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China Consumers Holding Back on Spending: Luxury Goods CEO

As China’s economy slows, Hong Kong-based luxury goods distributor Jebsen & Co. is seeing early signs of weaker consumer demand. CNBC’s Christine Tan spoke to Group Managing Director Helmuth Hennig about prospects in China, a country that is expected to surpass Japan as the world’s biggest luxury market this year.

CNBC.com

Q: You're accelerating your push into a country where there is growing evidence there'll be slowdown in the Chinese economy. Are you feeling any impact?

I think what we're seeing is a slowing of growth, not really a slowing of the overall business.

Q: Where are you seeing the slowdown?

The people coming into our Porsche dealerships, there's less number of them. We're seeing less demand for some of our other more broadly distributed products, but at the end of the day, it's not about things stopping all of a sudden, it’s … maybe the consumer in China is taking a little bit of a step back. But having said that, I just looked at some statistics the other day, retail sales are still growing 70 percent year-on-year so that's still an enormous growth of retail sales in China. But I think for the products that we sell, which are really high-end premium products, the consumer will think carefully about some of the purchases.

Q: So they're delaying the decision making process?

In some cases, yeah, but it's not a trend. I wouldn’t call it a trend. I'd just say we're seeing first inklings of that happening.

Q: You have big exposure in the luxury car segment, which you say represent the Porsche sports car brand distributorship. Is there anything you can do to protect the company against any sharp slowdown when it comes to spending? Do you have a contingency plan in place?

Not really. We have our commitments towards our supplier. We have got forward purchases with them, so they understand that their factory is supposed to be utilized over the next few months. So from our perspective, it's really about understanding our customers more than anything else: whom have we sold these cars to, are they able to pay for them at the end of the day.

Q: You spent the last 10 years building up a consumer business over in China. What's the biggest challenge you face really understanding the Chinese consumer?

I think at the end of the day it all boils down to people, just like in every other market. It's about your own people and their ability to transact the aspirations of our brand owners and our own aspirations. We're not a charitable organization we're here to make money. So we need to be able to invest sensibly for those brands that we work with. At the same time we understand that the brand has of course, have their aspirations for China. But it's finding these people, and training the people that at the end of the day, it’s just the hardest thing retaining them.

Q: You said before to me that it's very difficult to build brand loyalty in China. Do you have to do anything differently to get sales going?

I think the difficulty for the Chinese consumers is that they're inundated with choice at this point of time. Everybody sees China as great hope for the future, and so many people are willing to invest a lot of money to get some sort of return out of China without really understanding whether this is going to be a long term play for them or not.

We've been there for over hundreds of years, we need to make it work for us. This is our core market. So from our perspective, if we take on a brand, and we're actually quite picky about the people that we work with, we need to understand that they are just as committed to the Chinese market as we are. Which means not only putting money into it, but also putting other resources, like people primarily, or even looking at the products seeing that they tailor make them to the Chinese consumers' demands.

This is an excerpt taken from CNBC’s longest-running feature program Managing Asia. Catch the show with anchor Christine Tan on February 3 1830 (SIN/HK) and repeats over the weekend on CNBC.

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