Stay tuned, ChinaLuxCultureBiz is launching a new site with plenty of new features and even more information on China’s arts, luxury, business, and cultural markets. More information coming this week!
This time last year, my wife called me and said the four words no husband ever wants to hear …
Honey, we have termites.
I should not be surprised. I mean, we live in Florida – everyone gets termites here. The pest-control guy had found the clue – a few bug wings. But where was the nest?
I found it soon enough, up on our second-story deck. The structure's made of concrete, but the decking itself? Yep – plywood. Just walking around up there, you've never see it. But the critters had bored a little hole through the tarpaulin sheathing, steadily chewing away the wood underneath.
It's not like the new US real estate boom. It appears a bedrock of economic strength. But as I'll show, events far away – in China – are now weakening this market in subtle, powerful ways, with repercussions for the US economy itself.
When people talk about the rebound in US real estate, they are talking about luxury homes. It's the hottest, most lucrative end of the market. Sales for homes priced above $ 1 million rose almost 9% last year, more than double any other price category, according to the National Association of Realtors (NAR).
Buyers from China are the ones setting those record prices. How?
One is sheer numbers. Chinese buyers account for nearly a third of all home purchases by foreigners in the US (and nearly triple those of Canadians, the next closest nationality group).
Two, Chinese buyers are more than happy to pay above top dollar – their median purchase price is $ 523,000 – more than twice the US average.
Three, cash is king – and Chinese homebuyers love cash. According to the NAR, 76% of Chinese purchases were all-cash transactions.
First Australia, Then US?
But what happens now, after a 40% crash of the Shanghai Composite Index, and a still-slowing Chinese economy?
If you read the headlines, the "expert opinion" is uniformly bullish on what China's woes mean for US luxury home purchases. The rationale is that further weakness in China will only spur mainlanders to buy more US real estate, not less.
To me, that sounds like bubble talk. I heard similar rationalizations when I was a financial journalist, covering the boom and bust of the US housing market.
Perhaps America's luxury home realtors should look to Australia, where Chinese property buyers also drive up luxury home prices to insane levels. More recently though, sales have started to tail off in the places where Chinese buyers are most active – the two largest cities, Sydney and Melbourne.
And Morgan Stanley, in a recent note, became the first major financial institution to declare that Australia's housing cycle has peaked. The bank's analysts expect "further declines in auction clearance rates (ie sales) and house price momentum, with a negative impact on construction occurring over 2016."
Could the US luxury home market not be far behind? The anecdotal data certainly points in that direction.
Realtors in the San Francisco Bay area now tell local media that buyers from China are hitting the "pause button." Another said she's seeing price reductions among her high-end ($ 3 million and up) properties. A Sotheby's agent told KCBS-TV, "It's been a little slower now. I feel like there's been some kind of shift."
In Miami, where Chinese buyers were a rising force in the marketplace, luxury home sales fell 10.6% in the most recent quarter. The number of lists keeps rising too – up 15% from year ago levels.
Even the Chinese themselves may be seeing the writing on the wall. I ran across an article on a Singapore-based website aimed at high-wealth, English-speaking Chinese recently. The title of the article? "Now Is Not The Time to Buy in San Francisco."
The national data also raises an interesting point. In a midyear report, Realtors.com noted that the total number of foreign buyers of US real estate fell 10% in the 12-month period ending in March. Yet the dollar volume of their transactions (we're talking residential sales here), rose 13% to a record $ 104 billion.
Translated, it means fewer buyers chasing higher prices. To me, that says "bubble."
So let's say I'm right, and that bubble has peaked. What does it mean?
Morgan Stanley, in its recent call on Australia's Chinese-fed housing bubble, believes the coming US real estate slowdown shows the risk of a recession in the Land Down Under.
Could it happen here too?
Considering so many of these homes are purchased for cash, the risk to the banking system seems minimal.
On the other hand, homebuilders have not been this confident in years. This summer, the Wells Fargo / National Association of Home Builders sentiment index hit its highest level since November 2005 – just before the US real estate sector went over the cliff.
Likewise, the boom in luxury residential sales spurs a Field of Dreams mentality ("If you build it, they will come") among builders and developers. That means lots of speculative development, and ever larger orders for lumber, concrete, premium windows, cabinets and lots of other high-value building components.
What happens if real demand does not meet expectations?
It's just another sign, as Jeff Opdyke has stated often, of a US economy left with very few "legs" for support.
NEW YORK – November 5, 2009 – Jing Daily, the source for the most important and timely news about the business of luxury and culture in China, today announced the launch of its new website (http://www.jingdaily.com). With insight and commentary gathered from the Chinese- and English-language blogosphere and top news sources around the world, Jing Daily offers up-to-date information about crucial developments and current trends in China’s luxury, business, arts, and cultural markets.
With a middle class now roughly equivalent to the entire U.S. population (and growing), China’s consumer market is among the world’s largest. But for Westerners looking to do business there – or simply understand the contemporary culture – China can be a confusing, extremely fast-paced, and at times contentious place. Published in English and Chinese, Jing Daily cuts through the clutter to focus on the intersection of luxury and culture in China: the ins and outs of business development with an eye toward the upscale consumer market, as well as the business of culture – from auctions, museums, and contemporary art to performance, publishing, and public events.
Published through a strategic partnership with AW Asia, a New York-based arts organization working in the field of contemporary Chinese art, Jing Daily is compiled in New York City and Beijing and incorporates original content from reporters based in New York, Beijing, Shanghai and Hong Kong.
“China’s high-end and cultural markets are among the most dynamic and fast-changing in the world,” said Larry Warsh, publisher of AW Asia. “Jing Daily is a concise resource for individuals and companies whose interest in China extends beyond simple economics and encompasses contemporary Chinese culture in all its complexity.”
With original interviews, commentary, book reviews and videos, along with a proprietary “Media Roundup” gathering the latest China news worldwide, Jing Daily is designed for anyone looking to stay on top of luxury and culture in today’s China.
In Mandarin Chinese, jing means energy, essence, excellence and proficiency. That’s the principle by which Jing Daily compiles the most significant news and insights about China today.
Almost all of us who have anything to do with pleasure boats, wonder how is the boat market going to be in the future? And where is it going from here? Do pleasure boats have any future? Will the trend of owning and selling boats be a larger market or will it suffocate like many luxury products due to the roller coaster ride of the world's economy? What will particularly happen in Asia? Asia being the big part of world's economy, what part will it play in boating industry? Which country will be the major market? China, India, Indonesia perhaps? Importantly what steps should be taken today, in order to create a better market in these countries for the future.
In Hong Kong we are realizing the obvious saturation of boating market and almost all dealers and manufacturers of boats are pointing towards China. A lot of European manufacturers are also pointing at India. Making these 2 countries the largest potential boating markets.
Let's talk about China first and realize that in 2005 we had big hopes for the boating business in China, we thought that the boating industry will be huge by the year 2010. Well, we are not picked up to that level of prediction, so the market is still slower than what the lot of industry experts had predicted 4 or 5 years ago. The reason behind that is China's rules and regulations in pleasure boat industry. Taxation and licensing rules are very unclear in China. As a matter of fact, the rules are different for different states in China. Mainly for new boats, tax is about 40% of the boat 'value.
The infrastructure however, is simply fantastic, China's development of marinas are in the best speed that one can hope for. But what is missing in this picture are the number of pleasure boats that are floating on the waters of China. There are definitely buyers for a high end expensive yacht, but the support and maintenance of that yacht still not expertized, is uneasy and therefore costly. In any country even in Hong Kong, people are prepared to shell out a substantial amount of money to own a luxury yacht but what they are not willing to do, is to put a lot of time and over spend on upkeep and maintenance. Another thing that people are not willing to do is of course pay taxes and go through a long governmental procedure to acquire a license. This issue however is being tackled by marina clubs in China. Few clubs now assist in providing necessary licenses for their members who are willing to pay the cost of such service. Another way of handling this issue, is that the China buyers simply keep and use their boats in Hong Kong. This obviously will overcrowd Hong Kong's marinas and not help much to boost sales into China.
A way to overcome this issue, in order to create a better regulations in the future for pleasure boats in China, is for brokers in Hong Kong to sell more low priced / good quality used boats into China. If we are to stop hunting for clients only for high end yachts worth many millions of Euros and direct more marketing towards the younger and medium rich clientele, it will create a lot more pleasure boats in the waters of China. The market will respond in a very positive way. Forbes list of 2010 confirms that there are 64 billionaires in China, which makes it No.2 in Billionaires list. however, a point to note that there are over 900,000 people whose net worth is more than 10 million RMB (USD 1.3m), Majority of these people are of less than 39 years old. And even a larger and younger population which fall up to 5 million RMB worth.
There are definitely more number of people who are willing to spend a little initially to try out a boating venture. We have to keep in mind that boating lifestyle is not very common for China as yet. So the importance should be given to bringing more boats into China, which are not very expensive and good in quality.
This very concept will fill the marinas, forcing the management to grow and also provide a decent opportunities for shipyards and engineers to work in this sector.
This will also force the government to look into creating manageable regulations in terms of licensing and taxing for pleasure yachts, and if the growth of this concept is healthy it will unduly create much more friendly and hassle free market for the very wealthy to buy the high end yachts. In any case, China will have a large boating market, but to make it earlier than later, depends on our actions today.
India! Lets talk about India.
One of the largest advantages India has that that Indian mentality and lifestyle is very adaptable to western lifestyle. India adapts and accepts ideas, culture and products from the west very easily. High number of Indian population speaks in English. In India almost everyone will understand you if you speak English. If you are a non-Indian company, you can easily find an educated work force in India. It is also easy to set up a shipyard and to train workers in a specialized industry in India due to India's language capabilities and good educational level among the population. India has been a British colony for over 150 years and the rules and regulations of the country are still similar to that of Britain in many ways. Another advantage to grow the boating market in India is the expertise of the Indian media and advertising professionals in terms of marketing.
GDP growth of India is currently 7.2%, It is no.5 in the number of billionaires list and India currently holds approximately 200,000 millionaires with net worth of USD 1 million to 10 million, and a far larger population of people worth slightly less. India's upper middle class population is expected to grow about 10 times in the next 10-15 years.
But here are the set backs! India's political system is a chaos, corruption exists in many sectors and things become inefficient, especially if you want to start a new industry. An example of inefficiency in India is that to start a private company there are about 13 different legal procedures that one has to take and the time frame takes minimum of 30 days. While in Hong Kong this very same procedure is done with high efficiency in less than 45 minutes.
One major concern is that the infrastructure growth in India is incredibly slow. Due to its own democracy and differences in political groups, it is difficult to stay any kind of infrastructure. The marina which was due to be built more than 5 years ago in south of India is still not ready. Therefore the speed of development of marinas and likewise developments is a lot slower than what they could have been, if the political system was more sound. Of course the major problem remains for Indian boat owners to keep their boats. Because currently there are no marinas with standard berth facilities in India.
A good point again, being the world's largest democracy the rules and regulations are flexible in India, and with its plus points, if the luxury boat business does reach a good start like having few working marinas and a small number of boats to begin with, the Indian market for boats will see faster growth than of China's boating market.
The traders and dealers of boats in India also need to convey a message that boats are not just for the super rich and make them look more affordable and common in their marketing strategy, and to start this, cheaper and good quality boats need to be floating on the water. More power boat chartering businesses also can boost the industry in this initial stage.
I am also sure it wont be too long until I can cruise the beautiful waters of India and China on a private yacht with safety and with ease. Await for that day.
For now enjoy Cruising
In “Chinese Whispers,” we share the biggest news stories about the luxury industry in China that haven’t yet made it into the English language.
In this week’s edition, we discuss:
1. WeChat adds a “Time Capsule” feature, similar to Instagram Stories – WeChat
In its latest system update on December 21, China’s top social messaging app WeChat unveiled a new feature called “Time Capsule,” which allows users to post instant videos of less than 15 seconds that only appear on individual users’ homepages for 24 hours. The new feature is similar to the “Stories” feature offered by a wide range of Western social media apps like Instagram, Snapchat and Facebook.
Users can either upload their existing videos or record new ones through “Time Capsule.” They will be able to add descriptions, emojis, music, and location information based on their needs. Viewers of videos can tap on the bubble icon to let friends know they have opened it (see an example above).
China’s online community has been excited about this update. Upon the release of the new feature, the topic “WeChat Upgrade (微信大改版)” became the No. 1 trending topic on Sina Weibo, with 340 million readers viewing the hashtag and over 36,000 viewers participating in the discussion.
The development may be revolutionary for luxury marketers. Though the current version is a bit rough and only available for individual users, the feature can create enormous marketing opportunities for brands and is poised to transform the digital marketing landscape in China.
2. Survey indicates the declining online influence of Dior’s Chinese brand ambassador – Jiemian
In 2018, Christian Dior’s Chinese brand ambassador Angelababy, aka Yang Ying, has seen her online influence drop significantly, according to a new survey by Chinese media outlet Jiemian, in collaboration with Jinri Toutiao and Yian Insurance, listing the rise and fall of Chinese celebrities’ online clout. Actress Liu Shishi, who has collaborated with luxury brands such as Omega, Tod’s and Chanel, saw the second-biggest decline in her influence.
3. Lanvin’s parent company Fosun Group snaps up Japanese theme park Huis Ten Bosch – Luxe.co
Chinese investment conglomerate Fosun Group is set to acquire almost a 25-percent stake in Japanese theme park Huis Ten Bosch Co, further expanding its portfolio in the high-end hospitality sector. Huis Ten Bosch in Nagasaki is a replica of a Dutch town known named after a residence of the Dutch royal family.
The financial crisis of 2008 and 2009 placed yacht manufacturers in a very difficult position. The stock markets in and around in Asia were doing very well in the early 2000s. At that time China's economic growth and infrastructure development was already high and the Chinese started showing an interest in luxury yachts. Boat manufacturers moved in on the opportunity and set up show rooms near the newly built marinas in China. Chinese boat shows such as the Shanghai boat show attracted even more manufacturers to the industry. Hong Kong was still the main port at that time, since Chinese buyers were buying and mooring their yachts in Hong Kong due to zero tax in Hong Kong. All this interest in the industry created great hype and the industry grow steadily as more and more manufacturers rushed into China. Other industries across China were also doing very well and the affluence was growing at a fast pace. Many of the big luxury yacht manufacturers decided to expand to improve their delivery times and in doing so capture the markets. They also believed that expansion would be a low risk move, because even if European or American markets were slow down, the Asian markets, especially China, would still have customers to absorb their production.
In 2007 the Hong Kong stock market reached a new high, and many news channels and so-called professional investors were once again saying that the market had arrived at a new level and would not fall again. Businesses were running smoothly, markets were booming and banks were lending. The hype surrounding China's growth and affluence explained in rumors among the manufacturers about how many boats were being sold in China. Agents and manufacturers exaggerated the numbers of high end luxury boats that sold. Due to this hype many yacht manufacturers around the world had taken heavy loans, bought large amount of materials for construction, and were expanding their factories to a much larger scale. And then the unthinkable happened. The financial markets collapsed in 2008. Needless to say, many yacht manufacturers now faced bankruptcy. Although exchange rates were favorable for the Chinese, and some high-end customers did buy yachts to take advantage of the exchange rate, these sales were not enough to bail the factories out of their financial debts.
As the markets crashed, public companies started losing money and customers in most Asian countries stopped buying yachts except some customers from China. Most of the money of the Chinese customers was coming from internal development in China.
Even years after the market crash, yacht manufacturers still found it difficult to recover. Many famous Italian and British yacht manufacturers were taken over by Chinese firms. In 2015 many of the yacht manufacturers are still recovering. The effects of this recovery can still be seen today in many factories. Today it is still possible to buy brand new boats with engines and generators that were made in 2007, because factories are still holding on to the stock they purchased at that time.
The 2008 market changed the dynamics of the yacht manufacturing business. The reckless expansion to capture market share caused huge financial losses when the financial markets collapsed and forced many yacht manufacturers to sell their companies. Financially strong Chinese businesses saw the opportunity and bought many of the European yacht factories, moving control and ownership of some very famous brands from the west to the east.
I hope you found this article interesting and valuable. Thank you for your attention.
The images of visionary brand leaders gracing the covers of Fast Company and Forbes have begun to reveal a darker side to the fame and fortune of founders. Looking back at 2018, we have witnessed Tesla’s stock price roller-coaster ride attributed to Elon Musk’s controversial actions, the ousting of skincare brand Deciem’s founder Brandon Truaxe following a series of disturbing decisions made in plain sight of the public, and the boycott of Dolce & Gabbana in reaction to racist remarks by founder Stefano Gabbana.
With more attention and pressure on founders than ever, responding with resilience to unforeseen challenges and adverse impacts is essential – but how can brands grow, change and evolve for the better beyond detours and bumps in the road ahead?
Leading with values
Creating a brand that is underpinned by unique, yet replicable, values offers customers and employees a means to carry on the brand vision. Nowhere is this more valuable than in the fashion world where brands must often outlive the turnover or passing of their namesake founders. In such cases, the replicability of values can be determined by asking: how easily can employees and customers internalize and express the values of the brand in the words they use and the actions they take?
Kate Spade offers us a compelling case of resurgence and growth. The brand has made headlines in recent years in the wake of its acquisition by Tapestry and the death of its namesake founder. Despite stepping out of the brand in 2007, the founder’s playful sensibility and sparkling wit still resonate with customers in the bright colors & polka-dotted charm. Staying true to the brand promise of optimistic femininity has been at the heart of Kate Spade’s evolution, and according to CMO Mary Renner Beech, “We are re-imagining everything about Kate Spade but linking it incredibly clearly to our heritage and these past 25 years.” With each bag designed to visibly evoke qualities tied to optimistic femininity, Kate Spade and the legacy of the founder outlasts her departure as indicated by strong first-quarter earnings.
Whether reinforcing a strong emotional connection with customers or evolving the offering to appeal to broader audiences, leading with clear and replicable values is vital for affirming the brand legacy.
Building an army of voices
In an age when audiences seek to identify with the personality of the brands, they pledge their allegiance to, the voices of employees and customers become ever more invaluable to amplifying brand image.
A closer look at different approaches taken by cult beauty brands Glossier and Deciem, for example, manifests the benefit of entrusting followers with the brand.
Skincare brand Deciem fell into chaos when founder Brandon Truaxe fired his co-founder and social media team and staged a hostile takeover of the brand’s social media to proclaim his personal commentaries, zeal, and criticisms directed at customers and even other beauty brands. Following the ouster of Truaxe by the shareholder Estée Lauder Companies, Deciem is still recuperating from damage control.
On the other hand, Glossier promotes its brand image not through one single founder, but via the collective voice of loyal fans. In a recent interview, Glossier founder Emily Weiss shared, “We have always believed that every single one of our customers is an influencer. The brands of the future are going to be co-created.” The beauty brand makes good on Weiss’s vision through cultivating a thriving community of “Glossier Girls” who promote their favorite products for commission, partake in product feedback sessions, and are regularly featured on the brand’s social media. With more than 500 Glossier reps to date, the brand is driven by a harmony of customer voices that interpret the brand in their own meaningful ways.
Inclusion of customer and employee voices is an effective antidote to potential brand identity crises. Enrolling customers and employees in the brand brings a level of accountability and integrity to the vision. While a founder defines the vision of the brand, achieving the vision requires joining forces with followers who can build upon the foundation of the brand DNA.
It’s commonplace to see today’s founders attain celebrity status. Establishing them as the one and only North Star, however, is far from being a sustainable path. Prior to his passing in 2017, Pierre Bergé spoke on the power of his partnership with fashion house co-founder Yves Saint Laurent:
“The two of us formed a puzzle and we were made of pieces that fit together very precisely. The money, the business, the licenses, the store openings, all of that would not have been possible without me. But you can’t operate the world’s biggest and most beautiful airplane if you don’t have fuel and a pilot who can fly that plane. And the only pilot who knew how to fly that plane was Yves Saint Laurent.”
The risk becomes great when founders buy into their own legend of single-handedly building the future, as we have seen Tesla weather a media maelstrom in the midst of brand founder Elon Musk’s unconventional actions and tendency towards work martyrdom.
For some founders, hitting rock bottom and relinquishing control to trusted counterparts is what it takes to rise from the rubble. The massive rebound to become the Apple we know today is due in no small part to distributing the power structure to ensure no lack of lateral vision. The firing of Steve Jobs from Apple and subsequent return to the company of trusted co-pilots Jony Ive and Tim Cook now serve as a parable for brands today.
Welcoming alternative viewpoints to guide the course as custodians of the brand ensures a level of empathy both wide and deep enough to engender internal employee engagement needed for growth, and meet customer expectations across multiple touchpoints.
Paving the Road to Recovery
While unexpected setbacks are inevitable, the way in which brands adapt is what can make for an even stronger comeback. For brands, paving the path for a comeback begins with reinforcing the values that the brand does (and doesn’t) stand for, and is sustained by harnessing the power of an emotionally-connected customer base and strong partners to lead with. With these elements in place, the essence of the brand and vision set by its originator are destined to have the greatest chance at being preserved and expressed through any ups and downs with utmost integrity.
Susan Moon is a Senior Brand Strategist at Labbrand, a global brand consultancy specializing in creating meaningful brand experiences by bringing together excellence in research, strategy, design and verbal identity. Susan is based in New York and can be reached at firstname.lastname@example.org.
In the first quarter of 2006, the Chinese economy grew 10.2%. With the increase in growth in the Chinese market and the constant continued growth being forecast for the future, it's wise for western businesses to research what the Chinese market wants and needs before dipping their toe into the Chinese market. Here are the current trends in the Chinese marketplace:
With such masses of people in China and a steadily growing population, it's no wonder that food and food service is one of the largest markets in China. From fine dining to fast food to supermarkets and specialty food shops, pretty much every kind of food is available in China. The largest western names in food have all delved into the Chinese market already, including Walmart, Pizza Hut, KFC and, of course, McDonald's. There is also a huge market for all types of food and even catering services.
Banking & Financial Services
Many foreign financial companies including Merrill Lynch and The Royal Bank of Scotland have already bought stakes in Chinese banks. With the lifting of more restrictions on foreign financial companies in 2006, the banking industry should see even more foreign investment.
High end goods, including foreign brand name watches, clothing, jewelry, electronics and autos are markets that continue to grow. The rise in the amount of wealthy people in China continues to fuel the demand for high end and luxury goods of all kinds.
With an estimated 440 million cell phone users in China, there is a huge market for cell phones, cell phone service and cell phone accessories.
Massive sized malls and shopping centers are popping up all over China, most offer a wide range of imported products, particularly stores from the US and Europe, including Chanel, Papa Johns Pizza, Gucci, Burberry, and Ralph Lauren. Retail sales in China have increased a staggering 50% in the last four years, with much credit going to the boom of mall building. Over the last six years, over 400 malls have been built in China and that number will only increase. In Dongguan, you'll find what is now the largest mall in the world, the South China Mall. It boasts 6.5 million square feet of total floor area and room for 1500 stores.
More than ever, the Chinese crave the most famous Western brands. From fast food joints to soft drinks to coffee to clothing to shoes to entertainment, many of the largest Western names already have a big presence in China or are researching how to jump in. Walmart, the largest US retailer, already has dozens of stores in China, including three Sam's Clubs and Neighborhood Markets. Coca-Cola is already ubiquitous in China and McDonald's intends to have over 1000 stores open nationwide by 2008.
Whatever industry you're in, you must be careful to do proper research before delving into the Chinese market.
The S&P 500 has already given up all its gains from earlier in the year, and there’s precious little positive news to make businesses think that the market will bounce back any time soon. Underwhelming retail sales and industrial production data out of China sent the Dow Jones Industrial Average into a selloff, dropping it to almost 24,000.
Despite this news, retail sales in China still grew 8.1 percent year-on-year in November, boosted by heavy Singles’ Day sales on November 11, but that growth rate was the slowest pace for the superpower since May 2003.
Does this mean the era of unprecedented growth in China is coming to an end? It’s hard to say, but these economic figures will be a major topic when the Chinese government convenes its Economic Work Conference in Beijing next week to set policy for 2019.
Other topics? The heavily depreciating yuan that has inhibited the Chinese appetite for imported luxury goods will be one, as will the Trump administration’s ongoing trade war, which has hurt confidence that Western high-end products would remain popular in China as economic growth slows.
Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong, told Bloomberg that consumers are cutting back as “softening domestic demand continues to weigh on growth.”
And more recently, Chinese authorities began cracking down on daigou – personal shoppers abroad who repatriate luxury goods and skirt tax laws – in a move that some saw as an effort to increase domestic spending. While daigou business may be a drop in the bucket that’s the overall economy, it may just be the start of more policy changes to encourage Chinese to spend more at home.
Tiffany & Co., as well as other luxury brands, have blamed lower-than-expected sales in the previous quarter on fewer Chinese shoppers in their overseas stores. Tiffany, however, did note that it saw strong sales within China in the third quarter.
RBC Capital Markets analyst Rogerio Fujimori wrote in an equity research report this week that new e-commerce laws that affect daigou businesses will only hurt luxury businesses in the short term as they turn their attention to shoppers in the mainland. Fujimori added that continued weakness in the yuan could be a drag on luxury brands as fewer Chinese travelers make purchases abroad.
Despite the short-term headwinds facing the economy as a whole, the outlook for luxury sales in China remains fairly stable. Fujimori writes that millennials account for a large proportion of Hermès and Louis Vuitton customers worldwide, and that proportion is higher in China. Unless their shopping habits change drastically, luxury sales in China may not see a significant impact over the next year.
A scathing investigative story published in The New York Times December 15 is a warning to international fashion brands who manufacture in China to keep track of every step of their supply chain system to ensure they are operating ethically and legally.
According to the article, “China’s Detention Camps for Muslims Turn to Forced Labor,” American consumers who purchased items from the brand Badger Sportswear in recent months may have bought goods manufactured by Muslim detainees being held by the Chinese government in an internment camp in Xinjiang Province.
Under rules of the United States and the United Nations, forced labor is considered a type of modern slavery. It is illegal for any U.S.-based entities to import items made by forced laborers.
Despite the escalation of the trade disputes between the United States and China, China is still the largest manufacturing base in the world, so the investigation has repercussions throughout the fashion industry. Some high-profile names still manufacturing in the country include Balenciaga, Prada, Burberry, Michael Kors, and Ralph Lauren, among others.
The investigative report documented terrible working conditions of detainees who worked for one privately-owned company called Hetian Taida Apparel, which has supplied products to Badger Sportswear since April of this year. Hetian Taida Apparel confirmed their workers included detainees; however, the company denied that they are affiliated with the internment camps.
Badger Sportswear released a statement that it was not aware of the situation, and it would halt the cooperation with Hetian Taida Apparel and embark on an investigation.
Internment camps in the Xinjiang region were set up by the Chinese government about two years ago following a series of violent attacks by mostly Uighur militants that killed hundreds of civilians on the borders of Xinjiang and Pakistan or Afghanistan.
The Chinese position is that these internment camps are training centers that offer free vocational training for the Muslim Uighur population so as to eliminate poverty in the region. Many in the international community, however, have said the Muslims are being denied basic human rights.
Any company that lacks the capability to take control of its global supply chain system is exposing itself to escalating levels of legal, regulatory and reputational risks. What happened to Badger Sportswear could happen to many luxury brands.