Inflationary expectations and a global economic slowdown haven’t been able to extinguish consumption of goods in China. The retail sector is expected to grow up to 35 percent in 2011 with sales roughly 18 percent higher than a year ago, according to a CEBM China Research.
Chinese consumerism first began in the 1990s as the seeds of a middle class began to grow in the country’s largest cities. Today, this middle class is roughly 150 million strong and growing.
More importantly, CEBM reports that China’s GDP per capita has reached the $4,000 level. Historically, consumption of automobiles, travel and education rises when GDP per capita reaches $3,000. At $4,000, the middle class begins to dominate overall consumption and drives growth in “quality-of-life” consumption.
Luxury brands are an area that has experienced some of the sharpest increases in recent years. According to CEBM, total sales for the domestic luxury market totaled $10.7 billion as of March, up nearly 14 percent year-over-year. China has become the world’s second-largest market for luxury brands—just behind Japan—and accounts for almost 28 percent of all luxury brand consumption. CEBM forecasts total luxury brand sales could increase to $14.6 billion in 2012, making China the world’s largest luxury brand market.
Name brands like Fendi and Dom Pérignon have seen their Chinese sales nearly double over the past five years as more international brands penetrate the Chinese market, says the LVMH Group.
Previously only located in China’s largest cities, retail outlets for brands such as Armani, Hugo Boss, Dunhill, Cerruti 1881 and Ermenegildo Zegna are popping up all over the country. In total, there nearly 600 luxury brand stores across China. Many of these brands have an equal presence in China and the United States. Burberry, for example, has around 44 stores in the U.S. and 39 stores in China.
Rising incomes in China are also affecting sales of gold jewelry. Year-over-year sales have outpaced the other five categories of the retail sector. CEBM forecasts wealthier consumers to drive sales of gold and jewelry products up 55-60 percent on a year-over-year basis in 2011. In addition, Chinese citizens have purchased nearly 91 tons of gold bars and coins in 2011, more than double the 2010 total, according to the Financial Times.
About The Author - Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. (EconMatters author archive here.)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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