China’s luxury market recorded growth of 20% in 2018 for the second year in a row, according to Bain & Company’s latest survey of the market, but a slowdown is now inevitable.

The What’s Powering China’s Market for Luxury Goods? report forecasts growth of just 10% in 2019, due to the country’s weakening economy affecting both incomes and buyers’ confidence.

“We need to realise that China’s economy is slowing down,” Bruno Lannes, a partner at Bain, told the South China Morning Post.

“In particular, Chinese consumers are looking at their savings and asset values before making decisions to buy luxury items.”

A key takeaway from the report for brands in the sector, however, is that the luxury market is mirroring the country’s economy generally, in that increasing domestic demand is the long-term trend. This reflects both the Chinese government’s efforts to boost domestic consumption, and an increasingly affluent middle class.

Bain notes the trend is already well under way – from 2015 to 2018, the domestic luxury market grew from 23% to 27% of all spending on luxury. By 2025, it says, fully half of spending in the sector will take place domestically rather than overseas.

Growth of the sector in China is increasingly being driven by millennials, aged between 23 and 38, and often funded by their parents. Those brands reaching out to this age group, by innovating as the market evolves, are the clear winners in terms of growth.

“For every brand that grew by more than 25% in 2018, there were two brands that grew by less than 10%,” the report said.

Successful brands embrace digital channels and leverage influencers, and they generate lots of fresh products to attract the millennial consumer.

High-end cosmetics was the fastest-growing part of the market in 2018 (up 25%) and millennial women were the main driver.

“Unlike older generations, millennials are more heavily influenced by what they consider to be cool than by brand names or product pricing,” Bain noted.

“They value newness more than discounts. They rely on social media and freely share their opinions online.”

Sourced from Bain & Co, South China Morning Post; additional content by WARC staff