Bottom Line: Retailers shouldn’t rely on Asia

 
Elizabeth Fournier

BURBERRY may have been quick to say that Angela Ahrendts’ comments had been taken out of context yesterday, but there’s no doubt that a Chinese slowdown – past, present or future – is weighing heavily on retailers and investors’ minds.

Ever since the financial crisis tightened the purse strings of luxury brands’ traditional client base – the wealthy Italians and Spanish still mired in recession – expansion plans have been focused on the high-growth Asian markets, where label-loving shoppers have carried on snapping up high-end fashion. This is true both at home and abroad. Just last week China’s annual Golden Week holiday was expected to bring an influx of tourists to London, after last year’s celebration led to a 31 per cent rise in Chinese spending in the capital.

But retailers should not rely too much on Chinese consumers’ purchasing power.

According to S&P, China actually has among the lowest consumption to GDP ratio in the region at just 35 per cent (compared to around 60 per cent of GDP in India). At the same time growth in retail sales, while still up an impressive 8.1 per cent year-on-year in August, is slowing – it was around 13-14 per cent for most of 2012.

Ahrendts may have been referring to last year’s slowdown but it was enough to spook investors. Unfortunately her words may turn out to be prophetic.