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Sagging demand for branded goods

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Protests in Hong Kong, an economic slowdown and an anti-corruption drive in China and a coup in Thailand. This and more is leading many to conclude that Asia is no longer a market of constant growth for luxury goods firms.

LVMH, the world's No. 1 in the sector and owner of brands like Louis Vuitton, Givenchy and Dior, saw its sales drop by three per cent in Asia, excluding Japan, in the third quarter of 2014, a far cry from the heyday of 2010-2012.

In contrast, LVMH's sales increased in every other market, according to figures published last week, AFP reported.

Even activity in sluggish Europe has been better over the past nine months, the group said.

The crisis in Hong Kong "will have an impact" on the quarterly results, said group finance director Jean-Jacques Guiony.

"We have already noted some negative impact on activity in duty-free shops in the third quarter."

Mr Arnaud Cadart, an analyst, said there was a "rare coming-together of economic, monetary and geopolitical factors that have had a negative impact on the Asian market".

Slowing economic growth in China, along with a clampdown on lavish spending by government officials, is affecting luxury goods firms that are used to viewing the growing pool of wealthy and brand-conscious consumers in the world's No. 2 economy as a cash cow.

Management consultants Bain & Company have forecast that the luxury goods market in China will contract for the first time ever this year.

This will have an impact on companies like Switzerland's Richemont, Britain's Burberry and Mulberry and Italy's Prada.

Bain said the slowdown in China, combined with other factors, would put the brakes on the global luxury-goods sector, which the consultancy now sees growing at two per cent in 2014 - what it called "the new normal".

Mr Cadart noted that the Chinese market has carried the sector for several years and "couldn't keep up such a pace in the long-term".

While rich Chinese clients are still seen as the big spenders, these days, the big spending tends to be done on holiday rather than at home.

Not all luxury firms are putting the skids on the breakneck pace of expansion in China, though.

MOVING AHEAD

Hermes cut the ribbon on a glittering new store in Shanghai in September and the shoe still also fits for Jimmy Choo, whose initial public offering launched in London this week was aimed at raising cash to tap into demand in China and Japan.

Luxury goods firms have noted that a drive in China to stamp out lavish spending has affected sales of cognac and expensive wines as well as items such as watches, traditionally given as presents.

French spirit-maker Remy Cointreau this week said that sales in the first half of the year had slumped 15.5 per cent, dragged down by weaker demand for its flagship Remy Martin cognac in China.

Luxury goods sectors in other countries in the region have also taken a hit from Chinese tourists staying away for a variety of reasons, including a military-backed coup in Thailand in May.

Singapore has seen luxury goods clients cut by a fifth, according to Bain.

But the biggest dent in the sector is likely to come from the ongoing protests in Hong Kong.

The only bright spot? Japan, where the market in luxury goods is actually growing, even though Japanese clients have lost some purchasing power due to a weaker yen.


This article was first published on Oct 20, 2014.
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