- Overview of the global luxury market
- Rapid increase in Chinese consumers’ luxury purchases
- Future outlook on the luxury market in China
The global luxury market as a whole has been growing consistently in the past few years and 2018 was also a positive year for this market, where it grew by a steady 5% to an estimated €1.2 trillion with a greater diversity and variation of positive performance among major players across all segments from personal luxury goods to the experiential luxury segment. According to a report by Bain & Company luxury cars, luxury hospitality and personal luxury goods altogether accounted for more than 80% of the total luxury market. In these segments, luxury cars dominated the market and grew at 5% to €495 billion. This was followed by personal luxury goods, which registered a 6% growth to reach a market size of €260 billion and finally the luxury hospitality, which also registered a growth of 5% reaching €190 billion (2018). The global luxury market experienced growth in most regions, which was primarily driven by robust local demand and consumption. China led the positive growth trend around the world, registering a second straight year of growth at 20% in 2018, this was driven by millennials, women and a growing online presence of luxury brands in the middle kingdom. Hence, on the basis of analysis from Bain & Co. by 2025 Chinese consumers will account for about 46% of the global luxury market share.
Moreover, of all the segments in the luxury market, the most notable segment where the global luxury players face new opportunities in the form of Chinese consumers is the luxury goods segment. These Chinese consumers, who have accelerated the growth in the luxury market in much of recent years and now accounts for about a third of the global spending on the total luxury purchases. This rapid increase in the share of luxury purchases in China was also spurred by more strict control over the grey market by the government and by price cuts on top brands after the authorities reduced import duties on some goods, which was combined with brands effort to narrow the price gap as compared to the overseas market (according to the Customs Tariff Commission of the State Council, China, the average tariff on imported goods was lowered from 15.9% to 7.1%). These new developments made more Chinese consumers purchase luxury products in the nation instead of the previous purchase behaviour of buying at a bargain in Hong Kong, Tokyo and other European cities. Chinese consumers were buying 27% of the luxury goods locally in 2018, which was an increase of 24% from 2017 and this is expected to reach 50% by 2025, with the recent progressive developments in the country. While Europe remains the top region for luxury sales, and is followed by the Americas, Asia (including mainland China), Japan and the rest of the world. It is the Chinese consumers, who led the consumer purchases in the world and accounted for 33% of the global luxury purchases. Furthermore, between 2015 and 2018, the contribution from Chinese consumers in mainland China was twice as much in absolute value as their spending abroad. Chinese consumers spent a total of $85.8 billion on luxury goods in 2018, which was far more than the consumers in the US, Europe and Japan, who spent $57.2 billion, $46.8 billion and $26 billion, respectively. This trend is expected to continue and grow further considering the number of affluent consumers in China would reach 33 million by 2020 (15 million in 2015).
Chinese households’ purchase of luxury products doubled between 2008 and 2014, this was due to the growing income and greater access to luxury goods. But since 2015, the motive has shifted from consumers making their first purchase of luxury goods to consumers increasing their spending on these luxury goods. This shift means that the luxury market players also need to invest in the building of loyalty with existing customers, while also acquiring newer ones. Additionally, with shifting expectations and a rapid digital transformation, the luxury goods marketers have all the more reasons to focus and attract young millennials to boost their luxury retail along with the creation of a strong online presence to capitalize on recent growths. China’s online luxury sales outgrew the overall market in 2018, but despite this, online penetration remains low, so the growth opportunities are enormous. According to reports by Bain & Co., the younger generation (especially generation Y and Z) will be the main contributing factor for growth, triggering about 130% of it between 2018 and 2025 and also representing more than 55% of consumers for luxury goods. In the case of China, its e-commerce giants are aggressively courting the luxury brands in their ecosystem. Both Alibaba and JD.com have recently launched an all-in-one platform, with an invite-only loyalty program for its luxury segment. This push for the online presence by the tech giants and to attract consumers from tier 2 and 3 cities, where the physical stores for luxury goods are unavailable. In addition, as per studies by Bain & Co. by 2025 the online channel will be representing 25% of the luxury market’s value, this will be up from the current 10%. China’s luxury goods market doesn’t seem to be much affected by the recent concerns of an economic slowdown in the country and is seeing consistent growth with a positive future outlook. The above numbers also suggest the same. Further, a recent survey by UBS suggests that 71% of the Chinese millennials have a positive financial outlook and 81% expect their incomes to increase, which is very positive news for the Chinese luxury market.