Economic Slowdown May Fuel Maturation Of China’s Luxury Market

Jebsen & Co. CEO Foresees Slowdown In Growth, But Not Business

Jebsen & Co is a distributor of several yachtmakers

Jebsen & Co is a distributor of several yachtmakers

Following several years of exponential growth, some observers of the China luxury market expect a gradual slowdown in the country’s booming economy to make Chinese consumers take a breath before making big-ticket purchases in 2012. While few expect to see a significant drop in actual business in 2012, the expectation is that many of the key trends that Jing Daily identified in 2011 in the market will lead to a change in the growth rate.

This week, Hans Helmuth Hennig (previously on Jing Daily), Managing Director at the Hong Kong-based luxury distributor Jebsen & Co., spoke to CNBC about a potential slowdown in the luxury sector in 2012. Though Hennig starts off by admitting, “I think what we’re seeing is a slowing of growth, not really a slowing of the overall business,” he adds that Jebsen expects growth rates for certain luxury segments — particularly flashy luxury cars, which Jing Daily has identified as one of the first victims of a change in conspicuous consumption patterns — to lessen more than others.

From Hennig’s interview:

CNBC: Where are you seeing the [luxury] slowdown?

Hennig: The people coming into our Porsche dealerships, there’s less number of them. We’re seeing less demand for some of our other more broadly distributed products, but at the end of the day, it’s not about things stopping all of a sudden, it’s … maybe the consumer in China is taking a little bit of a step back. But having said that, I just looked at some statistics the other day, retail sales are still growing 70 percent year-on-year so that’s still an enormous growth of retail sales in China. But I think for the products that we sell, which are really high-end premium products, the consumer will think carefully about some of the purchases.

CNBC: So they’re delaying the decision making process?

Hennig: In some cases, yeah, but it’s not a trend. I wouldn’t call it a trend. I’d just say we’re seeing first inklings of that happening.

Wrapping up the interview, Hennig addresses the issue of brand loyalty in China, a topic that has long vexed several luxury brands operating in the country:

CNBC: You said before to me that it’s very difficult to build brand loyalty in China. Do you have to do anything differently to get sales going?

Hennig: I think the difficulty for the Chinese consumers is that they’re inundated with choice at this point of time. Everybody sees China as great hope for the future, and so many people are willing to invest a lot of money to get some sort of return out of China without really understanding whether this is going to be a long term play for them or not.

We’ve been there for over hundreds of years, we need to make it work for us. This is our core market. So from our perspective, if we take on a brand, and we’re actually quite picky about the people that we work with, we need to understand that they are just as committed to the Chinese market as we are. Which means not only putting money into it, but also putting other resources, like people primarily, or even looking at the products seeing that they tailor make them to the Chinese consumers’ demands.

Rather than predicting much of a slowdown in the China luxury market, Hennig seems to foresee something that most luxury brand execs and market observers have been expecting for years: maturation. Though unsustainably high demand for many of the brands and products distributed by Jebsen & Co. — the aforementioned flashy cars and megayachts — will likely slow somewhat, this won’t really affect the Chinese luxury industry as a whole.

Currently, a significant proportion of luxury purchases in China are smaller items or accessories, bought by middle-class aspirational consumers. As such, any slowdown perceived by ultra-luxury distributors like Jebsen is important to take into consideration, but we expect to see signs of maturation, rather than a major lessening of the growth rate, in the premium segment this year.


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