Sector Report

China Retail – Luxury redefined

by Mariana Kou / Apr 13, 2017


The luxury-goods sector remains attractive. While growth is moderating, it is still steady at 4.7% over the next four years and the market looks set to reach €320bn given robust operating leverage, cashflow generation and ROE.

The slowdown in Chinese consumption and volatility in travel demand was tough for global luxury goods over 2014-1H16. In 2H16, we saw a moderate pickup, especially in Asia and some parts of Europe. A combination of factors fuelled the consumer rebound: renminbi depreciation, a wealth effect from rising property prices in the mainland, recovery of tourist flows into Europe and brand price optimisation. A key risk is the impact of geopolitical relationships on tourism such as China’s recent travel ban on Korea.

Rising incomes and social factors have continued to drive a robust appetite for luxury goods. However, we now believe consumers globally are shifting their focus from tangible luxury products, and broadening their horizons to seek out lavish experiences. There is room for innovation to capture new areas of demand for experience products such as smarthomes, virtual fashion shows, extravagant-branded weddings and even opulent study-abroad trips.

Companies that can maintain brand recognition and strong customer relationships will be the winners, along with those able to redefine and capture the growing demand for luxury experiences and lifestyle.