Stricter Laws in China Have Strong Impact on Chinese Demand of Luxury Watches

“South China Morning Post” recently posted an article about China’s anti-corruption campaign and the impact that it is having on the luxury goods market, specifically luxury watches. Gift giving has been a part of Chinese politics for several decades. Chinese politicians would vote a certain way or push a certain piece of legislation in return for a gift, which was oftentimes a luxury watch. To curb the corruption that is occurring throughout the Chinese government, an anti-corruption campaign has been launched that bans the act of gift giving.

In March 2013, Chinese President Xi Jinping passed several legislations to cut back on the lavish lifestyles and spending habits of Chinese bureaucrats. These legislations were put in place to decrease the official’s spending as well as the corruption in the government.

Luxury brands Hermes and Burberry have reported decreases in demand for their products. LVMH, Richemont, and the Swatch Group have also made similar statements that demand is slowing down. Sales reports for both 2011 and 2012 show that demand for luxury goods in Hong Kong and China were growing steadily and this growth was expected to continue into 2013.

Image from Forbes.

Image from Forbes.

While ultra high-end luxury brands, such as Breguet and Patek Philippe, are taking a hard hit, luxury brands that are in a more affordable price range, such as OMEGA, are benefitting from these laws as people are going for gifts that will be less obvious to the public. Most Chinese citizens have supported this campaign. Some even go on the lookout for officials still living lavish lifestyles and will post pictures of politicians wearing expensive luxury watches or wearing an expensive belt.

An activist spotted Sheng Guangzu, China's railway minister, wearing a Rolex Submariner, which is worth half of his annual salary.

An activist spotted Sheng Guangzu, China’s railway minister, wearing a Rolex Submariner, which is worth half of his annual salary.

Each luxury brand is reaction to this decrease in demand in different ways. Some brands, such as Richemont, are sticking with their original strategies, hoping that this is just a short-lived depression. Other companies, like LVMH, are addressing that this could be a long-term depression and are making any necessary changes. Many high-end luxury brands, specifically Patek Philippe are lowering prices with the hopes that this will cause demand to pick back up.

After recently receiving the half year reports, some luxury brands experienced a slight increase in growth when compared to the growth in the first quarter of the year. The Swatch Group reports showed that its numbers slightly increased from its numbers from the previous reports. While nothing near the numbers of 2012, the Swatch Group and other luxury brands are trying to remain optimistic that demand for their watches and other luxury goods will slowly pick back up throughout the rest of the year.

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