As the Chinese luxury market evolves, it is getting far more complicated. It's no longer enough to slap a luxury label on a product to get the Chinese consumer to bite. Bain takes a look at what the market's maturation means for luxury purveyors worldwide.
A new study by Bain & Company, a leading global management consulting firm, finds that the priorities of the maturing Chinese luxury market are changing rapidly.
According to “China and Chinese Customers in the Global Luxury Goods Market,” co-authored by Claudia D’Arpizio and Federica Levato, the process of maturation has been forced by three key factors. They are:
Overexposure to Luxury
As “most luxury brands heavily invested in the Chinese market during the past ten to fifteen years, opening extensive store networks, their presence went from being the novelty to being the norm.” In addition to the (over) saturation, “luxury exposure has turned Chinese consumers into more confident, discerning and opinionated luxury connoisseurs, with a real thirst for newness.”
Digital and Mobile Proliferation
China has rapidly become the most advanced retail e-commerce market in the world, characterized by a strong mobile–first purchase pattern. Seventy-eight percent of consumers get their information on luxury goods online or via apps.
Shift to Experiential
Yes, it’s happening in China, too. According to Bain, “Changes in social norms together with the “moralization” campaign have started to discourage the purchase and display of luxury goods as social enablers. Following the lead of mature markets, Chinese consumers have also started to shift spending from luxury goods to luxury “experiences” (i.e. high end travel).”
Out-of-home luxury experiences are “gaining traction, benefiting from the growth of luxury travelers and increasing self-indulgence.” In fact, spending on these experiences is second only to the growth in outlays for luxury cars.
What This Means to Travel
Attracting the luxury Chinese traveler through shopping experiences is still a profitable endeavor for international destinations. Bain finds that overall, Chinese consumers are increasingly preferring to buy luxury products in their home market, mostly driven by lower price differentials. However, the wealthiest Chinese luxury consumers are still traveling and buying abroad. This is because the luxury goods shopping experience abroad is more satisfying in terms of product assortment, in-store experience and customer service.
Whether spending at home or abroad, Chinese consumers are now opting for more understated elegance. Bain says this sense of discernment is a natural outgrowth of the Chinese consumer evolution. Omnivore consumers were the original cluster in China–a group that would spend oodles on anything stamped with a classic luxury label. Now, the cluster is strongly losing share to the opinionated. This group is more design-focused, and has an “overall less ‘frenetic’ approach to consumption of luxury goods, (with) more discerning consumers purchasing other brands and other categories (e.g. experiential luxury, art)” beyond classic luxury labels. It will be interesting to note if this discernment extends to the destinations to which they travel or luxury hotels at which they stay.
According to the study, among the new waves of consumers to which luxury marketers should pay heed are working women, a growing urban middle class and millennials. Noting that “Chinese luxury consumers are already younger than their European and American counterparts (average 33 years),” younger millennials are “educated travelers and tech-savvy consumers, with significantly different tastes and consumption habits (that) will dominate the market.”
Meantime, second and third-tier cities around China, with populations in the millions, are home to an urban middle class growing at a rate five times the total population. Bain says this is a huge potential luxury customer base, albeit for products with entry-price points. Some of these consumers are characterized as Wannabes, who are seeking to enter the luxury market by purchasing more accessible brands.
Bain also cites the increasing numbers of working women who are expressing their individualism through “private, personal purchases and increasing spending on lifestyle and experiential categories.”
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Photo credit: Chinese tourists carry designer label branded bags at Bicester Village designer outlet centre, in Bicester, England. Kirsty Wigglesworth / Associated Press