It is reported that on 28th October, LVMH Group is intended to have acquired high-end U.S. jeweler——Tiffany, at a price of 145 billion USD cash (approximately 1023.5 billion RMB in total) with forms of agreement in order to further expand into the American market. Impacted by such a transaction, Tiffany’s stock price has risen 30%, which is its largest recorded gain and  it’s highest level in this year.

Headquartered in Paris, LVMH is one of the world’s top three luxury conglomerates with a market value of $215 billion which owns more than 50 brands including LV, Dior and FENDI. In the first three quarters of the year overall group sales rose 16 per cent year on year to €38.4bn. Strong results have also helped lift LVMH’s share price, which is up 48% this year.

LVMH’s emergence as a luxury aircraft carrier and cash flow generated by emerging markets represented by China have created large swells of energy in the market. In the new cycle of gaining market share in China, LVMH is undoubtedly the biggest beneficiary. As previously mentioned, LVMH’s group sales rose 16 per cent year on year to €38.4 billion, while its core fashion leather goods division rose 22 per cent to €15.873 billion. According to the 2018 results, the group’s full-year revenue rose 10 per cent to €46.8bn, operating profit surged 21 per cent year on year to €10bn and sales in its core fashion leather goods division rose 15 per cent to €18.455bn.

Although the parent company of Gucci, kering group, is confronted with the serious problem of Gucci’s slowdown in other markets, it has also benefited from Chinese consumers achieving high-digit growth for more than a dozen quarters, pushing kering group to confront LVMH head-on. In the first nine months of the year, kering group sales rose 17.2% every year, finally amounting to €11.523bn, with core brand Gucci still gaining in markets such as China, Singapore and Australia.

Commenting on Tiffany’s latest acquisition on CNBC’s consumer news & business channel, Raphael Pitoun, a fund manager at CQS New City Equity, said recently that there were growing opportunities for dominant companies in China’s luxury market. “There is a lot of demand for international brands in the Chinese market,” he said. “after an economic cycle in which people didn’t have much money for luxury goods, when the economic cycle improves, people flock to stores and online markets to buy more goods.”

That actually explains why the Chinese market is holding up half the sky after concerns were expressed earlier this year about the luxury giant’s reliance on the Chinese market. The recent expo reflects the continuous optimization of the business environment. The collective appearances of LVMH and kering group reflect the determination of international luxury giants to deepen their commitment to China.

In fact, the luxury fashion industry is constantly fluctuating, but this is more of a market opportunity for luxury aircraft carriers, making the strong stronger. Edouard Aubin, head of luxury research at Morgan Stanley, says one of the main reasons for the global luxury giants’ staying power is that there are huge barriers to entry on the supply side that are hard to copy. The second is the growing potential market, with a growing number of young, affluent mainland Chinese consumers driving demand even as the global economy slows.

LVMH, since 2017 has begun thorough innovation from the inside out and gradually started to target the potential young consumer market in mainland China, Alibaba and other third-party E-Commerce business platforms have opened retail websites, and held exhibitions and behind every step, is the urge to reach a new generation of Chinese consumers.

Chinese consumers will account for 40% of global luxury consumption in 2025 and will be a major contributor to the industry’s growth over the next six years, according to McKinsey’s report “China luxury report 2019 social fission: China’s” post-1980s “and” post-1990s “generation spawning a new global luxury track” released in April. Chinese consumers spent a total of 770 billion yuan on luxury goods at home and abroad in 2018, with each household able to afford luxury expenditure averaging 80,000 yuan. This growth is mainly due to a surge in the number of upper-middle-class families, whose spending is set to nearly double to 1.2 trillion yuan by 2025.

The 2019 global wealth report by Credit Suisse also found that of the top 10 percent of the world’s population, China will have 100 million people in that segment in 2019, surpassing the 99 million number in the United States for the first time. Wealth-x, a research firm, found that China has more than $1 billion of ultra-high-net-worth individuals, with 27.5 percent of them under the age of 50, well above the global average of 13 percent. It is also important to note that 93.5% of the super-rich are completely self-made.

Statistics from the national bureau of statistics show that in 2018, 140 million Chinese households had annual incomes of between 100,000 yuan and 500,000 yuan, which could reach the middle-income group of more than 400 million people. Some analysts have pointed out that in recent years, China’s consumption upgrade is in a transitional period and the annual household income from between 300,000 and 1 million households have the ability to consume luxury goods. It would seem that luxury is becoming more and more a necessity among Chinese youth.

*This article was published on the Nanjinger magazine on November 2019.