BEIJING: Luxury sales are still rising in China, but several trends are reshaping the market, meaning brands may be better served by building loyalty rather than more simple expansion strategies.

According to Bain & Company, the consultancy, sales of premium goods on the Chinese mainland rose by 27% to RMB87bn ($13.7bn) in 2010, and should reach RMB110bn in 2011, a 26% uptick.

The company suggested new customers delivered over 60% of growth this year, but the proportion of this total attributed to existing buyers climbed from 33% to 37% on an annual basis.

However, the organisation reported some leading brand owners are merely "cautiously optimistic" for their prospects in 2012 because they "don't have enough visibility".

"Some brands are making conscious decisions to reduce the pace of expansion and focus more on store performance improvement," the company's study argued.

As an example, leather goods saw demand rise by 30% in 2010, but this acceleration could slow to around 25% in 2011. The rate of growth for watches will also dip from 45% to 40%.

Despite this, watches should overtake perfume and cosmetics to become the largest luxury category in China in 2011, attaining a value of RMB20bn on the mainland, a 30% share, versus a worldwide average of 20%.

Meanwhile, menswear is expected to enjoy impressive growth, reflecting a greater male bias in the Chinese luxury market than is typically the case at the international level.

Elsewhere, the growth for high-end shoes may remain flat at 20% in 2011, with personal care also essentially unchanged, with a 22% lift year on year.

High prices are also influencing the Chinese market, encouraging customers to buy products more cheaply overseas.

When including Hong Kong and Macau, category expenditure rose to RMB159.5bn in 2010, hitting RMB212bn for all global purchases made by Chinese consumers.

"Chinese shoppers could cut back spending on luxury items in the near term, as the stock markets and the property markets have corrected steeply this year," Eddie Lau, Citigroup's head of regional consumer research, said. "The wealth effect is fading."

Data sourced from Financial Times, China Daily, People's Daily; additional content by Warc staff