Stocks in Swiss watch brands plummeted yesterday as the Chinese government “banned advertising for luxury brands”. The luxury brands are again a scapegoat for the government. There have been several big announcements like this over the last couple years. Above all, these produce a great deal of confusion for both consumers and the luxury brands because they are never well-defined and that reflects the reality that they are more of publicity stunt than anything else. The comments online seem to mostly be mystified. No one except the owners of stock in Swiss watch brands seems sure of what a “luxury good” is, for the purposes of this law. I think last time it was advertisements in public spaces that were prohibited. I still see them in airports and other somewhat higher end locations, so I’m not sure what it means. This new regulation applies to TV and radio. I saw that some the reports in Western media didn’t seem to make this distinction. There was no mention of print and online. The online commentary I have read in Chinese was predicting a continued switch into these realms by LV and all the rest.
Personally, at least in the short term, I view this as a positive thing. Though the regulation may not be enforced anyway, Western brands are sue to transfer more advertising budget to print and online, the spheres in which I operate. They will also be spending more on targeted marketing. They are already extremely tightly regulated and getting any kind of message on there is extremely challenging or expensive. They have always been much closer to government than print and the websites. These mainstream media were not necessarily the best place for ads pushing high-end products.
Of course Western brands will be scared, momentarily, but it is not as if they have the option of retreating from what may already be their biggest group of consumers and is certainly the fastest growing major market. The plunge in stocks also reflects concern that this part of a greater, long-term, push by government to restrict corruption and redress the wealth gap. Growth in sales has been slowing recently for some major foreign brands. Many of the wealthy people in top-tier markets like Beijing and Shanghai already have the luxury items and cars and may be looking at other areas like high-end travel and yachts. There may be underlying fears that China could swing back toward a more egalitarian Communist system in which luxury spending occurs far less.
The dramatic annual increases of the last decade could not continue forever. The base is now already quite large. China is still minting billionaires though and will do so more and more. The middle class is still rising and more of them are buying into the dream. Officials and businessmen are still taking new mistresses. The second-tier markets are still not nearly at a saturation point and watches and cars remain the main symbols of status. It’s also important to keep in mind that marketing efforts here are part of a global push, since around 60% of Chinese spending occurs in Hong Kong and abroad. By several measures, Mainland Chinese are already the biggest global spenders on luxury.
The main thing we have to remember is that these types of symbolic gestures suggesting a commitment to equality and corruption reduction always occur around the time new leaders take power. Some similar moes happened when Hu and Wen came in, just as they did every time a new emperor ascended the throne during the Ming Dynasty. This is also the first Chinese New Year after the power transition. Now is the moment to give lavish gifts to get that permit and to ensure that new official will be a good partner for the duration of his term. The Central government needs to make some kind of show of combating this sort of thing.
Here is more commentary from the New Yorker, Wall Street Journal and National Post.
