Daily Management Review

Chinese market: New bonanza for luxury brands


According to a marketing research of the luxury market in China, compiled by Bain & Company, sales in this area increased by 20% in 2018 and exceeded the figures for 2017.

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The report’s authors called such growth rates “amazing”. It is worth noting that the reasons for growth can be different. For example, in contrast to Europe, electronic commerce is considered to be the main channel for sale of luxury goods in China. Worldwide, most online shopping is done in China. Also the reverse flow of expenses should be noted. Due to import customs tariffs set by the government, control over the shadow market and regulation of the difference in market prices for luxury goods in the domestic and foreign markets, increasing number of Chinese are choosing goods represented in the domestic market. According to the company, consumption of luxury goods in the domestic market in 2018 was 27% (for comparison, this figure was 25% in 2015, and it can increase to 50% in 2025).

Who buys luxury items? According to the report’s authors, the average age of luxury consumers in China is lower than in other countries. The market for luxury goods in China is developing thanks to millennials; a year ago, the main consumers of these goods were people from 25 to 38 years old.

It sounds shocking, but has already become the norm in China. For several years, advertising campaigns for many consumer goods have been aimed at young people. Later, firms producing high-value products began to follow this trend as well. Their ads began to appear on large e-commerce sites, for which even special products were created, Chinese celebrities were invited, leading opinion leaders were drawn to cooperation, and faces of actors, some of whom had only recently become famous, filled covers and showcases. And all this was done in order to attract even younger buyers.

What caused the purchasing power of young Chinese? Bain & Company concluded that a significant part of the Chinese millennials already have their own apartments, they receive money from the family and have their own sources of income, which means they have money to spend. In addition, they are well acquainted with the luxury goods industry, as the information comes to them through numerous channels.

The researchers’ point of view is based on earlier studies. HSBC, a Hong Kong-Shanghai-based banking corporation, published a report in 2017. The paper stated that China is ahead of all other countries by number of millennials – owners of houses. The figure is 70% more than in Western countries. It is worth noting that 85% of Chinese respondents were city dwellers.

In short, Chinese consumers occupy a significant place in the luxury goods industry. According to the report, purchase of expensive goods by Chinese residents accounted for 33% of the global market, in other words, for 2018, the Chinese bought a third of luxury goods around the world. Three years ago, this figure was 31%, and 18 years ago - only 1%.

When the world realized what a huge potential hid in the Chinese consumer market, many companies selling expensive goods began to open stores there, conduct marketing operations, produce limited quantities of goods specifically for the Chinese market and hold the first presentations of their goods in China.

And yet there are those who believe that when China reaches a certain level in development, then it will turn into a society with low needs, like Japan. But with respect to luxury goods, this change will not happen soon. According to optimistic forecasts, this growth will continue for some time. Chinese millennials will not lose desire and interest in buying expensive goods. A recent survey by UBS showed that 71% of millennials are optimistic about their financial prospects, and 81% expect an increase in income.

source: yicai.com