Despite concerns about a slowdown in China’s economy, its ongoing trade war with the United States, and a full-blown recession globally, the appetite for premium luxury purchases among Chinese consumers remains robust.
Sales of personal luxury goods in China in 2019 are expected to touch US$28.47 billion, an increase of 13.6% over 2018, according to an estimate by research firm Euromonitor International. The forecast for 2020 is a slower 10.5% year-on-year growth, but sales are expected to grow to reach US$43.6 billion in 2024.
Younger Chinese spenders are behind these optimistic growth figures and are expected to drive the local economy once domestic investment and exports slow down. Millennials, those born between 1981 and 1996, and Generation Z, who follow the millennials, together account for about 500 million of China’s 1.4 billion population.
“It is quite scary how the younger generation [in China] is so willing to spend,” Hong Kong actress Carina Lau Kar-ling, recently told South China Morning Post during the launch of a new handbag collection by French luxury house Christian Dior.
According to consultancy McKinsey & Company, China’s younger consumers, were responsible for about 60% of growth in total spending in 2018. Thanks to increasing disposable income levels and optimism about their futures.
“China’s growth has always been driven by a younger consumer group, compared with what you would see in mature markets,” said Daniel Zipser, a senior partner at McKinsey. “[And] premiumisation remains the name of the game. Chinese consumers’ desire to buy more premium brands and upgrade their spending … is particularly visible in luxury goods, which are seen as social capital.”
To capture this spend-happy segment of consumers, luxury brands will need to commit more to in-market assets as signals indicate an upward trend in purchasing domestically rather than overseas.
According to a recent estimate by Bain & Company, Chinese consumers made 27% of their luxury purchases in China last year, and this share is projected to increase to 50% by 2025.
Harrods, the iconic UK department store now owned by the Qatar Investment Authority, has become one of the latest luxury brands to address this issue, with plans to open its first standalone site outside the UK in Shanghai later this year.
“We see continued growth of China, but we see a need to be a more permanent resident in China,” said Harrods MD Michael Ward.
Sourced from South China Morning Post, Retail Gazette