China: Luxury Retailers' Travails

High-end goods are suffering on the mainland due to a pinched middle class and brands' failure to create a loyal following

The largest luxury manufacturers are salivating at the prospect of striking it rich in the world's fastest-growing market. Trend lines dazzle. China is now the third-largest consumer of luxury items; the PRC boasts more millionaires than Japan; diamond engagement ring penetration now exceeds 70% in Beijing, Shanghai and Guangzhou; automobile purchases skyrocketed by 50% in 2006 and that was a slow year.

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