Who Are Tomorrow’s Consumers?

While manufacturers of luxury goods have lately had a difficult time in emerging markets, the real story for the next two decades will be these countries’ shift to middle-class status. Although other emerging regions will undergo a similar shift, Asia will dominate this transformation.

SINGAPORE – Luxury-brand companies’ stock prices plunged in July, after their financial results disappointed investors, owing largely to slower sales in emerging markets, especially in China. Meanwhile, news reports indicate that high-end shopping malls in India and China are increasingly empty.

What is going on? Many analysts had expected emerging markets to generate exponential growth over the next decade. But now there is talk of how the global crisis is slowing down these economies and killing off discretionary spending.

But a slowdown in China’s economic growth cannot really be blamed for slower sales of luxury goods or empty malls. The annual growth rate of China’s $7.5 trillion economy decelerated to 7.6% in the second quarter, from 8.1% in January-March – hardly a cause for panic. Moreover, two-thirds of the decline is attributable to slower investment rather than slower consumption. For all of China’s long-term structural problems, it is not exactly slipping into recession.

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