Stay-At-Home Chinese Consumers Recast Global Luxury Goods Industry

Chart of share of global luxury good market by region, 2019, 2020E and 2025E. Source: Bain & Co

RESTRICTIONS ON INTERNATIONAL travel and China’s place in the vanguard of global economic recovery is accelerating the recasting of the luxury goods industry. Unable to travel freely to the world’s shopping malls, where most Chinese spending on luxury brands occurred, Chinese consumers are buying their favoured luxury brands at home. The industry is expanding its sales channels in the country in response.

An early sign of this was a decision by the Paris fashion house Louis Vuitton to eschew a virtual fashion show in Paris to present its men’s spring/summer 2021 collection for a physical event in Shanghai. Since then, several fashion events and runway shows previously held in Europe and the United States have been staged in China. New stores, pop-ups physical and digital, and other e-commerce channels for Chinese consumers have followed.

Marketing campaigns are being built around events like the Qixi Festival. Those, though, can put foreign luxury brands on cultural thin ice. Balenciaga and Dolce & Gabbana were two who felt it cracking under them this year.

Doubling the challenge, the market’s growth is being driven by Millennial and, particularly in digital, Gen Z consumers, two demographic cohorts with distinct characteristics.

Unlike elsewhere, most high-end stores in China have been open in the second half of the year as the country bought its Covid-19 outbreak under control. Brands like Tiffany and Burberry have reported significant recoveries in their sales in China even while their other markets shrink.

Luxury goods sales in China will rise by 48% this year to 346 billion yuan ($52.9 billion), according to a joint estimate by the consultancy Bain & Co. and Alibaba’s TMall shopping platform, a leading conduit for foreign luxury retailers entering the Chinese market. That would near double China’s share of the global luxury goods market to 20%. (The chart above is reproduced from the Bain/TMall report.)

However, luxury good purchases by Chinese overall are forecast to fall by 35% this year compared to 2019, according to the Bain/TMall report, contributing to a 23% contraction in the global luxury market and emphasising the impact of Covid-19 induced closings of international borders.

The question is how permanent the changes will prove. Luxury groups’ focus on the world’s second-largest economy and the accelerated shift to more digital retailing will likely prove lasting. The luxury brands also probably have at least a year before their other main markets are operating with a semblance of pre-pandemic normality and international travel and tourism are reestablished.

The wild card is what opportunities the recast China luxury market will create for domestic producers and whether those will help them go in the opposite direction and achieve that elusive status of a global luxury brand.

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