HONG KONG — Fast-growing China is poised to account for 44 percent of the global luxury market by the year 2020, according to a new report from CLSA Asia-Pacific Markets.
CLSA, which is a bookrunner on Prada SpA’s planned initial public offering in Hong Kong, forecasts the Chinese luxury market will grow at a rate of 25 percent a year for the next five years, and then at a rate of 22 percent a year afterward. This implies a market size of 74 billion euros, or $101.4 billion, by 2020. Consulting firm Bain & Co. estimates China’s domestic market in 2009 was 68 billion yuan, or $10.32 billion.
Luxury goods companies have been doing well in Asia for some time, but there’s evidence that growth is accelerating, analyst Aaron Fischer said in a briefing in Hong Kong.
The percentage of households with income of more than $10,000 a year — the point at which consumers start buying luxury goods — has increased to 17.9 percent from 3.1 percent in 2000, the research said. CLSA expects this income group to grow at double digits for the next eight years, according to the bank.
CLSA declined to comment directly on Prada’s prospects in China and elsewhere in Asia, but Fischer said Western brands will continue to do well in the region. Preferred luxury brands for watches, clothing and jewelry in China are similar to those elsewhere in the world, but with some key differences, he explained. The luxury market in China is still largely male-dominated, so men’s wear, suitcases, watches and cars are significant segments. Hong Kong and China combined account for 26 percent of Swiss watch exports, he said.
Fischer anticipates more Western luxury brands will list in Hong Kong.
“It makes sense,” he said, noting that after L’Occitane’s listing, the French skin care maker’s sales in Asia increased.
Despite recent strong earnings from companies, the share prices of luxury goods companies have suffered in recent months amid concerns about inflation. “That’s surprising,” Fischer said, explaining that inflation is generally favorable to luxury players as they can raise prices without fear of backlash from consumers and there is no margin pressure since margins are around 60 to 90 percent.