China is the world’s largest emerging economy and isn’t showing any signs of slowing down. The emergence of a middle class and hoards of the newly rich have greatly increased consumer spending power and had a huge effect on the global fashion industry.
Over the past decade luxury fashion labels have been rapidly expanding into the Asian market. There are 41 Louis Vuitton stores in China alone! This year, Chinese consumers will account for about one-third of all luxury purchases, and by 2020 they are expected to account for over 44 percent.
However, lately, the luxury market has begun to slow down in China. Not only has there been an increase in demand for more fast-fashion labels like Zara and H&M and popular American brands thanks to the increased spending power of the middle class, but there has also been an increase in demand for domestic designers as well.
Though many Chinese consumers both middle class and wealthy prefer western brands that are known for their superior quality and design, they can expect the taxes on these purchases to range anywhere from 20 percent to 70 percent added on to the retail price. For the wealthy this isn’t a pressing issue because many will eventually travel overseas to conduct their extravagant spending sprees practically tax-free in comparison to what they are spending in their home country. In fact, about 60 percent of luxury purchases made by the Chinese are done outside of China. For the middle class though, this creates a barrier to the full fashion experience. In addition to the rise of fast-fashion, companies like the Iconix China work with established American brands, acquire trademark rights for the Greater China Region, and then enters a joint venture with a local partner to open stores and market the brand in China (The Business of Fashion). Veronica Chou, the founder of Iconix China tells The Business of Fashion that the main focus for bringing in international brands is having the right local people to help a brand launch a successful business. Though these new retail trends are not likely to displace large conglomerates like LVMH Moët Hennessy - Louis Vuitton in China, it is definitely a potential competitor for the hold that the luxury brands have on the market. (Style and Design, TIME.com)
Another reason for the decline in luxury shopping in China? The Chinese government’s austerity plan to decrease overspending. In order to crack down on corruption and extravagance, they have put a ban on radio and television advertisements (and other media outlets that are run by the state) in saying that luxury gift-giving does not promote proper social values. Surprisingly, a large part of the luxury market in China has been supported by government funds. It is common for Chinese employees to get reimbursed for luxury purchases, which they can write of as work related expenses.
“ Whatever they buy, they can get a receipt that says ‘office supplies’. Anonymous luxury brand sales consultant, International Business Times
When the austerity plan was launched last year, many luxury stores feared that assisting in spending public funds would cause them trouble so they announced that they would no longer be issuing mislabeled receipts to consumers. Since then, some sales have gone down by as much as 20 percent.
Despite the slight decline in the luxury market, there’s no doubt that Chinese consumer have a strong grip on the entire industry. Private bank J.P. Morgan has described the purchasing power of the Chinese as unstoppable and there are even companies that are beginning to specifically cater to this demographic. More and more luxury brand stores are looking to hire sales associates fluent in Mandarin or Cantonese and companies like Bomoda based in New York City provide online content about luxury goods and lifestyles published exclusively in Mandarin.
Even though current growth patterns and future predictions suggest that the Chinese economy and spending power will continue to climb, the question is, will this type of market really be able to last in the long run? Or is this the type of societal growth that evolves rapidly only to come crashing down even faster? Only time will tell, but for now the fashion and retail industry may be at the mercy of Chinese consumerism.