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XINHUA NEWS, CHINA BUSINESS TIMES (China)

Worldcrunch

SHANGHAI - Not so long ago, the world’s luxury brands were enjoying the rapid development of the Chinese market, but since the end of 2012, this trend has taken a sharp downwards turn.

As Xinhua News pointed out, even though in 2011 the GDP per capita in China ranked 86th in the world, it somehow surpassed Japan, making it second on the list of the largest luxury goods consumers, right after the U.S. But, according to a study conducted by Bain & Company, China’s luxury goods consumption growth rate was only 7% in 2012, far smaller than the 30% growth rate two years ago.

The latest report from the World Luxury Association also shows that from January 20 to February 20 of this year -- during peak gift-purchasing time for the Chinese New Year -- the Chinese luxury market consumption totaled $830 million, which represents a steep 53% drop in sales in comparison with the same period last year, the China Business Times reported.

Since taking office late last year, China’s new leaders have introduced the so-called “New Eight Provisions” which advocates frugality and aims to rectify Chinese officials’ pompous waste of public money and the collusion of trading favors for expensive gifts.

In adapting themselves to the characteristics of the Chinese consumer market, many of the global brands’ Chinese branches "do as the Romans do" and used to give Chinese shoppers maximum convenience.

For instance, an employee, who wished to remain anonymous, at Prada in Shanghai told the Xinhua reporter that their luxurious leather goods can be invoiced either as a gift or expenses for work as the client requires.

Another employee from a different high-end brand added that this year has seen the tax office closely inspecting their accounts. Apart from the jewelry and watches that they are still able to invoice as leather goods, they hadn’t been able to sell other items under the etiquette of office supplies so their sales have declined by 20%.

The China Business Times observed that, since January, news has been continuously trickling through that Gucci, Louis Vuitton and other labels will be slowing their expansion in China. Louis Vuitton’s executives declared that they would not continue to open new shops in second and third tier cities. Gucci announced it will maintain its current number of stores in China in 2013.

A visit to any of Shanghai’s swanky apparel boutiques shows that the number of customers in any of these shops has dramatically shrunk. A Givenchy store on Shanghai’s lively Nanjing road recently closed after undergoing a stock clearance sale.

“The expansion of luxury brands has been unable to continue in China. The vast majority of brand sales last year did not reach the goals set at the beginning of the year. Some of them saw a drop of more than 30%. This is rare in recent years,” stated an executive of a world-renowned luxury goods group to the China Business Times before further pointing out: “This has to do with the huge price difference between these goods sold in China and sold abroad, as well as the overall economic environment. But it is also related to the fact that spending public money is now much more restricted.”

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