China is a huge market with 1.6 billion population, how much does Chinese people spend on luxury products?
Personal premium goods sales in mainland China increased by 36% in 2021, reaching 471 billion yuan ($73.59 billion), compared to the same year the previous year.
The increase in luxury goods sales comes amid a general decline in retail sales in China since the outbreak of the epidemic began in 2020. China's home market is becoming an increasingly popular destination for international businesses, according to the data.
China mainland’s share of the global luxury market have increased to approximately 21 percent in 2021 from approximately 20 percent in 2020.
Background for China luxury market
The 1990s marked the beginning of the rise of China as a premium destination for western luxury brands. They were well aware of the potential of the Chinese high-end market. Through the 1990s, a number of Western luxury brands launched their first Chinese stores, including Hermès in 1997, Cartier in 1992, and Chanel in 1999 as examples.
Main luxury brands in China?
This is according to a recent rating by Agility Luxury Brand Affinity, which was based on a study of 1,000 luxury customers conducted across 40 different Chinese cities. With a 400,000-renminbi-per-year income as the cutoff for sampling, 300 respondents were defined as high net worth, meaning they had $1 million or more in investable assets, and they were chosen from this group.
Based on this research, most brands from Top 10 are for fashion, cosmetics, leather products, watch, other luxury categories came after.
1. Chanel
2. Dior
3. Hermès
4. Lancôme
4. Gucci
4. Estée Lauder
7. Rolex
8. Cartier
9. Louis Vuitton
10. Armani
Top cities where Chinese consumers are located
According to the findings of a poll on luxury consumption in China in 2020, around 30% of Chinese respondents who purchased luxury items between April and July of 2020 were from the top four cities in the country: Beijing, Shanghai, and Guangzhou, respectively. Beijing, Shanghai, Shenzhen, and Guangzhou are the four largest cities in China.
Why are luxury brands popular in China?
It is very interesting to explore the motivation, attitude and behavior for Chinese luxury consumers.With a fast growing economy and a massive population, China managed to become the most attractive markets for luxury brands in the world. Western culture's penetration of this country also increases the Chinese people's demand for a luxurious existence.
The growing middle-class group in China is a main engine for luxury businesses. Increased buying power and following the trend of shopping in high quality and branding goods make these people willing to purchase mid to high end luxury products .
Chinese middle-class consumers perceive luxury brands as highly valuable possessions, and they primarily use them as a tool to meet the social expectations of important reference groups The best-known luxury brands are no good options for consumers who want to express their own uniqueness, probably due to the popularity of the brands.
This trend also explains why Chinese consumers constitute a fast-growing market for luxury products at the same time that they save a much higher percentage of their incomes than their counterparts in other countries.
Normative influence played a crucial role luxury brands and Chinese Middle-class consumers by using some elements that helped companies to communicate with target consumers，luxury brands in China also need to highlight the social meanings of their products and clearly communicate how their products can benefit consumers in important social situations and connect them with desirable social groups.
Luxury consumption, on the other hand, has key opinion influence on society as a whole. Even people who are less financially affluent can now purchase luxury things. Children and adolescents stubbornly adhere to such credos as "spend tomorrow's money" or "spending ahead of income."
Who are buying luxury products in China
Chinese ultra-high-net-worth individuals and VIPs (individuals who spend more than €100,000 per year on luxury products, or 23% of total luxury spending in China) will be targeted by most luxury brands.
According to collaborative study conducted by Tencent Marketing Insight (TMI) and Boston Consulting Group, China's young, affluent customers are becoming an increasingly dominant force in the luxury market, with those born after 1990 estimated to account for 46% of China's luxury purchases in 2021. (BCG),with a year-over-year growth rate of between 25% and 35%. They were more likely to purchase luxury things as a means of self-expression or reward, as well as to get brand experience.
"Many consumers who could have spent their money on travel first, particularly younger Gen-Z consumers, have instead entered the luxury category," said Imke Wouters, retail and consumer products partner at Oliver Wyman. 40% of first-time luxury shoppers polled were under the age of 25.
According to the report "The New Faces of Chinese Luxury Shoppers," this spike in first-time luxury fashion consumers will account for 88 percent of the luxury fashion market's growth in China in 2021.
China luxury market forecast
According to consulting firm Bain & Company, Mainland Chinese consumers will account for the highest percentage of global luxury spending by 2025. According to recent estimates by financial services firm Jefferies, the Chinese cluster already accounts for 46% of the personal luxury goods market. There are three important trend for China luxury market in coming 3 years based on SODA branding experts analysis.
Duty-free stores selling is increasing quickly in Hainan
A significant driver of the local luxury industry is the expansion of duty-free shops in Hainan, a southern Chinese island province. Over the last two years, new government policies have reduced taxes and enacted other pro-business initiatives with the goal of transforming the region into a free-trade port and international consumption center.
According to Bain report, sales of luxury items at Hainan's duty-free retailers expanded by 85 percent annually in 2021, reaching 60 billion yuan, following a 122 percent year-on-year gain in 2020. Last year, the outlets accounted for 13% of mainland China's personal luxury goods market, up from 9% in 2020 and 6% in previous years.
China luxury Ecommerce market is growing rapidly
China's digitalization is strong and growing, and the tendency has increased further as a result of the epidemic. While a result, most of marketing and consumer involvement has shifted online, even as the offline store continues to be the major channel for brand creation and conversion. Across all categories, online luxury sales increased faster than offline sales, with online personal luxury sales increasing over 56 percent, while offline sales increased by 30%.
In Asia, the Chinese market is driving luxury e-commerce growth. A young consumer segment with considerable purchasing power. Globally, the average age of online luxury shoppers is low, notably in China. As a result of the COVID-19 pandemic's influence, many general customers have switched their behaviors away from brick-and-mortar establishments and toward online platforms. During the epidemic, many buyers who had previously avoided online luxury purchases began to do so. For them, purchasing online was more advantageous than shopping in-store. They offered a broader selection of brands, easier search and browsing, faster clearance of items through customs, and a more streamlined process for returning products and obtaining a refund. This experience is likely to solidify long-term behaviors, and online luxury purchases will eventually become a permanent trend.
Opportunities with a light-premium budget Consumers
With yearly luxury expenditure of less than 300,000 yuan account for the remaining 60%, brands should adopt a 'always-on' marketing strategy in order to acquire new consumers and boost revenue.The objective is to increase conversion efficiency as touch points and paths become more diverse and complicated."
Brand companies need to upgrade their product offering and enhance the shopping experience in order to attract and keep consumers, rather than cutting prices.
How to make a suitable marketing and sales strategy for new luxury brands who would like to enter China market, this is absolutely a big topic, depends on the product and brand definition, then target right audience in correct locations. In middle term for China market, digital marketing and traditional marketing, online and offline methods will be used both for luxury brands, which needs to provide best experience to customers. SODA Global Marketing is focusing on full services in China for global customers, start from brand marketing and sales strategy, help customers to handle multiple channels of marketing, online and offline sales development, act as customer’s reliable partner located in China.