China'S Luxury Consumer Market And Its Counter Intuitive Growth Potential

Shanghai, China, many luxury executives agree that China's luxury market is full of uncertainty, which is related to macroeconomic slowdown, international trade conflicts and customs strengthening of macro policy factors such as purchasing agents. However, we can see that the purchasing power of luxury goods in China is still strong from the recent reports of luxury goods. Kai Yun group's fourth quarter earnings report showed that Gucci sales increased 28% to 2 billion 300 million euros, and the performance of LVMH and Hermes three giants recorded double-digit growth throughout last year, mainly due to the strong purchasing power of Chinese consumers.

According to McKinsey and BoF fashion business review published in the 2019 annual report of the global fashion format, China will surpass the us to become the world's largest fashion market for the first time in 2019. "This will be a year in the annals of history."

Erwan Rambourg, CO director of global consumer and retail business at HSBC, believes that the Chinese market is clearly stratified, but each layer will continue to grow. For many investors who are cautious about the Chinese market, this is "counter intuitive".

Rambourg believes that the opportunities for luxury brands in China still lie in the first consumer of luxury goods, and most of them are young people. "The younger generation of consumers, or the" self timer generation ", is very concerned about their image, and believes that the luxury brands can make them achieve a group effect. The information they receive from social media comes from brands like LV, Gucci, Chanel and so on. When most people consume luxury goods for the first time, they will choose these big names: globally, more than 70% of Moncler sales come from the first consumers, and more than 60% of the Gucci sales come from the first consumers.

In other words, the so-called "younger" makes the luxury market at a new stage of acquisition, and has not yet entered the repurchase stage. "Chinese consumers are at the core." He said. According to Rambourg, young Chinese consumers are also "seven hands to win" generation, from two families, four grandparents, and personal income.

According to a report of HSBC Global Research in February this year, "Chinese luxury: the survey of China's luxury consumer market" ("China Deluxe: Checking in on Luxury Consumption in in"), 82% of the consumers' spending on luxury goods this year is the same as last year, and 39% of consumers are willing to spend more money on luxury goods.

The HSBC report takes 2000 Chinese consumers with an annual income of over 150 thousand yuan as an interview. 57% of them are millennial consumers. The survey results show that consumption of luxury goods, drinks, technology products and other products will keep growing, and the consumption desire for overseas brands is still strong. But this does not mean that consumers are willing to go abroad for consumption. Their favorite tourist destination is around China, and one or two trips a year.

Being happy has become the biggest motivation for them to buy luxury goods. "China's luxury consumers have several social and economic factors." The founder of Young China Group, Zak Dychtwald, author of "Young China", told BoF. "The hardship of the past 40 years has become an attitude of living in the present. According to international standards, young people in China are still working extremely hard and suffering hardships, but they are not so stressed about the life of the next generation. Real luxury is not having an expensive bag or car, but being able to endure hardship without having to delay pleasure and live in the present.

On the online retail side, how to reach more luxury consumers in two or three tier cities has also become the key to boost sales. According to McKinsey's statistics, most luxury brands are located in the top 15 cities of China, but 75% of China's wealth is distributed outside these cities. Therefore, luxury brands must pay more attention to its e-commerce business in China. The entanglement of brand lies in the fact that due to the limited overlap between online and real consumers, there are only two platforms in the Chinese market that are trusted by European and American brands. One is TopLife, JD and Farfetch, the other is Luxury Pavilion, Alibaba, Net-a-Porter. "We know that the overlap between online and real consumers is limited, but we believe that fear of the same kind will limit store expansion in mainland China," he said. Rambourg explains. Nevertheless, the domestic luxury consumer market will remain warm. "We believe that China's tourism retail business is about to change dramatically, including the initial tax exemption sites in the centre of Shanghai (similar to those in Korea) and the construction of new tax-free and taxable sites. Beijing Daxing airport is about to open, which means business opportunities for 100 million people.