China’s Luxury Spending On A Steady Rise

Chinese consumers will make up at least 45 percent of luxury market spending by 2025, up from an estimated 32 percent in 2018, according to the 17th edition of Bain & Company’s annual luxury study.

 

Personal luxury goods sales continued their revival last year, and that amount is set to bring 6 percent growth globally at constant exchange rates to reach 260 billion euros (US$296 billion).

 

This positive growth trend is expected to continue with estimated annual growth at 3 to 5 percent per year through 2025 to reach a market size of 320 to 365 billion euros, according the Bain report in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers’ industry foundation.

 

Chinese consumers are leading that positive growth trend around the world.

 

In the past three years, Chinese consumers’ luxury purchases on China’s mainland contributed twice as much growth as their overseas spending.

 

Their contribution to global luxury spending further rose to an estimated 33 percent this year, up from 32 percent a year ago.

 

In China’s mainland, luxury sales are estimated to grow 18 percent at current exchange rates to 23 billion euros this year, driven by rising demand rather than by price increases.

 

“Last year, we saw the global luxury market return to healthy growth, albeit at a more moderate pace than in the past,” said Claudia D’Arpizio, a Bain partner and lead author of the study.

 

“That trend continues in 2018, reinforcing the ‘new normal’ we predicted, led by flourishing luxury demand from Chinese consumers, the continued rise of online channels, and increasing influence from younger generations of consumers.”

 

The report expects that online channels to contribute to 25 percent of total market size, more than double from today’s 10 percent, thus cannibalizing more “traditional” channels.

 

Luxury shopping online continued to accelerate in 2018 compared with physical channels, with an estimated 22 percent growth to 27 billion euros this year. The US market made up close to half of online sales at 44 percent, but Asia is emerging as the new growth engine for luxury online.

 

“New technologies are at once enriching the online and mobile shopping experiences, while potentially putting the role of physical channels at risk,” said Federica Levato, a Bain partner and co-author of the study.

 

“The luxury store-opening path is slowing down, leading to channel consolidation in the future, and brands must therefore rethink their physical channels and evolve their role from point-of-sale to point-of-touch, and use new technology to enhance customers’ in-store experiences,” she added.

 

However, the report also highlights socio-political issues, commercial policies, and potential short-term soft recessions as potential risks in the short term.

 

“Significant changes will face luxury brands in the coming years, and they shall keep in mind three key strategies: to be proactive in developing approaches to serve new customers and address market trends; be distinctive in designing a winning formula; and to keep in line the mindset of the next generation of consumers,” commented D’Arpizio.

 

The report also points out that cultural and subculture groups will increasingly gain influence over consumer trends. Luxury brands will have to acknowledge and address them to remain relevant.

 

The European market lagged in 2018 due to a strong Euro that dampened tourists’ purchasing power. Local consumption was positive overall, despite mixed country performance, helping to bring retail sales up one percent at current exchange rates to 84 billion euros.

 

The luxury market in the US grew 5 percent at current exchange rates to 80 billion euros, with a positive US economy boosted disposable income and overall luxury spending from locals, even as brands remained wary of continued economic prosperity.

 

Source: SHINE