Luxury sales hit by Chinese fears of 'ostentation'
The government's crackdown on corruption has put a crimp in China's gift-giving culture.
Solid earnings and soaring share prices for Tiffany (TIF), Michael Kors (KORS) and other luxury brands has led to widespread talk of a new boom in high-end goods, but it may be too early to pop the corks on the Dom Perignon.
A new study from one of the world's top luxury experts predicts that growth in such sales will be as much as 50% slower this year than last. The main reason: China.
Claudia D'Arpizio, a partner at Bain & Co. and leader of its luxury and fashion practice, forecasts sales growth of 4% to 5% in worldwide luxury sales this year. That compares with 10% in 2012 and 11% growth in 2011. Total worldwide sales are projected to rise to between 220 billion euros ($288 billion) and 222 billion euros this year, from 212 billion euros last year, she said.
While currencies play a role in the slowdown, the study indicates that decreasing growth in Asia, especially China, and continued weakness in Europe will drag down the stronger performance of the U.S. and parts of Latin America.
Sales growth in the Asia-Pacific region, excluding Japan, will slow from 26% last year to 10 percent at constant exchange rates, the report said.
The Chinese government's crackdown on corruption has put a crimp in that country's gift-giving culture, according to the report, and thus dampened extravagant purchases -- especially high-priced watches, which are often given as gifts. It added that bloggers in China are "building negative buzz around luxury ostentation."
Europe will remain weak, with its growth falling to 3% from 8%, the study said.
The Chinese are reducing their spending in Europe because of "narrowing price gaps" between high-end goods in Europe and Asia, the report said, adding that some consumers have "tourism fatigue" and therefore aren't traveling as much to Europe.
In contrast, the U.S. is "rediscovering luxury," driven by surging consumer confidence, according to the report.
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