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China Luxury
Goods

2. China Luxury Goods
The global luxury goods
sector has continued to
soar to post-crisis heights
in 2012, with its third year
of double-digit growth.
Globally, luxury goods sales
(includes apparels, acces-
sories, footwear, jewelry,
leather bags, cosmetics and
perfumes) is anticipated to
reach EUR 320 Billion by
the end of 2017, with a
CAGR of around 9% during
2013-2017.
Spending by Chinese con-
sumers on luxury products
is growing tremendously,
making it second largest
luxury market in the world
after Japan. China has
become the paramount
driver of growth in this
sector, with purchases by
Chinese both at home and
abroad accounting for over
7% share in global sales
in 2012 which anticipated
to 8% share by the end of
2017.
Source: RNCOS
Source: RNCOS
Figure-2: Global - Personal Luxury Goods
Market (Billion EUR), 2010-2013 & 2017
Figure-3: Share of China in Global Luxury
Goods Sales (2012 & 2017)
320
225
210
190
172
2010e 2011e 2012e 2013e 2017f
Overview
37.0%
12.5% 6.5%
5.0%
9.0%
30.0%
Europe
Americas
Asia-Pacific
Japan
China
Rest of the World
33%
13% 8%
5%
9%
32%
Europe
Americas
Asia-Pacific
Japan
China
Rest of the World

3. China Luxury Goods
Personal luxury goods sales
in China estimated to reach
around EUR 15 Billion in
2012 with around 12%
luxury consumption growth
y-o-y in 2012, down from
30% in 2011. The slow-
down was partly attribut-
able to a weaker economic
growth in China, as well as
the growing trend of shop-
ping luxury goods abroad.
Besides that, the recent ban
on spending public funds
on luxury items for gifting
might also have a negative
impact on luxury sales in
China. Moreover, the per-
sonal luxury goods market
in China is anticipated to
reach around EUR 18 Bil-
lion till 2017 with a CAGR
of more than 6% during
2013-17.
In 2012, it is estimated that
overseas consumption of
luxury goods accounted for
around 60% of the total
Chinese luxury spending,
with watches, jewelry and
leather goods winning
the top spots. In domestic
market, among the major
product categories, the y-o-
y growth rates of cosmetics
and personal care products,
women’s wear and mens-
wear were more resilient in
2012. Watches and jewelry,
on the other hand, saw
a notable growth decel-
eration in 2012 which is
expected to decline further
on the account high taxes.
Share of Luxury Goods Market by Product
Category (2012 & 2017)
Source: RNCOS
Figure-4: Personal Luxury Goods Market
(Billion EUR), 2010-2013 & 2017
18.0
15.0
14.8
13.0
10.0
2010e 2011e 2012e 2013e 2017f
Market Size and Growth Rate
30%
14%
Watches
Cosmetics, Perfumes & Personal Care
Leather Bags
Menswear
Jwellery
Footwear
Womenswear
Accessories
10%
7%
5%
5%
6%
23%
Source: RNCOS
30%
Watches
Cosmetics, Perfumes & Personal Care
Leather Bags
Menswear
Jwellery
Footwear
Womenswear
Accessories
14%
10%
7%
5%
5%
6%
23%

4. China Luxury Goods
Opportunities & Challenges
Opportunities
• Rising number of affluent consumers which are just attaining middle-class status is in-
creasing at an explosive rate as incomes head upward.
•
• Ongoing urbanization and rising luxury demand in smaller cities.
• Opportunities due to economic slowdown in European countries as many luxury brands
are now focusing on Asian market (especially China) to compensate for the loss.
• A surge in the number of credit card users is likely to stimulate immediate consumption
of luxury goods. According to China Banking Association, in 2011, China’s credit card
transactions totaled CNY 7.75 Trillion, up 48% yoy; the number of credit cards issued was
285 Million, up by 24.3% yoy. MasterCard forecasted the number of credit cards in China
to reach 900 Million by 2020.
CAGR
14.22% 5310
3120
2690
2320
1890
2010 2011 2012 2013e 2017f
Figure-1: Per Head Personal Disposable Income (US$), 2010-2013 & 2017
Source: EIU

5. China Luxury Goods
Challenges
• As part of the anti-corruption campaign,
in July 2012, the State Council promul-
gated the Regulations on the Affairs and
Administration of the Government Agen-
cies effective 1 October 2012. According
to the regulations, government agencies
are prohibited from purchasing luxury
goods.
• The high costs of luxury goods in China
is mainly due to stiff government taxes,
which leds the consumner to make pur-
chases abroad.
• Digitally challenged online retailing market is also a challenge to the luxury market in the
country as over two-thirds of Chinese use the internet to research brands, but most luxury
firms have pitiful digital strategies.
• Increasingly sophisticated consumers shifting from overexposed logo brands to absolute
quality products.
Category Consumption tax Import tariff
Cosmetics 6.5%-150%
Jewelry and precious stone 5%-10% 0%-130%
Luxury watches 20%
30%
11%-100%
Table-1: Consumption tax and import tariff on selected luxury products (2012)
Source: China Customs

6. China Luxury Goods
In future, despite the cooling in the growth rate of Chinese luxury spending, the demand of luxury
goods is anticipated to remain robust on the back of rising number of very wealthy consumers, who
have a marked tendency to trade up to more expensive and more luxurious products. At the same time,
new entrants into the luxury category which are just attaining middle-class status are also increasing at
an explosive rate as incomes head upward.
Further, a rapidly-growing share of Chinese luxury shoppers are doing their purchasing abroad which is
expected to rise in future. Although Hong Kong and Macau rank among their favored shopping destina-
tions, now Europe is also rising quickly in popularity. Increasing foreign travel by Chinese is one impor-
tant reason for this trend; so is the fact that luxury goods are not nearly as expensive overseas as they
are in the Mainland, where the government imposes stiff taxes on such goods.
To overcome this problem, the government of China is going to soon slash import duties on opulent
items to encourage wealthy local shoppers to buy more pricey cosmetics, watches and liquor. The move
will encourage shoppers to shop more in the domestic market than to abroad.
Future Outlook

7. China Luxury Goods
China’s luxury goods market is largely dominated by foreign players. Most Chinese luxury consumers
tend to favor foreign brands that have long history and unique brand heritage.
To further expand their brand portfolio and increase their presence in the China market, some foreign
luxury retailers are looking for opportunities to invest in local luxury companies that have strong identity
and growth potential.
For instance, in December 2012, French luxury group, PPR acquired a majority stake in Qeelin, a Chinese
fine jewelry brand. And earlier in February 2012, L Capital Asia, a private equity fund financed by the
French luxury giant LVMH, acquired a 10% stake in Ochirly, one of the top fashion brands in China. L
Capital Asia also co-invested with the Chinese apparel company Xin Hee Co., Ltd. in a mid-priced ap-
parel brand QDA, and its first store was opened in Beijing in March 2013.
Key Players
Recent Developments
• Louis Vuitton has initiated a grand strategy for Beijing with its new store. With this new store, the
company is taking a step further and providing adapted shopping experience and service for its
sophisticated clientele.
• Prada, the Italian fashion house, is expanding to smaller Chinese cities as its global growth slows.
• Prada SpA’s first-half 2013 sales growth fell to a third of 2012’s as China luxury demand cooled
amid a slowdown in the world’s second-largest economy.
• Giorgio Armani’s operating profit rose 20% in 2012 as the Italian fashion retailer expanded its retail
network and continued to develop its presence in China. The company had begun a push into
China and other parts of Asia well before an economic slowdown hit Europe.
• Emporio Armani banks on watches and jewelry rebound In China. Following the grand opening of
its first Hong Kong flagship exclusively for watches and jewelry in February 2013, Giorgio Armani
diffusion line Emporio Armani is setting its eyes on the Mainland.
International Luxury Players
• Burberry
• Dior
• Louis Vuitton
• Chanel
• Hugo BossHermes
• Gucci
• Tiffany & Co.
• Armani
• Prada
• Fendi
Domestic Luxury Players
• NE-TIGER
• Shanghai Tang
• Qeelin

8. China Luxury Goods
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