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Health, Beauty & Fashion

Have designer bag, will travel

Luxury goods market is benefiting from rise in tourist numbers and spending: Report
The Sunday Times - October 23, 2011
By: Magdalen Ng
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Have designer bag, will travel Tourist numbers are growing, totalling 940 million last year - a 6.6 per cent rise from the year before - and the visitors are spending more than ever. -- PHOTO: REUTERS ST PHOTO: KEVIN LIM

Global travel will buoy the luxury goods market in the coming months, making equities of these big brands still a favourable investment strategy, according to a new report.

According to researchers Erwan Rambourg, Antoine Belge and Sophie Dargnies at HSBC, this is despite the weakened market conditions in recent months.

Demand from Europe and the United States is likely to slow, and many have expressed concern that a possible China slowdown might be a bigger drag on the industry.

High-end consumers in the US will be the hardest hit by the recent market slump, they said.

However, tourism inflows to Europe more than offset the slackened domestic demand. Up to half of luxury goods sales are generated by foreigners.

Tourist numbers are growing, totalling 940 million last year, a 6.6 per cent increase from the year before. The better news is probably that tourists are spending more than ever, outpacing the growth in tourist numbers.

One reason for this is the easing of travel restrictions, with many countries party to bilateral or multilateral agreements on visas.

Already, the estimates are that travellers account for as much as 30 per cent of sales of the luxury goods market and that one-third of these sales are to travellers from China and Hong Kong.

Furthermore, the Boston Consulting Group expects China to surpass Japan as the second-largest travel and tourism market in the world by 2013.

In terms of spending, the Chinese are third, behind only the Germans and Americans.

This trend is likely to continue, based on HSBC's assumption that the Chinese economy will not experience a sharp decline this year.

Given that displaying wealth has been ingrained into Chinese culture, it will translate into growing purchases of luxury goods.

The report also estimates that sales of global luxury brands in China have grown by 30 per cent in the last year.

As such, the Asian traveller should provide a floor under growth in the luxury sector, especially for brands that are bigger, more global and Asian-driven.

This dependence on travellers may mean that the luxury goods players cater specifically to them, which may threaten the universal nature or exclusivity of luxury goods.

Also, excessive spending on stores and fast-paced expansion by smaller players to target this specific crowd may be detrimental.

For example, Piaget has become too Asia-dependent in its design and communication, losing some of its distinctive attributes.

A top pick by HSBC is luxury group Richemont, which owns brands such as Jaeger-LeCoultre, Vacheron Constantin and, in particular, Cartier, which it touts as the Louis Vuitton of watches and jewellery.

The researchers said: 'While we acknowledge that playing the Chinese consumer equates to putting many eggs in the same basket, we think for now that the visibility on growth is good.'

 

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