Increasing prices reshape the Chinese luxury market

The target audience for luxury brands in China is being reassessed as middle-class salaries fail to keep pace with rising prices.

What’s happening

The price of luxury goods has almost doubled since the pre-Covid period, as rising production costs have been passed on to consumers, and inflation takes its toll. That’s pricing out many aspiring buyers whose incomes aren’t rising at the same rate. “Luxury brands are now pivoting back to the elite in a bid to maintain exclusivity, and thus preserve the allure that once made them iconic,” Sixth Tone notes.

Background

The ‘daigou’ phenomenon – where people bought goods overseas cheaper and resold them in China – forced luxury brands to reassess the price differentials between western markets and China. Lower prices in China helped boost the local market and draw in a new demographic of buyers (one 2018 survey reported millennials were prepared to set aside 20% of discretionary income to buy luxury goods). Many of these buyers still had to save hard to make entry-level purchases, which were often limited to a celebration of a particular occasion.

Takeaways 

• Rising prices have led to many luxury consumers eschewing “bling” in favour of “quiet luxury”, either because of a new appreciation of timeless craftsmanship or simply from a wish to appear less showy during difficult economic times.
• Second-hand luxury outlets are doing well, with some products like bags even selling for more than new ones if they’re unavailable in store.
• There are reports that luxury brands, wanting to focus on high-end customers, are seeking to discourage ordinary walk-in buyers.
• High-net-worth customers account for 0.003% of the population but buy over 80% of all luxury goods.

Key quote

“All luxury brands have realized that core high-end customers are the key to survival and development. The brand on the top of the pyramid will have the best future” – Zhou Ting, co-chairman of research firm Yaok Group. 

Sourced from Sixth Tone