Luxury Retailers Think They Are Immune to China’s ‘Consumption Downgrade’

Net-a-porter in China

Online luxury shops are betting against a rising trend in China. PHILIPPE LOPEZ/AFP/GettyImages

China’s slowing GDP growth, battered stock market and ongoing trade tensions with the U.S. have led many to anticipate that the country’s rising middle class will soon cut back their splurging on designer clothes and handbags. But the world’s fastest-growing luxury retailers are betting on the opposite direction.

Last week, U.K.-based online luxury retailer Net-a-Porter sealed a deal with China’s e-commerce giant Alibaba to form a joint venture in hopes to sell more Gucci bags and Valentino shoes to Chinese consumers.

Through the partnership, Net-a-Porter will launch two mobile apps as it virtual storefront: one namesake shopping app for women and another to cater men under the name of Mr. Porter.

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In addition, the two brands will also have an online presence on Alibaba’s e-commerce platform Tmall, which is visited by over 100 million Chinese shoppers on a daily basis.

Net-a-Porter already has a Chinese version of its website, introduced in 2013, but the joint venture with Alibaba will give it a far better platform to reach China’s online shoppers, said Johann Rupert, chairman of Net-a-Porter’s parent company, Swiss luxury conglomerate Richemont, in a conference call on Friday.

The British retailer’s strategy has proven successful for its rival, the U.K.-based Farfetch, which formed a similar partnership with Alibaba’s main competitor, JD.com.

Bold expansion moves like Farfetch’s and Net-A-Porter’s show these online retailers’ confident bid against a burgeoning cultural movement being called China’s “consumption downgrade.

Thanks to China’s economic boom in recent decades, the country’s rising middle class developed a voracious appetite for premium-quality consumer goods and designer brands. But an emerging school of thought believes that China’s materialism culture has peaked and is doomed for a decline.

Mainly stemming from worries over China’s economic slowdown, “consumption downgrade” encourages cutbacks on excessive spending, particularly on designer brands, and suggests a reversal to the “consumption upgrade” culture that was prevalent during China’s skyrocketing years of double-digit GDP growth rates.

And yet, shoppers who are still optimistic about their financial prospects show no intention of cutting back their love for European designer bags.

Kering, the owner of Gucci and Balenciaga, said its revenue from China jumped 30 percent in the first half of 2018. “In terms of spending power, the situation is still quite sound in China. The demographics should help as well,” Jean-Marc Duplaix, Kering’s financial director, told investors on Tuesday after the company released third-quarter earnings.

Kering’s key peers, LVMH and Hermès, also praised China for their record profits in 2018 so far.

Luxury Retailers Think They Are Immune to China’s ‘Consumption Downgrade’