Michael Bleby Reporter

Michael writes on emerging markets, architecture and engineering. He has served as a correspondent in Tokyo, London and Johannesburg and has written for Reuters, the Financial Times, The Age and The Sydney Morning Herald.

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Wool rides into China’s growing luxury market

Published 11 December 2012 05:11, Updated 12 December 2012 05:42

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Wool rides into China’s growing luxury market

Between 2007 and 2011, consumer perceptions of wool as a high-end fabric conferring status and worth paying more for have grown. Photo: Paul Clements

China’s larger-than-expected jump in retail sales and signs of returning consumer confidence will be good news to many but one Australian industry welcoming the good news ought to be wool.

The greater-than-expected jump in Chinese retail sales to 14.9 per cent in November from 14.5 per cent a month earlier, coupled with signs of rising incomes and a modest return to property markets, should mean one thing for the industry that produces 85 per cent of the world’s wool – higher prices.

Things are already looking good, admits Australian Wool Innovation chief executive Stuart McCullough. For the head of an industry lobby group who says $10 per clip is a “line in the sand” that determines whether the industry will grow or shrink in size, nearly two years of prices above that have him bleating with joy. On Monday, the generic contract for 2500 kilograms of greasy wool was priced at $12.

“We can’t evidence a period in history of such sustained good prices,” McCullough says.

Strong levels of consumer spending alone, however, don’t guarantee anything. Back in 2008, even when Chinese consumer spending was running red hot at an annualised monthly pace of 25 per cent-plus – and before the global financial crisis reared its head – wool prices were declining. So what is different now? The answer is marketing. Since 2010, AWI has worked hard to link its product to luxury in people’s minds.

AWI has taken the long-standing Woolmark logo a step further with the Gold Woolmark, a three-year campaign to lift the positioning of Australian merino wool in people’s minds.

Consumers already knew about Australian wool.

“Many of the respondents stated that when they were growing up their parents would buy them clothing made from wool,” consumer research for AWI this year says. “Their mothers and salespeople would always recommend that they buy clothes made of Australian wool as this is of the highest quality.”

While known, however, the image of wool and Australian wool was not of a premium product.

“If customers are buying functional, low-end clothing (such as a sweater, socks, scarf, coat) they will pay attention to the presence of the standard Woolmark,” the research says. “However, the retail price of each item is generally less than RMB500 [$75.71]”

The Gold Woolmark campaign, however, has created a perception that high-quality Australian merino wool is turned into fabric by the world’s top manufacturers and then tailored into high-end clothing. Between 2007 and 2011, consumer perceptions of wool as a high-end fabric conferring status and worth paying more for have grown, the same research shows.

Having tied its fortune to China’s fast-growing luxury market, the wool industry is riding the boom.

“Wool sells for three good reasons,” McCullough says. “Where there’s affluence, a climate that suits and where there’s good population. Our gut says we’re at the beginning of the beginning of affluence in China.”