China tops world in ‘vanity spending’ growth

China is driving the rapid growth of global vanity consumption – money spent on self-indulgence and enhancement of appearance and prestige – according to a Bank of America Merrill Lynch global research report.

The investment bank said in a report dated Tuesday that the “vanity capital” market in the “Greater China” region, which covers the mainland, Hong Kong and Taiwan but not Macau, grew at an annual rate of 15.6 per cent and led the world in the past five years.

Consumption on luxury watches, jewellery, haute couture, fine wines, Ivy League education, private jets and cruises are all part of vanity capital, while in the mid-range market, cosmetics, smart phones and health supplements also fall into this category, according to the study.

The future growth the region is likely to continue outpacing other parts of the world through to 2018, with an estimated rate of 8.2 per cent annually.

Worldwide spending on the area rose 6 per cent year on year to US$ 4.5 trillion last year, although the global consumption market remained soft amid a sluggish economic recovery.

The market size of vanity capital in the region reached US$661 billion in 2014, trailing only western Europe on US$748 billion, and the US on US$663 billion.

“We find that the Chinese, the Indians and the South Koreans have been particular fans of luxury vanity capital over the past five years,” Ajay Singh Kapur, equity strategist at Merrill Lynch Hong Kong, said in a research note.

For example, the luxury apparel and footwear market in China, India and South Korea rose strongly by 16.8 per cent to 18.4 per cent per year between 2009 and 2014, which compared to 4.8 per cent worldwide.

In China and India, he added, non-luxury jewellery purchases had been exceptionally strong based on traditional and cultural demand for jewellery and gold as a store of value. By contrast, in countries like the United States, Australia and Korea, sales of expensive alcoholic drinks had shot up quickly.

Despite global economic uncertainties, the study said, the vanity capital growth would exceed the world’s average growth rate in the long term.

The main reasons include the internet-driven ease of online purchasing and price comparison as well as faster fashion churn.

In addition, demographic trends also affect the vanity capital-related spending.

“Young people in many countries now remain single for a longer time and delay their purchases of first homes. In this case, they will have higher disposable incomes for vanity capital purchases,” Kapur said.

But markets like China, South Korea and Latin America had ageing populations. “Most wealth is in the hands of older people. Vanity capital seems a significant beneficiary – be it Botox, luxury personal care, cosmetics or luxury baubles to enjoy [in] their golden years,” he said.

 

Text: SCMP BY Celine Sun 23-04-2015

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