AS the global financial crisis hits home, luxury items are the first to go for Asia’s middle class.
The global financial meltdown is undoubtedly changing people’s spending habits and they are tightening purse strings, saying goodbye to “it” bags and turning to instant food to survive the crunch.
Is this the end of luxury?
For the ultra rich, no. But for those caught in the middle, perhaps.
With salary hikes on a freeze and people’s disposable income shrinking, Asia’s luxury market is suddenly feeling the pinch.
Chanel sale
In Japan, where the region’s most savvy and fashion-conscious shoppers are, designer stores, including Chanel and Salvatore Ferragamo, are holding sales.
For these high-street brands to mark down their items is unheard of in the past. But Japan’s economy has been on the decline since early this year and the Japanese are becoming more price-conscious than before.
“My salary won’t go up, and I’m cutting corners with what I eat, so I don’t feel like buying an expensive brand bag,” said a 27-year-old company worker in Moriguchi, Osaka Prefecture.
It used to be said that 40 percent of Japanese women own an item produced by the French brand Louis Vuitton, turning that brand and others into icons.
But because of the economic slowdown, brand shops may have no choice but to fight for a pie of the public’s spending.
Ferragamo dropped prices of 42 items, including bags and shoes, by 7 percent to 10 percent for the first time since the brand opened a shop in Japan in 1992; Chanel put some of its clothes and other items on sale, a “rare” event as a spokesperson for one of the department stores called it.
China’s luxury goods market has not been spared from the financial crisis either.
Tightening purse strings
At a luxury goods fair in Shanghai in October, vendors noted that buyers were tightening purse strings and not paying for astronomically priced luxury items as readily as before.
Considered one of China’s top fairs offering luxury goods, the event usually draws many leading brands from across the world to entice well-heeled buyers. But lower grade items turned out to be more attractive this year.
“Most orders went to low-and middle-level products, while the most expensive item, a diamond necklace valued at 7 million yuan (US$1.03 million), is still on display,” said a brand manager of a Swiss jewelry company, who did not want to give her name.
“The global financial crisis will undoubtedly cripple the purchasing power of the wealthy,” she added.
A Singapore sculpture dealer said the company only sold a 30,000-yuan (US$4,360) piece during the exhibition, although many people had inquired about its goods.
“Although the situation for the domestic market is still not clear, luxury consumption will certainly be affected by the global economic crisis,” said Liu Zheng, an analyst of the luxury goods industry.
Luxury spending is said to have made China one of the sector’s largest markets, despite it still being a developing country.
“One of the most influential factors for luxury consumption in China is the young generation, which shows great enthusiasm for famous brands,” Liu said. “Previous surveys had shown that many consumers of luxury goods were young office workers, whose purchasing power for the items was extremely unstable.”
It is therefore “not surprising” to find that, in any economic downturn, this group of consumers will be the first to stop buying, Liu said.
Lifestyle change
A number of the city’s residents are already making significant changes to their lifestyle, beyond splurging on luxury goods, to face possible financial risks.
“We are spending too much,” said Xu Ying, a Shanghai office worker who has cancelled a shopping tour to Europe this Christmas with her husband.
“We go there every year, but now the prices are too high. So we must cut down on a great deal of unnecessary expenditure,” she said.
Aside from not buying luxury items, people are also letting go of some of their precious possessions.
A banker, who wanted to be known only as John, trudged into a secondhand watch shop in Singapore recently carrying a prized US$2,664 Gerald Genta timepiece.
Unloading luxury watches
There, the young man, his yearend bonus under siege from Singapore’s economic slowdown, sold the watch for a song.
It was the third time in two months that John, who is in his 30s, had been forced to part with a timepiece from his five-watch collection, which had cost him more than US$13,317.
“In these times, you start getting rid of things in surplus and keep only those things you really need,” he said.
John is among a growing number of high-fliers who are unloading their luxury watches for cash as Singapore’s economy enters its first recession in six years.
Secondhand watch shops have been flooded with brands ranging from Rolex to the ultra-high-end Patek Philippe as bankers, stockbrokers and other battered business heavyweights face stark financial choices.
White-collar stress
Economists say this is one of the first signs that Singapore’s upper crust is feeling the pinch of the economic downturn, which has already forced lower-income families to tighten their belts.
“It is symptomatic of white-collar stress and definitely means things are more widespread than before,” said Barclays Capital economist Leong Wai Ho. “People are getting rid of luxuries they don’t need.”
Many expect the situation will get worse as forecasts warn of a deep global recession.
Instant foods flourish
While gloom may hover over most manufacturing and trade sectors, makers of instant foods are profiting from the crisis.
In South Korea, for instance, processed foods manufacturers—Nongshim, Ottogi and Korea Yakult—are posting double-digit sales growth amid the economic downturn, thanks to robust demand for instant noodles, commonly known as ramyeon, and pre-prepared dishes.
Nongshim, Korea’s largest ramyeon-maker, said total sales between January and October this year reached almost 1 trillion won (US$667 billion). Of this, instant noodles accounted for 962.7 billion won, up 13.8 percent compared with the same period last year.
Ottogi said strong demand for items like ramyeon, instant curry dishes and other quick-meal fixes helped the company post 978.3 billion won in sales up to September, a 22.2-percent jump from last year. At the same time, net profit surged 21.59 percent to 49.1 billion won.
Even Korea Yakult, more famous for its yogurt drinks, has seen an increase in demand for its instant noodle products, which grew by 32 percent.
Industry experts attribute the rising demand for instant foods to individuals choosing to limit expenses incurred dining out, while seeking more affordable comfort foods like ramyeon and pre-prepared dishes instead.
South Koreans are also the hardest hit from the crisis.
Poor overnight
Korean students in China who used to live it up now have to follow a tight budget after finding themselves “poor overnight” due to the crisis.
Shin Hye-young, 24, an undergraduate at Beijing’s University of International Business and Economics would eat out at restaurants five days a week and thought nothing of spending 40 yuan (US$6) on cab.
This lavish lifestyle was made possible by the monthly allowance of more than 5,000 yuan (US$727), or about twice the amount what a migrant worker would make a month on a construction site in Beijing.
But the good times are over for Shin, and other South Korean students like her.
The financial crisis has struck hard, with the value of the Korean won plummeting from about 1 yuan exchanging for 130 won in 2005, to almost half at 1 yuan to 220 won.
There are more than 80,000 South Korean students studying in China and most of them are from middle-class families. Wangjing in northeastern Beijing, or “Korea Town,” is said to be home to about 30,000 South Koreans but recent media reports say many South Koreans have left the area since the financial crisis broke out.
A real estate agent was quoted as saying that close to half of his South Korean customers recently cancelled their housing rental contracts. Another agent said he lost half of his South Korean customers.
At a South Korean restaurant in Wangjing, waitress Li Xin said most of her diners were students. But there have been visibly fewer customers since October, she said.
For students like Shin, meals now consist mainly of rice and a simple soup she cooks herself. She has moved into a smaller apartment, shared with another student. She also takes the bus now. “It’s only 1 yuan for the bus fare,” she said.
Heading home
Faced with a plunging home currency and higher tuition, a number of South Korean students are said to have headed home.
The won, which is the worst-performing currency in Asia, has depreciated by 40 percent in value against the US dollar since the start of the year.
But the plummeting value of its currency is not all bad news for South Korea: More tourists are flocking to the country, which has become more wallet-friendly.
Yuri Kazeko, a Japanese expat living in Seoul and who gets paid in yen, is encouraging her relatives and friends in Japan to come over for a shopping spree.
“The exchange rate plus the lower fuel surcharges for airfares and proximity to Japan has made South Korea a very attractive place to visit,” she said.
The stronger Japanese purchasing power is evident at Lotte Department Store in Myeondong in Seoul. One cannot miss the incessant chorus of yasui or “cheap” in Japanese at the duty-free store.
American lawyer Phillip Jensen, 46, who has been living in Seoul since 1995, said: “The ‘good’ times are back for us. The last time the Korean won was so weak was 11 years ago during the Asian financial crisis.”
Bicycles
The free-wheeling spending of the expatriates is in sharp contrast to the belt-tightening of the Koreans. The locals pack their lunch to the office, ride bicycles to work, delay the purchase of big-ticket items like plasma TV sets and refrain from holidaying abroad.
Even the South Korean government is using the weak won to attract the foreign investor dollar. Kwon Tae Kyun, deputy minister for trade and investment, told foreign journalists recently: “It’s the right time to invest, because the Korean won has been devalued quite a bit.”
Other governments like China and Taiwan have introduced measures to boost domestic consumption.
Christmas bonus
In Taiwan, the government is issuing vouchers worth NT$3,600 (US$109) as Christmas bonus in January. The government will be pumping NT$82.9 billion (US$2.47 billion) into the market with the vouchers accepted in business transactions with licensed establishments.
Given a few restrictions such as not being able to cash in the vouchers at banks or exchanging them for coupons in department stores and supermarkets, all Taiwanese nationals, young and old, can pay for anything anywhere with their vouchers as if they were paying in cash.
You can buy a bowl of beef noodles, stay in a hotel or visit a karaoke bar; you can even buy gold as an investment or pay a caregiver’s services.
In these hard times, a US$100-plus-voucher goes a long way. Just not enough to buy an “it” bag.
(Asia News Network is an alliance of 16 newspapers, including the Philippine Daily Inquirer, published in 14 Asian cities.)
