How is China’s Luxury Market Changing?

07/10/2019

China is driving the world’s luxury consumption for three years now but new targets and trends are still rising. So who are China’s new luxury buyers and what industries are emerging in the market?

 

It is a fact that the Middle Kingdom is driving the world’s luxury consumption. Chinese love for luxury products together with an increasing purchasing power led to an extraordinary explosion of the luxury market in the PRC.

When it comes to luxury consumption, the Chinese have been ranking first for three years now. In 2018, Chinese consumers’ spending in the luxury market represented 33% of the world’s total and is estimated to reach 46% by 2025. Estimates also reveal that in 2025 the value of this market in China will be worth more than $175 billion, whose online spending will reach as much as $20 billion.

 

Luxury in China is definitely a market to keep an eye on, especially since it shows signs to be on its greatest moment of growth. The country’s increasing purchasing power and emerging middle-class are key factors in the growth of its high-end market.

 

The middle-class society is estimated to reach 350 million people in the next few years, meaning that more and more people will be able to afford luxury products in China. Indeed, according to a study conducted by Bain & Company, middle-class consumers will represent an estimated 65% of all Chinese households by 2027.

Nevertheless, another engine powering luxury sales in the PRC is represented by digitalization. Chinese luxury shoppers have, in fact, become more accustomed to purchasing expensive goods online. The big data of Alibaba’s Tmall show that more than 100 million consumers have either browsed or purchased luxury products online over the past year. Plus, more than half of luxury consumers in China use their mobile devices to research exclusive products.

Both Alibaba and JD.com have recently launched dedicated all-in-one exclusive platforms with ultra-secure warehouses, invite-only loyalty programs, mobile e-commerce, and other services. And it’s working: Alibaba’s Tmall Luxury Pavilion now offers more than 80 brands, including Maserati, Valentino, and Burberry.

 

china luxury market - consumers - cifnews

© Pexels. Although two-thirds of China’s luxury purchases are made outside the country, by 2025, Chinese consumers are expected to make 50% of their high-end shopping in the PRC.

 

Since the start of economic reforms and the opening of the PRC, during the ‘80s and ‘90s, imported products entered the Chinese market attracting Chinese consumers, who were intrigued by these new products and by the Western lifestyle. But with the increase in awareness at the time of purchase together with the growth in purchasing power, since 2000 the Chinese have given greater importance to quality and safety, thus becoming more demanding customers.

In the People’s Republic, the purchase of high-end goods is, therefore, not linked to a functional necessity. Here, the social value of this kind of products is extremely high, a context that plays a crucial role in the growing success of the luxury market.

Since the guanxi – influential relationships among people – is so important in China, buying or giving luxury goods could reveal the attention and value someone puts in its own aspect or in a certain relationship. Showing off designer clothing thus becomes a distinctive sign, as for example, a sign of one’s own professional aspiration.

This environment has definitely led to the rise of luxury’s newest targets such as “girl bosses” and millennials, which in turn have driven the rise of new luxury trends like that of high-end sneakers.

 

Currently, 61% of Chinese companies have at least one woman among the board of directors while in the US only 34% have.

 

Although women in China have faced decades of containment on the margins of culture and society, nowadays the Dragon has the world’s highest proportion of women working in senior management positions, the second-largest percentage of female CEOs, and a full half of the world’s self-made female billionaires.

According to the Chinese government, women have found 55% of the country’s new technology companies, a fact that is reflecting in the luxury industry as well. Indeed, entrepreneurship is a glorified concept in China today, and as a result, Chinese women feel the pressure to better represent their role.

Media representation of working female characters has been depicting them as ambitious and capable “alpha women” who also look very feminine. On one hand, they want to dress to look self-assured and in power, but on the other, they still need to look feminine and adhere to their society’s rigid beauty standards.

Therefore, luxury brands led by strong women are these female entrepreneurs’ favorites such as Céline when it was directed by Phoebe Philo, Dior that is now directed by Maria Grazia Chiuri, and Chanel, of course. “Those clothes [from Céline’s Phoebe Philo period] made me feel professional, chic, and empowered as a woman,” Amy Wu, the founder of GirlUp, told Jing Daily.

 

china luxury market - status symbol - cifnews

© Unsplash. Chinese consumers view ownership of luxury products as a form of social capital. It marks them as part of a distinct community or as more professional.

 

However, the luxury industry is witnessing the rise of a brand-new “he-conomy” – male consumer consumption – as well. Indeed, for what concerns online purchases, the average annual spending for men has been discovered to be higher than the average spending for women.

Today, Chinese men are paying more attention to their professional and formal looks, as well as their casual daily wardrobes that became part and parcel of their workplace and career. The result is the increase in the sales of skin products, high-end clothes, and luxuries in order to receive a higher external acceptance.

They are not interested in the value of objects but they rather buy the added value of the product in order to pursue a better life quality. Therefore, even if they might buy fewer products compared to women, new Chinese male consumers often choose more expensive products becoming the backbone of high-end sales.

But also Millennials and Generation Z – those born between 1995 and 2002 – represent today’s high-end buyers. According to reports, Millennials are the main customer base for luxury goods, accounting for 27% of luxury consumers, a figure that is expected to rise to 40% in the next 5 to 7 years. However, a study by research firm OC&C Strategy Consultants revealed China’s Generation Z accounts for 15% of their household’s spending compared with 4% in the US, spending much more money than their Millennial cousins.

 

Compared to their counterparts in other countries, Chinese young consumers have stronger spending power and are more willing to spend their money. They also buy more frequently and freely compared to older generations, making them among the major contributors to the luxury market growth.

 

Thanks to these new buyers and to domestic firms the phrase “Made in China” – once used for poor quality products – is now facing a complete change. While local brands used to want to appear foreign in order to look more appealing, now being Chinese has become a source of pride.

In particular, Chinese sportswear brands are facing a renewed popularity in the country, also thanks to the government’s recent focus on sports, whose incentives led sportswear industry to reach unprecedented successes.

These brands are experiencing double the growth in online search volume that traditional activewear and luxury fashion brands see. Indeed, the Baidu Index for streetwear brands, on average, increased 12% year-on-year for a 12-month period ending in March 2019, compared to 6% for activewear and 5% for fashion.

Moreover, according to the global research institution Gartner L2’s Luxury China: Streetwear Insight Report released in September, luxury brands are among those most associated with sneakers on Chinese social media. “The ‘it sneaker’ has emerged as a status symbol used for self-expression and is the key gateway luxury purchase for young shoppers in China,” said Danielle Bailey, Managing Vice President for APAC Research and Advisory at Gartner L2.

 

china luxury market - sneakers - cifnews

© Unsplash. According to studies, luxury brands has recently become synonymous with sneakers in China.

 

China’s luxury market is showing impressive changes compared to ten years ago, changes that go hand in hand with transformations in Chinese society. Both e-commerce companies and brands are, therefore, adjusting to these changes quickly. Key Opinion Leaders are hired to reach and engage with the youngest customers while the major social commerce platforms create the best environment for the new luxury market in China.

Digital, down-to-earth, quality, and status symbol is what Chinese new luxury buyers ask for today. And the recent sneakers’ campaigns on social commerce websites are a sign of this demand.

And as the primacy in the luxury consumption reveals, the Dragon is not only the best in addressing its buyers’ needs but also one of the most receptive markets.

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