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china's luxury market

Reshaping China’s luxury market: shifting consumer values and transformative retail experiences

In 2019, McKinsey estimated China’s share of global luxury consumption would grow to 41% by 2025. In fact, China’s luxury market has been mounting up for the past five years, doubling in size between 2019 and 2021. This growth was disrupted in 2022 due to the zero-Covid policy. Strict lockdowns slowed economic and social activities, leading the personal luxury market to contract by 10% year-on-year. In 2022, nearly every luxury category and most brands experienced their first major decline in five years.

Before the pandemic, Chinese shoppers emerged as the world’s biggest luxury spenders, contributing to around one-third of global sales. Two thirds of those sales were made on trips abroad, particularly in Europe, while the remaining third in Mainland China. However, with the implementation of the zero-Covid policy, buyers had no other choice but to focus on the domestic market, resulting in a significant surge in luxury sales within China. Furthermore, the anti-pandemic measures promoted new trends in the luxury market. 

The Chinese luxury market is rebounding

With the government announcing the relaxation of anti-pandemic measures in late 2022, many experts anticipated the revival of China’s luxury market in 2023. Although showing small growth at the beginning, the market has begun to demonstrate signs of its comeback. LVMH reported a 14% surge in its Asia sales in the first quarter of 2023, with China accounting roughly for 80% of the company’s sales in the region.

Luxury goods in China have always been more expensive due to import tariffs. In the past years, travel restrictions granted luxury brands increased flexibility in setting prices. For example, the leather industry showed China’s prices to be 25-45% higher than those in Europe. So far, with rising inflation and persistent uncertainty, luxury companies are planning to continue raising their prices.

Compared to other regions, China is promising bigger growth. According to Bain, the country’s middle- to high-income population expanded by 180 million people from 2014 to 2022, and it is forecasted to reach 250 million by 2030. Morgan Stanley expects Chinese consumers to increase luxury goods purchases throughout 2023 and account for 60% of spending growth by 2030.

In 2022, the watch & jewelry market segment was the leading driver of revenue in the luxury market in China, while fashion and leather goods ranked second and third respectively. Overall, a growing number of consumers are buying lower-priced luxury items. As of January 2022, 42.55% of surveyed Chinese consumers declared having spent between 1,000 and 4,000 RMB on their last luxury purchase.

Post-Covid recovery: Focus on quality, health and leisure

The Covid-19 pandemic significantly influenced consumers’ values and priorities, leading to a shift in their perceptions of health. In 2021, health and family safety became the top concerns for half of Chinese consumers. As a result, consumers are now paying greater attention to the quality and safety of products. This shift in mindset has led to food sometimes taking precedence over material acquisitions, with buyers favoring gourmet meals over luxury handbags.

Lifestyle stores redefine consumer experiences

Pandemic changes have also boosted interest towards lifestyle stores, with consumers showing growing attention to decor, leisure, and dining experiences. Both foreign and Chinese brands are jumping on the bandwagon, recognizing the opportunity it presents. Partially pushed by this, in 2022, Tiffany, Louis Vuitton and Burberry all opened stylish cafes or restaurants. The same was done by Chinese brand Shang Xia that launched their first tea house, combining futuristic interior design and tea-based drinks with the traditional elements of Chengdu.

Transformations in the luxury travel market

Post-Covid recovery has also seen changes in the luxury travel market, with more customers now focusing on their physical and mental health. Although traveling was stopped by the lockdowns, it is now seeing a revival: domestic destinations are attracting more travelers. Tourists’ choices of vacations vary from long-distance travels to day-trips, glamping or even luxury train tours.

The rise of quiet luxury

At the same time, the quiet luxury trend is seeing a rise, driven by the common prosperity campaign and changed economic environment. Affluent customers, who are more resilient to economic downturns, now prefer timeless and chic items. Instead of flaunting their wealth, they prioritize quality and tailored customer service offered by “quiet” luxury brands. These brands, such as Brunello Cucinelli, Stefano Ricci, Loro Piana, and China’s Icicle, are gaining popularity due to their subtle approach to branding. Instead of prominently displaying logos on their products, they cater to customers seeking a more understated and refined expression of luxury.

zhaou yuting x brunello cucinelli
Source: Weibo, Zhao Youting x Brunello Cucinelli

Domestic and foreign luxury brands in the guochao era

The Guochao has gained significant momentum among Chinese consumers, particularly during the pandemic. They are increasingly drawn to luxury brands that align with their cultural identity and express admiration for Chinese culture. However, while domestic luxury brands are on the rise, they still face challenges in establishing strong brand equity to compete with well-established foreign brands, with Guochao being more prominent in the mass market. In fact, during the first half of May 2023, Douyin’s brand index Douyin’s brand index for luxury brands in China prominently featured Western names as the most successful brands, as determined by factors such as content, reach, and search volume. Nevertheless, in response to the growing Guochao trend, foreign brands are increasingly recognizing the importance of prioritizing localization strategies to maintain their positions in the market.

spending on last Chinese luxury brand item purchased
Source: Daxue Consulting, designed by Daxue Consulting, spending on last Chinese luxury brand item purchased (2022)

The changing role of offline sales channels

The pandemic has pushed through further digitalization of the luxury sector. A 2022 McKinsey report showed that more than half of Chinese retailers declared to be focusing on expanding their omnichannel operations, and a third were concentrating on increasing their use of artificial intelligence, while almost 40% of Gen Z consumers claimed preferring to browse apparel in-store but shop online.

Luxury brands are capitalizing on this trend by adopting innovative approaches to their online and offline sales channels. Offline stores have evolved to offer a more immersive and experiential environment, focusing on creating unique customer experiences. Leading luxury names such as Louis Vuitton, Dior, Hermes, and Sisley have responded to this shift by opening lifestyle stores and spaces. Now, their venues not only allow them to showcase their products, but also to provide customers with food, beverages, and even art exhibitions, enhancing the overall luxury shopping experience. Meanwhile, e-commerce is becoming an essential sales source for these brands: by 2021, it accounted for 26% of luxury sales.

Flagship store in China at Sino-Ocean Taikoo Li Chengdu
Source: Louis Vuitton, Flagship store at Sino-Ocean Taikoo Li in Chengdu

China’s luxury market: pre-pandemic boom, disruption, and post-Covid recovery

  • China’s luxury market experienced a downturn in 2022, marking the first decline in several years. However, there are signs of a rebound in the first quarter of 2023.
  • The zero-Covid policies prevented customers from shopping abroad, thus boosting domestic consumption and increased flexibility in setting prices.
  • The Covid-19 pandemic has reshaped consumer values, leading to a greater emphasis on health and safety, the rise of experiential lifestyle stores, and a shift towards understated luxury with a focus on quality and tailored customer service.
  • The Guochao trend in China has sparked interest in luxury brands that embody Chinese culture, leading to the need for foreign brands to adopt localization strategies alongside the rise of domestic luxury brands.
  • The luxury sector is undergoing digital transformation, with brands expanding omnichannel operations, creating immersive offline stores, and relying on e-commerce for sales.

Read about the rise of Chinese luxury brands

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