Selling the family silver

By Quan Xiaoshu and Cao Xiaofan (China Daily)

Handbags of famous brands displayed in a Shanghai store.

Zhang Yu, owner of a consignment store for luxury goods, hopes business stays as strong as it has been in the past two months amid the global economic downturn.

It's been a busy time for Zhang, who started "Milan Stop" in Hangzhou, 300 km south of Shanghai, seven months ago. Visitors wanting to resell their luxury items have surged since October.

"Business has actually gotten better since the financial crisis," he says. "People used to come with only one or two items, but now they bring five or six, or even up to 10 items, for commission sale."

Their eagerness to sell means more inventory to offer, more commission (often 10 percent of the sale price) and more opportunities to profit from price differences.

"Usually we don't ask any questions, but sometimes customers tell us anyway. Some women say they get less money from their husbands due to a business downturn, so they're selling their luxury collections for pocket money," he says.

The black shelves in the 30-sq-m "Milan Stop," the city's first second-hand luxury store, are packed with purses of the very best brands: Louis Vuitton, Gucci, Chanel, Prada and Christian Dior. They look almost brand new, and each is wrapped with a protective covering. Top-end watches and jewelry are displayed in the middle of the room.

A classic, limited-edition LV trunk is the store's rarest treasure. "The owner, from Hong Kong, lost money in copper and the construction materials business," Zhang says. "Pinched for cash, he began to resell some shelved luxury items. He also left his Bentley and Rolls Royce cars with a pawnshop."

The world's rich are being squeezed by the economic crisis. Consulting firm Bain &Co predicts that the luxury goods industry is likely to enter a recession in 2009.

A study released by Bain in October predicts that the industry, not yet experiencing the full punch of the global meltdown, will see a relatively modest growth rate of 3 percent in 2008, compared with 9 percent growth in 2006 and 6.5 percent growth in 2007.

But it also says that increasing spending by high net worth consumers in emerging markets like China, Russia, India and Brazil over the next five years, ranging from 20 percent to 35 percent, will help restore optimism in the long term.

Many sellers of luxury goods and services hope the China market will see them through the crisis and are lifting their marketing to that end.
Men's luxury goods retailer Alfred Dunhill and Swiss watch maker Vacheron Constantin opened new stores in Shanghai in mid-October, while French jeweler Cartier hosted a polo match in Zhejiang province neighboring Shanghai, entertaining its guests with a champagne lunch.

But Sun Yimin, an expert on luxury goods marketing at Shanghai's Fudan University, believes China will not escape the world slowdown of luxury sales.

China is more connected to the world than in the past and is also feeling the global chill, with double-digit economic growth falling to 9 percent in the third quarter. A growing number of factory closures and increasing unemployment are further curbing growth.

The super-wealthy, the main consumers of luxury goods in China, have seen their fortunes shrink due to losses in stocks and other investments. "They won't splurge like before," Sun says.

According to the US publication Forbes, the number of billionaires in China this year was just 24 compared with 66 in 2007. "The combined net worth of the 400 richest (people in China) dropped to $173 billion from $288 billion," said the magazine in late October.

Young office workers are another growing but vulnerable group of luxury goods buyers in China. Sun calls them "margin consumers," who might scrimp for months to buy an LV handbag but immediately stop buying when times are tight.

World luxury goods retailers hope their new stores in China will save them from the global economic crisis. Wu Changqing

Rising living costs, lower incomes and even the risk of job losses will cut their consumption, Sun says.

Daisy, 29, from Chengdu, capital of Sichuan province, is having to curb her enthusiasm for Chanel, as her foreign-funded company cut her salary by 25 percent in October.

"I know the company's R&D progress, marketing and sales have all been affected by the financial crisis but to cut salaries is really annoying," she says. "I can no longer buy whatever I like, since I have to consider the mortgage, meals, transport and phone bills first."

Daisy is thinking of reselling some of her 10 luxury handbags to cover her visits to beauty parlors, hairdressers and trips home, as the company gives extended leave to her and others due to sagging business.

She isn't even sure her job will be there after the involuntary vacation.

Likewise, prospects are unclear for Zhang Yu and his "Milan Stop."

"Although more have come to sell us their luxury collections, not as many are willing to buy," says Chen Jiapin, a "Milan Stop" sales assistant.

"Two sales assistants from a Hermes store near the West Lake developed a craving for luxury after serving well-heeled customers," Chen says. "They looked at the bags but didn't buy. They said their own store's sales were down drastically, so they had to be more careful."

Chen says most visitors these days were also window-shoppers.

Some analysts have suggested a cut in consumption taxes on luxury products as a way to spur sales. The Ministry of Commerce has previously forecast China will become the leader in luxury spending by 2014, comprising an estimated 23 percent of the world market. It is now the third-biggest luxury goods consumer after Japan and the US, with a market value of $8 billion last year.

"It's hard to say what 2009 will be like," says Huang Bingjun, who sells imported luxury products online. So far, his business hasn't been hit - in fact, it has actually seen orders jump more than 20 percent since October, as the rising yuan made European luxury brands cheaper.

Huang started xiaobuyer.com two years ago and things are still good enough for him to be planning a two-week trip to Europe during the post-Christmas sales season. "I will look for classic items and base my purchases on customer orders," he said. "Small businessmen like me have no experience of financial turmoil and we must remain cautious."