China is every luxury brand’s dream but it has proved a lot more difficult than ever.
China’s slowing GDP growth, the government’s anti-corruption campaign, more competition, fast technological advancements and changing tastes hit luxury hard this year.
In Bain & Company's recently published “Luxury Goods Worldwide Market Monitor” annual report, China is expected to be showing “minus 1 percent” growth this year at constant exchange rates (minus 2 percent at current rates), due to greater controls on luxury spending and changing consumption patterns.
Some of the world’s leading Luxury conglomerates such as LVMH, Prada and Kering (owner of Gucci) have already reported disappointing financial results this year - all attributing it to the slowdown in the China’s luxury goods market which has slowed to 2% after rising 30% in 2011.
At the same time, analysts warn that Western brands may be no closer to understanding the pursuit of the new generation of China’s luxury consumers.
So who are these new Chinese luxury consumers? They are:
1. Much younger
45 percent of Chinese luxury consumers are now between the ages of 18 and 34. In less than a decade, Chinese luxury consumers will be on average 10 years younger than their European counterparts and more than 15 years younger than consumers in the US. Chinese shoppers are estimated to account for more than half of all luxury sales by 2025.
2. More sophisticated
Chinese consumers, who used to be known for being label-chasers, have rapidly developed sophisticated sensibilities. Today’s wealthy Chinese consumers see luxury as a way of life, not just the occasional purchase of a good or service. Brands are now offering more special editions and bespoke items and VIP services, to Chinese clients who are increasingly looking for exclusivity and authenticity.
3. More well-travelled
Eariler this year, the UN WTO reported that Chinese tourists are now the top source of tourism cash in the world. As more Chinese travel independently everywhere from London, Los Angeles to Maldives, they are spending less or choosing different destinations. Tax-refund claims by Chinese tourists in Europe grew 18% last year, compared with 57% in 2012. This means that attracting these individualistic clients to stores abroad is just as important as doing so at home.
4. More digital savvy
Over 90% of Chinese Internet users have a social media account, compared to 67% of the online population of the US. If social media was a nation, Tencent, China’s largest and most used Internet service portal, would rank the 4th biggest nation in the world, after China, India and Facebook. Digital outlets for self-expression such as blogs and social media platforms will continue to shape consumers’ tastes.
5. More from the lower-tier cities
With the help of social media and e-commerce, Chinese people in the rural area now have access to all the global and local luxury brands. Rural provinces such as Tibet and Inner Mongolia are amongst the 10 cities with highest transaction on Alipay, the Paypal equivalent in China. Boston Consulting Group predicts that in the next six years, three out of four newly affluent consumers in China will come from the lower-tier cities.
In conclusion, if brands are complacent and don’t adapt to the needs of the new Chinese luxury consumers, it is going to be extremely difficult to rekindle the love of Chinese consumers.