Chinese corruption crackdown slams sales of New Year's bling
February 17, 2015 04:34 PM
(Bloomberg Business)—During China's boom years, Shanxi province was an economic backwater notorious for coal mine accidents and air pollution. According to a 2013 study by researchers at Princeton University, the University of Texas-Austin, and Peking University, the number of Shanxi infants born with neural tube defects is 18 times as high as in the United States.
Now, Shanxi is at the forefront of China's latest trend: the new frugality.
With President Xi Jinping's campaign against corruption nabbing over 70,000 officials last year, stores in the provincial capital of Taiyuan that once catered to officials with tastes running to Gucci and Hermes are empty. "Wealthy coal mine bosses and government officials have long been the patron of these luxury brands in Taiyuan," the official Xinhua news agency reported on Sunday. "But with the crackdown going strong, stores are finding it hard to get by." According to one manager at a mall in downtown Taiyuan, the news agency reported, sales of men's products have dropped 30% so far this year.
This week's celebrations to welcome in the lunar New Year aren't likely to offer much relief to retailers in Taiyuan, online or anywhere else in the country. The Chinese New Year typically is a big shopping season, but with celebrations to mark the Year of the Sheep (also known as the Year of the Goat and the Year of the Ram) starting on Thursday, prospects aren't good. A few years ago, sales during the holiday grew around 20%. This year, growth will be closer to 10%, according to James Roy, an associate principal at Shanghai-based China Market Research Group.
10% growth isn't bad, but the deceleration in Chinese New Year sales comes as retailers are already struggling. Economic growth in China slumped to a 15-year low in 2014, and traditional retailers also have to cope with the rise of e-commerce rivals such as Taobao and JD.com, which have successfully wooed customers and changed spending habits. For example, instead of shopping for the New Year, many consumers are now spending money on new, online-generated events like the Nov. 11 Singles Day popularized by Alibaba.
Now Xi's anti-graft campaign is putting a damper on the celebrations as people try to avoid conspicuous spending that could land them in trouble. The corruption cops aren't going to stamp out the Chinese taste for bling, but their campaign is leading to a shift in favored designer names, says Sage Brennan, chief executive officer of consulting firm China Luxury Advisors. He sees a move away from "logo-heavy, bling-style brands" and toward "brands that are a little bit less Gucci, less Louis Vuitton." Western designers such as Michael Kors, Kate Spade, and Tori Burch stand to benefit, he says.
Says Roy: "You have a climate within China right now that anyone at a state-owned company who is an official is erring on the side of caution."