Expensive habit

“Think of it as an investment” are dreaded words for even the most shopping-hardened of husbands.

Occasionally, it turns out to be correct. Top-of-the-range Hermès handbags hold their value well and can sometimes be resold at a profit. A relief, when something stitched in crocodile hide can end up costing more than a car.

Perhaps that’s a factor in why the French luxury leather goods firm is now valued well above France’s second biggest bank, Societe Generale (which, admittedly, is not having the best time of it at the moment).

Hermès’ market cap is now more than $39.8 billion on the Paris stock exchange, with SocGen well back on $22 billion, the Guardian reported this month. In late August Hermès also posted a 37% rise in first-half operating profits.

Much of that is down to Chinese demand, with an HSBC research report last week confirming that there is little sign of a hard landing as far as luxury goods sales in China is concerned.

The report’s authors also reckon that China is going to surpass Japan in high-end consumption much faster than initially predicted: by the end of this year, in fact. That would put it into first position, and HSBC predicts that luxury sales will continue to expand at an astounding rate, from around $13 billion at present to $106 billion by 2020.

This type of demand means that brands are basing their future growth on Chinese shoppers. When WiC was in Paris this summer, for instance, it noted that all the major stores on the Rue du Faubourg du Saint-Honoré had a Chinese salesperson, with calculator at the ready. And then in Gucci we tracked a group from Beijing which was spending with gusto. On the evidence of their shopping bags, they had already cleared the shelves at Chanel earlier in the afternoon.

Nor are the international brands just waiting for Chinese shoppers to visit. The world’s largest Mont Blanc store is not in its home market of Germany, for example, but on Shanghai’s Nanjing Road West (Mont Blanc has 95 stores in China versus just 34 stores in the US, making it the luxury pen and watchmaker’s number one market).

Small wonder, then, that glossy brands like legendary sportscar maker Ferrari are reported to be considering a listing on the Hong Kong stock exchange.

Bankers say Ferrari thinks, like Prada before it, that it will get a higher valuation from listing in Hong Kong than in Milan.

“Displaying wealth has become a trend in China, and we think this will continue to translate into growing purchases of luxury goods for oneself, or as gifts,” HSBC writes.

“We think consumer habits may not necessarily always correspond to income levels due to the need to socially fit in and show off wealth.”

Unlike in the West, men account for a larger proportion of luxury goods sales (China is “a local luxury-goods market that is probably the only male-driven one on the planet,” says HSBC). While men are often buying gifts for women, “the decision of buying for women is still made by men,” François-Henri Pinault, head of the French apparel group PPR, which owns Bottega Veneta and Gucci, confirmed to the Wall Street Journal recently.

That may change. HSBC reckons growing financial independence for women means more chance that they will call more of the shots in conspicious consumption. “There were almost 197 million women between the ages of 30 and 49 in 2009, representing almost 17% of the total population. This target audience has huge potential as these women become more-engaged luxury consumers.”

For Louis Vuitton and Gucci, women are already the principal customers in China. Chloé, the French luxury label, also expects China to become its biggest market within two years because of the rise of female shoppers.

“Women in this country are becoming more independent, more career-oriented, and more powerful,” president and chief executive Geoffroy de-la-Bourdonnaye said.

The HSBC report also reveals that while wealthy Chinese are certainly keen on buying top-of-the-range watches, wallets and handbags, they aren’t quite so keen on doing it at home. Domestic sales account for less than half of total luxury spending. European sales contribute a surprisingly high 26% and Hong Kong 10%.

That is partly down to fears about counterfeiting in China, and also a result of high luxury good tariffs, which can push up prices by as much as 30%.

But in dispiriting news for the carefully-coiffeured shop assistants of Europe and Hong Kong, Beijing is now said to be considering getting rid of the luxury tariffs. In June, the China Daily quoted Yao Jian, a spokesman for the Ministry of Commerce, as saying that there were plans for cuts in import duties. The reductions were just “a matter of time,” said Yao.

“All in all, any tax decrease would favour consumption locally as part of the incentive of purchasing in Hong Kong or Europe would diminish,” says the HSBC report.

What’s also interesting is that definitions of luxury consumption may be widening.

City’super, the Hong Kong-based gourmet deli which opened a store in Shanghai last year, reports that its high-end food is already hugely popular. Average spend at the Shanghai store is also higher than in Hong Kong.

The best selling item? Jamón ibérico. So what does a sudden craze for costly Spanish ham say about luxury spending patterns?

“There are different stages of luxury goods consumption,” Thomas Woo, the company’s China head, told the Financial Times.

“Eating is not like a Louis Vuitton bag: you can’t show it off. So this shows that the luxury market here is more advanced than we thought.”

If Woo is right, it suggests China’s consumers are not only becoming richer, but more discerning too.

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