Luxury brands banking on a China rebound to boost sales may be in for an unpleasant surprise: weak demand in the world's second largest luxury market may last longer than the economic slowdown as Beijing cracks down on conspicuous consumption.
China is sensitive to anything that raises suspicions of corruption, especially after the scandal involving Bo Xilai and his emerald-wearing wife Gu Kailai marred this year's once-a-decade leadership transition. The government imposed a "frugal working style" rule on its civil servants, which goes into effect on October 1, barring them from spending public money on lavish banquets or fancy cars, and from accepting expensive gifts.
Gifts are often offered in return for favours in China, where bribery is widespread. The culture of gift giving has been a source of demand for the world's top luxury brands. A string of high-profile incidents, including a high-speed Ferrari crash reportedly involving the son of a senior public official and a local government official photographed flaunting luxury watches beyond the reach of his salary, have enraged many Chinese who have taken to the blogosphere to vent their anger.
The local government official was fired for a "serious violation of discipline", state media said at the weekend. Chinese police inspectors are now studying up on how to recognise luxury brands to help them expose corruption. "Luxury products are highly expensive and civil servants, whose salaries are about 5,000 yuan ($790.6) a month, cannot afford them," China Daily reported on Friday. "So officials who possess luxury products should give convincing explanations on how they got them."
Luxury brands were already struggling with a slowing economy and a bit of flashy fashion fatigue as Chinese shoppers shun flamboyance in favour of understated displays of wealth. Beijing's crackdown suggests that even if economic growth starts to recover later this year, as many economists predict, luxury demand may lag.