Bettina Wassener
Shoppers like Chen Zhuhang and Lin Xing are the reason that Prada, Samsonite and L?Occitane have chosen to stage stock market listings in Hong Kong.
Neither of the two men professed much interest in investing in the Italian luxury fashion house Prada, whose shares began trading amid much fanfare on the Hong Kong stock exchange on Friday. But both were out shopping on the luxury-store-studded Canton Road in Hong Kong a few days ago.
?My favourite brands are Prada and Gucci,? said Lin, who comes from Fujian Province, on the southeastern coast of China, and was visiting Hong Kong. ?Today, I bought a pair of shoes and a bag for myself from Gucci.?
His friend Chen was carrying a Gucci shopping bag containing a light brown leather purse that he had bought for his girlfriend for about 9,000 Hong Kong dollars, or $1,155. Consumers like these have been flocking to shops all over Asia.
Their spending power and tastes, and their willingness to show off their increasing wealth, are behind a sea change that has taken place in the global luxury industry over the past few years.
With the West struggling with weak economies, Paris, Milan, London and New York are no longer the dominant centres of global luxury spending. Increasingly, that centre is shifting eastward, to booming cities like Seoul, Shanghai, Mumbai and Hong Kong, whose glitzy malls now easily rival Bond Street, the Champs ?lys?es or Fifth Avenue in terms of high-end shopping opportunities. ?We are positive that the Greater China region is going to be one of the most interesting markets for the future of the luxury industry,? Patrizio Bertelli, the chief executive of Prada.
Prada?s decision to list in Hong Kong, rather than in Milan, where it has been based for nearly 100 years, is in part the result of a desire to tap into a deep-pocketed group of Asian investors? funds and wealthy individuals?who feel more comfortable putting their money in stocks listed here, and not in faraway Europe.
But it also reflects a desire to be closer to an area that is fast gaining significance for the luxury industry as a whole. For some luxury and consumer goods companies, the region now contributes a third or even half of global sales and earnings, a sharp increase from just a decade or two ago.
Many brands have responded with a rapid expansion of their store networks, turning what were once economic and fashion backwaters in China and South-East Asia into high-end shopping havens. Take LVMH Mo?t Hennessy Louis Vuitton, the biggest luxury group in the world. Last year it generated about $9.7 billion, in revenue in Asia, where it operates more than 800 stores. That compares with 4.6 billion euros and 570 stores in the US.
Ermenegildo Zegna, the Italian menswear company, which opened its first shop in Beijing in 1991, has more than 70 stores in Greater China? mainland China, Hong Kong and Taiwan?now Zegna?s biggest international market. Prada has lagged behind others somewhat in terms of expansion in China in recent years. But about half the company?s 319 outlets around the world are in the Asia-Pacific region, more than a dozen of them in Hong Kong.
Prada, whose handbags and Miu Miu dresses can set shoppers back more than $1,000, plans to open dozens more, using some of the proceeds from its $2.1 billion stock market debut.
Market nervousness about the protracted debt crisis in Greece and the world?s economic growth prospects meant that Prada?s debut, and that of the luggage maker Samsonite earlier this month, did not raise as much money as those companies had hoped for. Prada shares edged up 0.3%, closing at 39.6 Hong Kong dollars, or $5.08, on their first trading day Friday. The modest rise contrasts with the drastic jumps in share prices of Internet companies that recently have listed in New York.
Industry watchers believe that recent market nervousness is unlikely to deter other Western luxury and consumer goods companies from following in the footsteps of Prada, Samsonite and the French cosmetics maker L?Occitane, which made its debut in the region last year by seeking listings in Hong Kong. It will be a handful, rather than a stampede, said Pradeep Rao, head of Asia-Pacific consumer and health care investment banking at Citigroup. ?But long term, there is definitely an appetite from investors here for such companies.?
By far the biggest driver of all this activity is the increasing affluence of emerging Asian economies, which has catapulted millions of people into the ranks of the wealthy.
Traditional luxury markets like the US, Japan and Europe remain important. But these regions are mature and, for the most part, still recovering only feebly from the blow dealt by the global financial crisis.
In Asia, by contrast, the number of people who can purchase top-of-the-range dresses, shoes or jewels continues to soar.
For example, a study by Merrill Lynch and Cap Gemini, published Thursday, estimated that the population of dollar-millionaires in North America and Europe remained more or less unchanged in recent years, at 3.4 million and 3.1 million, respectively. In the Asia-Pacific region, the number of millionaires grew from 2.8 million in 2007 to 3.3 million last year and has now overtaken that in Europe.