PPage 64age 64 DCF and valuation pIndustry oaramevervieterws I Points of view from EY global sector Chinese appetite for luxury goods and brands reshapes the luxury and other industry professionals landscape Persistent uncertainty in Greater China The deceleration in consumption of luxury goods has As for most luxury groups, watch companies are Greater China4 been fmrther amplified since *(), amid protests currently prioritizing reducing their stock levels in used to be seen as the only safe haven for European luxury brands following the 2007–08 against Mainland China. Anti-Mainland sentiment has order to improve inventory rotation. They are also global economic crisis — but it is no longer true. In negatively impacted tourism from China Mainland, taking advantage of lower pressure on real estate 2012, the Chinese Government implemented a new while a strong Hong Kong dollar has faded out the prices to renegotiate rents. Meanwhile, they pursue anti-gift policy. This measure was a major challenge demand for luxury goods in that city-state.8 online sales implementation as well as store for luxury companies: since then, the market rationalization throughout Greater China, with a 12 conditions in Greater China have remained very New normal, new strategies special focus on Hong Kong. Moreover, luxury challenging, and the current situation is not getting Unsurprisingly, luxury brands remain highly exposed groups’ marketing strategies are changing as well: any better. to uncertainty in Greater China: for instance, Swatch some of them, smch as DNE@, Cering and Jichemont, Over the last few months, the demand for high-end and Richemont generated 34% and 24% of their 2015 are focusing their efforts on promoting the most products has been shrinking. In the watch industry, 9 promising recent brands in their portfolios. This revenue in this area, respectively. However, due to enables them to drastically decrease marketing the mid-price point declined by almost 20% in the weaker sales than expected, most watch retailers are expenses by avoiding onerous traditional second half of 2015.5 Luxury companies are suffering currently facing overstocks. Meanwhile, they 13 from cutthroat competition, even more exacerbated continue to struggle with high rental costs. communication campaigns. by the availability of midrange brands. Meanwhile, In response to the change in the Chinese economic China’s middle class is allocating more and more environment, luxury companies are currently Made in China savings to house properties as a result of the Chinese adapting their strategies to catch new opportunities. But what if intensifying ad campaigns or reducing 6 Government’s credit easing policy. For example, Swatch decided not to increase its costs is not the solution to invigorate the Chinese Amid continming concerns abomt ;hinese financial prices to keep the focus on market share and luxury market? More and more investors are betting marcet efficiencq and gross domestic prodmct ?