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China’s Anticorruption Campaign to Affect Luxury Brands

According to industry analysts, Chinese luxury-goods consumers will be driven toward more discreet brands and products.

BEIJING — China’s anticorruption campaign, compounded by the watchful eyes of Internet users intent on exposing embarrassing cases of official excess, will push Chinese luxury-goods consumers toward more discreet brands and products.

That’s according to industry analysts monitoring the impact of ongoing efforts of China’s new regime to tamp down corruption, alongside a high-level political purge of top officials, the likes of which have not been seen here for decades. The anticorruption drive has already cut into sales of some of China’s most lavish consumer items, including expensive liquor, imported luxury-brand watches and even sharks’ fins, a controversial delicacy used to make pricy soup.

Going forward, the campaign is likely to change consumer behavior beyond government officials, drawing greater demand for high-quality items rather than showy labels and loudly branded products. Already many brands are toning down their offerings to the Chinese market and offering more exclusive products.

Pablo Mauron, China general manager of the Digital Luxury Group, said the trend began with the rise of new President Xi Jinping, who promised to crack down on official corruption. The bribery and embezzlement trial of Communist Party of China heavyweight and former commerce minister Bo Xilai last month added fuel to the fire, and a growing concern over how wealthy Chinese are perceived and targeted by the rest of society.

“We are starting to see an impact on the types of products that are purchased and the way they are consumed,” said Mauron. “The Chinese luxury-goods consumers are less flashy than before, consequently some brands that were the typical illustration of wealth have become less popular.”

That does not mean China’s luxury-goods consumers have stopped buying, but tastes are changing, said Mauron.

Consumers “might still be purchasing extremely pricy items, however, instead of wearing them out in public, they might only do so during private occasions,” he said. “One segment that is developing well is art since it is much more private and represents a very wise choice in terms of financial investment.”

Bo Xilai and his wife, a glamorous attorney convicted last year of murdering a British business associate in a corrupt deal gone sour, have become emblematic of the type of excess that many now wish to avoid. The Bo family, Mauron noted, became symbolic in China’s vibrant social media world, where critics seek and target examples of excess among government officials.

In one of the best-known of those cases, a provincial official nicknamed “Brother Watch” was sentenced to 14 years in prison for corruption on Thursday after Internet users had unearthed photos of him over a year ago wearing several different high-end watches. The complaint is that no official could afford such watches on a government salary, so the official’s watches were likely bribes from people seeking favors.

“As Chinese culture advocates a simple and modest lifestyle, these cases will have a negative impact on luxury brands and people may connect corruption with luxury goods,” explained Zeng Mingyue, research fellow focused on China’s luxury market with Beijing’s University of International Business and Economics.

“This is not the problem of the luxury goods. Actually, it is because those government officials’ salaries are not enough to buy luxury goods,” she said. “When the photos of government officials wearing [luxury] watches are exposed online, people will question.”

Anecdotally, industry groups have noted a decline in demand for some luxury products alongside the anticorruption drive, though there are few hard statistics on the matter. The campaign is likely to change consumer behavior and tastes rather than cripple the luxury-goods industry in China.

“Consumption of luxury goods is decided by the culture and consumers’ power of consumption. It will also be influenced by social events,” explained Zeng.

Zeng said new government regulations on official spending that has prompted a decline in demand will, over time, create a healthier, more realistic and stable market for luxury items.

“The strict regulations on spending on official receptions, vehicles and overseas trips are a good thing,” she said. “They will actually regulate the luxury market and benefit for its normal development.”

The connection between the anticorruption drive and declines in luxury-goods sales has now become fodder for China’s vocal online commentators.

“The best choice for curbing European luxury goods is not levying taxes, but anticorruption,” commented one Weibo user.

But that’s not exactly true. Mauron noted that China’s luxury-goods consumer group now reaches well beyond the halls of its government.

“Government officials are no longer the only luxury-goods consumers in China,” he pointed out.