China crackdown on corruption hits luxury market badly

President Xi Jinping’s much publicised campaign to cut down on official extravagance and root out corruption has not only kept the luxury goods market from growing, but also, according to analysts, led to the closure of shops belonging to international brands.

The Communist party’s frugality and anti-corruption drive has triggered a sharp drop in the sale of expensive wrist watches and luxury suits for men in China besides resulting in a slump in high-end dining, reports said Tuesday.

President Xi Jinping’s much publicised campaign to cut down on official extravagance and root out corruption has not only kept the luxury goods market from growing, but also, according to analysts, led to the closure of shops belonging to international brands in some of the country’s top cities.

If true, then the report gives a clear indication – without sharing details – about how much influence official expenditure and spending by officials influenced the sale of luxury items in China.

It gave the example of top international brands like Giorgio Armani and Dolce & Gabbana closing their flagship stores on the Bund in Shanghai, a landmark waterfront for China’s financial capital

According to a forecast by the World Luxury Association (WLA) many luxury brands will not only stop opening new stores, their owners will also down shutters even in China’s second and third tier cities this year.

“Based on a recent survey from the WLA, the sluggish market also kept inventories high in the luxury stores in the major cities, including Beijing, Shanghai, Chongqing and Shenzhen. Visits to these shops declined during the recent Spring Festival vacation, in spite of widespread promotion of discounted goods,” the Beijing Morning Post reported.

The sale of luxury good has slumped by 50 percent, a trend continuing from 2013 when Xi launched the anti-corruption campaign.

Not shockingly, luxury watches and suits for men – both topped the list of gifts exchanged during important occasions in China – have literally stopped selling, the report said.

“The most affected goods are men's wrist watches, sales of which plummeted by 95.9 percent, and men's suits, dropping 60 percent -- once the most popular gifts given to Chinese government officials,” it said.

“…sales of luxury goods during the seven-day Chinese Lunar New Year holiday plunged to a ten year low of US$350 million in Beijing, Shanghai, Chongqing, Guangzhou and Shenzhen, slipping 57.8 percent on the previous year and 80 percent from 2012,” it added.

High-end dining businesses even reported a drop in revenue, rarely seen in recent years, said the China Cuisine Association in a report.

The Chinese catering sector grew only 9 percent year on year last year under the government's frugality campaign, the lowest level in 21 years.