Let China's Middle Class Lead You Into Luxury
by Tony D'Altorio, Investment U Research
October 28, 2009
According to the World Bank, the global middle class could grow to 1.15 billion in 2030 - a huge jump from the 430 million middle class folks in 2000.
Driving the extraordinary growth is... you guessed it, the emerging "BRIC" nations. In 2000, developing countries like China, Brazil and India accounted for 56% of that number. But by 2030, analysts expect it to climb as high as 93%... with China alone accounting for 52% of the expected increase.
This represents a tremendous amount of wealth. A Coca-Cola (NYSE: KO) executive compared it to adding a city the size of New York to the world... every three months.
Needless to say, that opens up amazing opportunities. But in order to succeed, companies who want to profit from this market have to conceive, develop and market tailor-made products and services to the burgeoning ranks of newly well-to-do consumers.
While they develop programs, investors can grab future profits by investing in such companies.
And right now, there's no better chance to do that than to look at a sector that many have overlooked: luxury goods.
Luxury Goods Market Moves East
Emerging Asia's role in the market for high-end luxury goods is mushrooming - and isn't expected to slow down any time soon.
General household spending within Asian developed nations should continue to increase, as economic growth, rising populations and improving health/retirement provisions reduce the need for families to save for the proverbial rainy day.
Naturally, these trends show most strongly in China - already the world's third-largest luxury market and a country that already has a big crush on high-end brands. As salaries continue to grow among both the wealthy and growing middle class, that crush should turn into a full-blown love affair.
Already, Shanghai's female office workers already have a reputation for spending a hefty chunk of their month's salary on a handbag or a pair of shoes. And New York-based market research firm, Pao Principle, found that almost 90% of well-heeled Chinese surveyed had purchased a designer handbag over the past year.
Want to cash in on the trend?
Six Ways to Profit From the Chinese Luxury Market
China offers boundless riches for luxury brands if they can tap into the demographics, preferences and psyches within the country.
For instance, the wealthy Chinese consumer is 20-30% younger than luxury consumers in Japan, which makes a big difference in what appeals to them.
And the global management-consulting firm, McKinsey, highlights another difference. It projects that growth in luxury goods consumption will come from less "Westernized" cities like Wenzhou or Chengdu, which have more wealthy consumers than Detroit.
If you've never heard of these cities, you're not alone. Neither has Wall Street. But just because the financial media largely focuses on China's export-oriented coastal cities and ignores the rest of the country, it doesn't mean that investors should.
Some firms to consider include...
- Coach (NYSE: COH): The company already started marketing to China.
- Tiffany's (NYSE: TIF).
- Sotheby's (NYSE: BID) auction house.
If you want a more diversified play, you could go for an exchange-traded fund like Claymore/Robb Report Global Luxury Index (NYSE: ROB), which offers broad-based exposure to companies in the global luxury goods and services industry.