China’s luxury buyers are an endangered species

Mark Garrison Aug 26, 2015
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China’s luxury buyers are an endangered species

Mark Garrison Aug 26, 2015
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China’s latest economic troubles could be the last thing luxury companies need. Once the great hope for growth for American and European makers of handbags, shoes and jewelry, the Chinese luxury buyer is now a threatened species, with China’s currency losing value and stock market slumping.

Bain & Company data show 70 percent of luxury purchases by Chinese happen abroad, so the battle for Chinese luxury buyers is actually fought in places like New York’s Fifth Avenue. It’s a murderer’s row of credit-card chomping monsters like Tiffany, Louis Vuitton, Armani and others. They are Venus fly traps for deep-pocketed shoppers, luring them in with handsome stores and polar-strength air conditioning.

Whether Chinese visitors like Jayce Zhao and his parents keep buying is a big deal for luxury companies. Walking out of a Rolex store, he says the family is not scaling back after China’s economic troubles.

“No,” he insists. “Nothing changes.”

Nearby, on 59th Street, luggage-store manager Bill Kim shows off a sleek black Tumi case. Chinese visitors often buy the biggest, nicest ones he’s got. Then they fill them up with goods bought around the corner on Fifth.

“The Chinese tourists who are already here are not too impacted by this change,” he says.

Sales staff at various luxury stores had the same take. For now at least, Chinese wealthy enough to vacation in New York aren’t cutting back. But it’s important to remember that many in China who own luxury goods bought in New York have never actually been here.

Many Chinese shoppers get their luxury goods through people like Lucy Lee. She is the vital link in a particularly Chinese chain of commerce called daigou. Chinese pay people like her to shop abroad and ship the products to them. They avoid high Chinese tariffs and feel confident they’re getting the genuine product. For Lee and other Chinese living abroad, it’s a nice side job, in her case, extra income while in school.

Daigou buyers in China have money, but not always to the point where they can travel abroad. Lee describes her clients as “middle class.” Since the currency devaluation, they’ve been asking very different questions.

“‘You do consider the depreciation of Chinese yuan, right?’ They will confirm that,” Lee explains. “So I think that will definitely hold them back.”

If middle-class Chinese buyers dry up, that’s a nasty warning sign for luxury companies. A weaker Chinese currency could hurt efforts to sell more to Chinese customers.

“I think it’s huge,” explains Perry Wong, managing director of research at the Milken Institute. “That really will cut down on the appetite to buy expensive products.”

Wall Street is pouncing. A new analysis from data firm Markit shows a sharp rise in investors betting on luxury stocks to drop.

What happens in China, doesn’t just stay in China. It comes all the way to Fifth Avenue and goes back again.

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