Luxury brands look to China market amid crisis

“Like many of my friends, my job is stable and not affected by the financial crisis,” she said. “Now that we are finished buying apartments and cars, we are buying luxury goods.”

Companies with big presence in China, including Hermes Group and LVMH Group, declined interview requests. Spokespeople for Giorgio Armani SpA and Swatch Group said managers had no time to talk. Tiffany & Co. and Burberry Group did not respond to calls.

Growth in China may not be huge in dollar terms, but it helps counter sales declines elsewhere, says Claudia D'Arpizio, a Bain partner in Milan.

“It's not enough for offsetting completely the stronger decrease in the U.S., Japan and Europe,” she said.

Fueled by a three-decade-old economic boom that created a still-growing urban elite, China's appetite for luxury goods is surviving the sharpest global economic slump since the 1930s. But Beijing's multibillion-dollar stimulus plan appears to be reviving the economy. Recent reports show gains in factory output, retail sales and capital investment.

China's luxury market is still modest, compared with Europe's, which accounts for 38 percent of worldwide spending on luxury goods, South and North America's at 33 percent and Japan's 12 percent, according to D'Arpizio.

By 2015, China will have more than 4 million households with annual income above 250,000 yuan (US$37,000), McKinsey predicted in a recent report. That will make it the world's fourth-largest country in terms of its number of households with substantial purchasing power after the United States, Japan and the United Kingdom. McKinsey said the benchmark was adjusted for purchasing power parity for each country.

And most of that money likely will be spent in China. McKinsey said its research found wealthy Chinese do 70 percent of their luxury spending at home, contrary to the industry wisdom that Chinese people make at least half their purchases abroad.

“We know Chinese consumers will continue to spend on luxury items,” said Ferragamo's Norsa. “After all, it is a very big pond and in it there is space for many.”

Companies are expanding inland to cities like Chengdu to reach customers “who can already afford and who will aspire to the image projected by luxury brands,” said Bain's D'Arpizio.

Many Chinese, of course, can't afford these brands and opt for knock-offs. From fake Gucci wallets to Chanel bags, they are widely available despite repeated government crackdowns. Some are so well-made that only experts can spot them.

Wu Yang, a 25-year-old Beijing event planner, bought counterfeit Louis Vuitton and Gucci bags on a recent trip to Shanghai. She said vendors wanted 300-500 yuan (US$45-75) for a bag, compared with 5,000-10,000 (US$750-US$1,500) for the real thing.

Her next goal: The latest counterfeit Balenciaga bag.

“I can afford it and nobody can tell it's not real,” Wu said. “This represents a girl's dream for big brands.”

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