The Philippine Daily Inquirer reports that Asian demand for luxury items disappears:

(emphasis mine)

Goodbye, luxury; hello, frugality
Philippine Daily Inquirer, Asia News Network
First Posted 23:12:00 12/27/2008

AS the global financial crisis hits home, luxury items are the first to go for Asia’s middle class.

The global financial meltdown is undoubtedly changing people’s spending habits and they are tightening purse strings, saying goodbye to “it” bags and turning to instant food to survive the crunch.

Is this the end of luxury?

For the ultra rich, no. But for those caught in the middle, perhaps.

With salary hikes on a freeze and people’s disposable income shrinking, Asia’s luxury market is suddenly feeling the pinch.

Chanel sale

In Japan, where the region’s most savvy and fashion-conscious shoppers are, designer stores, including Chanel and Salvatore Ferragamo, are holding sales.

For these high-street brands to mark down their items is unheard of in the past. But Japan’s economy has been on the decline since early this year and the Japanese are becoming more price-conscious than before.

“My salary won’t go up, and I’m cutting corners with what I eat, so I don’t feel like buying an expensive brand bag,” said a 27-year-old company worker in Moriguchi, Osaka Prefecture.

It used to be said that 40 percent of Japanese women own an item produced by the French brand Louis Vuitton, turning that brand and others into icons.

But because of the economic slowdown, brand shops may have no choice but to fight for a pie of the public’s spending.

Ferragamo dropped prices of 42 items, including bags and shoes, by 7 percent to 10 percent for the first time since the brand opened a shop in Japan in 1992; Chanel put some of its clothes and other items on sale, a “rare” event as a spokesperson for one of the department stores called it.

China’s luxury goods market has not been spared from the financial crisis either.

Tightening purse strings

At a luxury goods fair in Shanghai in October, vendors noted that buyers were tightening purse strings and not paying for astronomically priced luxury items as readily as before.

Considered one of China’s top fairs offering luxury goods, the event usually draws many leading brands from across the world to entice well-heeled buyers. But lower grade items turned out to be more attractive this year.

“Most orders went to low-and middle-level products, while the most expensive item, a diamond necklace valued at 7 million yuan (US$1.03 million), is still on display,” said a brand manager of a Swiss jewelry company, who did not want to give her name.

“The global financial crisis will undoubtedly cripple the purchasing power of the wealthy,” she added.

A Singapore sculpture dealer said the company only sold a 30,000-yuan (US$4,360) piece during the exhibition, although many people had inquired about its goods.

“Although the situation for the domestic market is still not clear, luxury consumption will certainly be affected by the global economic crisis,” said Liu Zheng, an analyst of the luxury goods industry.

Luxury spending is said to have made China one of the sector’s largest markets, despite it still being a developing country.

“One of the most influential factors for luxury consumption in China is the young generation, which shows great enthusiasm for famous brands,” Liu said. “Previous surveys had shown that many consumers of luxury goods were young office workers, whose purchasing power for the items was extremely unstable.”

It is therefore “not surprising” to find that, in any economic downturn, this group of consumers will be the first to stop buying, Liu said.

Lifestyle change

A number of the city’s residents are already making significant changes to their lifestyle, beyond splurging on luxury goods, to face possible financial risks.

“We are spending too much,” said Xu Ying, a Shanghai office worker who has cancelled a shopping tour to Europe this Christmas with her husband.

“We go there every year, but now the prices are too high. So we must cut down on a great deal of unnecessary expenditure,” she said.

Aside from not buying luxury items, people are also letting go of some of their precious possessions.

A banker, who wanted to be known only as John, trudged into a secondhand watch shop in Singapore recently carrying a prized US$2,664 Gerald Genta timepiece.

Unloading luxury watches

There, the young man, his yearend bonus under siege from Singapore’s economic slowdown, sold the watch for a song.

It was the third time in two months that John, who is in his 30s, had been forced to part with a timepiece from his five-watch collection, which had cost him more than US$13,317.

“In these times, you start getting rid of things in surplus and keep only those things you really need,” he said.

John is among a growing number of high-fliers who are unloading their luxury watches for cash as Singapore’s economy enters its first recession in six years.

Secondhand watch shops have been flooded with brands ranging from Rolex to the ultra-high-end Patek Philippe as bankers, stockbrokers and other battered business heavyweights face stark financial choices.

White-collar stress

Economists say this is one of the first signs that Singapore’s upper crust is feeling the pinch of the economic downturn, which has already forced lower-income families to tighten their belts.

“It is symptomatic of white-collar stress and definitely means things are more widespread than before,” said Barclays Capital economist Leong Wai Ho. “People are getting rid of luxuries they don’t need.”

Many expect the situation will get worse as forecasts warn of a deep global recession.

Instant foods flourish

While gloom may hover over most manufacturing and trade sectors, makers of instant foods are profiting from the crisis.

In South Korea, for instance, processed foods manufacturers—Nongshim, Ottogi and Korea Yakult—are posting double-digit sales growth amid the economic downturn, thanks to robust demand for instant noodles, commonly known as ramyeon, and pre-prepared dishes.

Nongshim, Korea’s largest ramyeon-maker, said total sales between January and October this year reached almost 1 trillion won (US$667 billion). Of this, instant noodles accounted for 962.7 billion won, up 13.8 percent compared with the same period last year.

Ottogi said strong demand for items like ramyeon, instant curry dishes and other quick-meal fixes helped the company post 978.3 billion won in sales up to September, a 22.2-percent jump from last year. At the same time, net profit surged 21.59 percent to 49.1 billion won.

Even Korea Yakult, more famous for its yogurt drinks, has seen an increase in demand for its instant noodle products, which grew by 32 percent.

Industry experts attribute the rising demand for instant foods to individuals choosing to limit expenses incurred dining out, while seeking more affordable comfort foods like ramyeon and pre-prepared dishes instead.

My reaction: Here are some noteworthy points from the above article:


1) Luxury goods are overwhelming products from developed nations like US, Europe, and Japan. Any product that is marketed as a "famous brands" or "luxury brand" is not from an emerging market. After all, part of a Luxury good's appeal is their origin in Western nations.

2) Designer stores, including Chanel and Salvatore Ferragamo, are holding sales. Designer stores NEVER hold sales! The only thing that could have prompted them to do so would be end-of-the-world type sales.

3) Many of Asia's consumers of luxury goods were young, impressionable office workers, whose purchasing power was extremely unstable. I think it is safe to say that this class of consumers has been wiped out.

4) The belt tightening won't only hurt demand for luxury products in Far East markets. Asian office workers are also cancelling shopping tours of Europe and the US, which will depress the sale of luxury goods back in Western nations.

5) Some industries, like the makers of instant foods, are flourishing, as demand for basic essentials increase due to spending cutbacks on more expensive items. I guaranty that nearly all of these recession-proof industries are located in emerging markets.


Conclusion: Consumers in developed nations are cutting back on spending, which is hurting demand for their domestic goods. Meanwhile, emerging markets are also cutting back on spending, which is boosting demand for their domestic goods. While the global depression's pain will be felt the world over, the majority of it will fall on developed nations (soon-to-be "formerly developed nations").


Personal anecdote on crisis facing luxury goods.

My uncle went shopping in New York this holiday and had an amazing experience. He walked in to a designer store offering "50% off everything". However, when he looked at the merchandize, only some of it was marked down 50%, with the rest being marked down 20% to 40%. Confused he asked a sales clerk was going on, and it was explained to him that the "50% off everything" was on top of the inventory mark down, which meant everything at this designer store was selling at a 60% to 75% discount.

So if you want some designer clothing real cheap (not the investment I would recommend, but whatever), go out to a designer store and have a look at what the discounts are now that Christmas is over.