But now China has gone glitzy.
Global brand names crowding upscale avenues and malls. Jimmy Choo shoes. BiTourbillon watches from Switzerland. Rolls Royce from Britain. Armani from Italy.
The United States has now fallen behind China in the world's luxury standings. With $9.4 billion in luxury sales last year, the Chinese is certain to grab the number one spot. (Japan still leads the world in high-end sales but that won't last long).
The big names that have made their mark in Beijing and Shanghai are now swarming into China's far-flung regions.
Trinity Ltd. (HKG 891), the owner of Chinese retail rights for Savile Row and other Italian high-end brands says it will soon open fifty new stores in smaller Chinese cities. China has more than 250 cities with populations over a million. Chinese incomes are rocketing throughout the country thanks to booming industries. And the new rich are spending.Trinity says China's industrial boom is sparking strong demand for its luxury clothing lines. As one Trinity director told Bloomberg, "The biggest spenders in China are young and they love European brands". Trinity holds the rights to Salvatore Ferragamo, Cerruti 1881, and Savile Row's Gieves & Hawkes.
Many luxury brands will not follow Trinity's licensing model. Top-name labels are now taking control of distribution and marketing in China.
Brands like Burberry (BRBY.L) and Coach (COH.N) are paying for control of their brands from their Chinese partners. Because of the enormous value of China's high-end market, that's going to be a very expensive proposition. It will also be very profitable.
Reuters reports that Burberry will buy up its network of fifty stores in thirty Chinese cities. Burberry will pay $107.5 million to its franchisee to reclaim its brand. The deal is expected to add $30 million to the firm's 2011-12 profit.
Polo Ralph Lauren has already bought back Chinese distribution rights from Dickson Concepts. And, French handbag maker Longchamp has also decided to buy out its Chinese distributor.
Already, China accounts for 27.5 percent of the world's luxury goods market and its share grows monthly. Luxury companies are expecting major increases in profits as China's high-end market continues to explode.
By 2015 China will be the number one luxury market in the world. Over the next five years high-end sales will jump by 55 percent to $14.6 billion.
Rich consumers in China are younger than those in other countries. McKinsey & Co. says 80 percent of China's wealthiest consumers are under the age of 45. In the U.S. only 30 percent of high-end consumers are younger than 45. In Japan the cohort of younger buyers is a mere 19 percent.
The most popular luxury brands among China's rich were Vuitton (LVMH), Armani and Cartier according to the Hurun report. Many luxury firms are privately held.
China's Alibaba company found a new trend among young and wealthy buyers. They prefer to shop online. The marketing company says more than 400 million Chinese are online and 142 million are internet shoppers. The majority prefer buying their luxury goods on the internet thanks to low prices.
The final word on China's luxury shopping boom goes to the Peninsula Hotel chain. Peninsula complains that its U.S. properties are struggling due to the recession.
But Peninsula profits are up more than 30 percent thank to rising demand in Asia. The company says the growing Chinese upper class is just beginning to become a major force in luxury markets worldwide.
What we're seeing now is just the tip of the iceberg.
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Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.
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