see robust near-term growth, as evidenced by the Q3 earnings results reported by big-name players like LVMH, Kering and Moncler. However, a luxury consumption slowdown–what he described as a “soft landing”–is expected in the mid- to long term, as the sector has experienced a strong recovery since mid-2015.

“[E]very luxury discussion we are having is dominated by questions about the Chinese economy, stress on tariffs and trade, and a potential repeat of the slowdown the sector saw in mid-2015,” Rambourg wrote. But China’s diverse consumer demographics have many untapped potentials that provide luxury brands with massive opportunities, HSBC argues.

Addressing the recent crackdown on overseas Chinese luxury shoppers, aka daigou (代购), Rambourg noted the fact that the practice has been going on for more than two years and was meant to motivate more luxury consumption to happen within the country. Previously, recent border customs scrutiny in China was seen as one of the major reasons causing global luxury stocks to fall this month.

He singled out one segment–the young, female Chinese shoppers–who he believes holds the future of the luxury market. “Luxury brands have to be both creative and digital as they build relationships with shoppers at a crucial, formative time in their lives,” the note said. Brands that can have a savvy online presence and also build out a physical presence in China has the greatest chance to win over consumers.

Lastly, Rambourg predicted the whole sector would grow at 9 percent year-on-year in the second half of this year, slightly slower than the 10 percent year-on-year growth in the first half but a solid pace. In 2019, the growth rate will continue at around 7 percent from 2018, he predicted.

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