Online, luxury sales to surge in China

21 May 2010

BEIJING: Automotive, luxury and e-commerce sales are all set to improve dramatically in China this year, a leading think tank has predicted.

According to figures from the Chinese Academy of Social Sciences, total domestic retail sales will reach $2.1trn (€1.7bn; £1.4trn) in 2010, compared with $1.8trn in 2009, $1.5trn in 2008 and $732bn in 2003.

The auto industry will be one contributor to this trend, with shipments leaping from 13.6 million units in 2009 to 15 million units this year.

BMW, the German carmaker, boosted its worldwide deliveries to 315,614 vehicles in the first quarter of 2010, and named China as a key driver of this 13.8% increase in sales.

"Demand in China has influenced our performance … significantly," Friedrich Eichiner, the company's chief financial officer, said.

The European firm has also now announced plans to open a new plant in China as it seeks to build on this momentum.

Elsewhere, CASS reported that the Chinese luxury market was worth $9.4bn in 2009, and the think tank suggested that this segment had exceptionally strong prospects going forward.

Last year, China was responsible for 27.5% of global luxury sales, making it the second largest outlet for high-end goods, having overtaken the US in value terms.

Premium products are expected to post revenues of $14.6bn in five years time, by which date China will be the number one luxury consumer in the world after leapfrogging Japan on this measure.

Recent research from Bain & Co found that second and third tier cities generated 60% of the growth enjoyed by the Chinese luxury sector in 2008 and 2009.

"With the explosive growth of its middle class and the ranks of high-wealth individuals, mainland China is seeing an equal boom in the thirst for luxury goods," Bruno Lannes and Weiwen Hann, from the consultancy's Shanghai office, said.

"China boasts at least 120 cities with populations exceeding one million, and consumers in these secondary cities have the buying power of shoppers in China's largest urban centers."

Another area where prestige brands may want to focus their attention is the internet, as while fewer than 10% of consumers buy these products online at present this is expected to change rapidly.

This shift would be in keeping with CASS's prediction that overall e-commerce revenues in China will jump to $73.5bn in 2010.

Rising internet penetration levels will be one factor assisting this process, while heightened digital literacy rates and greater trust in electronic payment systems will also play a positive role.

By the end of 2010, the web will account for 3% of all retail sales in China, which can be measured against a corresponding share of just 1% in 2008 and 2% in 2009.

To date some 61.5% percent of the Chinese online audience have bought apparel and home accessories in this way, and this total could reach 80% this year.

Consumer electronics will also experience a major improvement in returns from this channel in 2010, with its sales through this medium doubling to $11.7bn overall.

Data sourced from People's Daily, Wall Street Journal, Xinhua, CRIEnglish; additional content by Warc staff