Tightened policies on government spending for luxury goods in China have put a temporary cap on the buying of luxury goods as gifts, which has contributed to the slowest annual growth of the market in five years.
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That's according to the findings of the latest Bain & Co report released on Wednesday. The consultancy predicted luxury sales on the Chinese mainland to grow a meager 7 percent this year.
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He cited a government regulation, effective from October, forbidding government spending on extravagant items, as well as the social media exposure of a number of government officials with luxury goods brands.
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Lannes said products for men will be hardest hit by the changes. "Basically, it's watches and menswear that are most reliant on gift spending."
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However, the sector is likely to rebound next year because gifts have been a major feature and tradition of the country's luxury market for years.
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Lannes predicted there will be a paradigm shift, and said future gift items will likely have less conspicuous branding.
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The luxury market value on the Chinese mainland is expected to hit 113 billion yuan ($18.07 billion) by the end of the year. Watches are expected to be among the hardest hit categories with a 5 percent drop in market value.
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However, Chinese purchases worldwide reached 306 billion yuan with spending abroad rocketing by 31 percent.
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More than 60 percent of consumption took place in overseas markets, driven by the depreciation of major foreign currencies, and dynamic overseas travel.
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As a result, traditional shopping hotspot Hong Kong is losing out to European and US cities, with its growth rate slowing down to around 10 percent.
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"More Chinese shoppers have learned to take advantage of the weaker euro and US dollar. For big-ticket items such as watches and jewelry, you can see as much as a 40Â percent pricing gap between the euro and the yuan," Lannes said.Â
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