The Chinese luxury consumer is changing with a number of factors coming together to drive this, according to the Bain & Company’s 2015 China Luxury Market Study.
Last year, Chinese consumers from the mainland continued to buy luxury products but they bought them abroad as currency issues in places like Japan and Europe made travel very attractive.
They also went online big-time, showing a lot more comfort with, and trust in, overseas websites.
This resulted in a slowdown in China’s overall luxury market, which dipped 2% to CNY113bn (£12bn/€16bn/$24bn) last year, driven by a decline in watches, menswear and leathergoods.
Bain said that if luxury brands want to overcome the economic slump and reinvigorate consumer spending domestically, they need a more tailored, localised marketing strategy, with high fashion content and to adjust their pricing to reduce the massive price advantage that some markets have.
Bain’s research, which included a survey of nearly 1,500 Chinese consumers, found a sizeable shift in shoppers’ geographic preferences for luxury shopping in 2015. Overall, overseas luxury purchases grew 10%, with consumers flocking to Japan, where their spending increased more than 200%. South Korea, Europe and Australia were also popular shopping destinations, due to favourable exchange rates and competitive pricing on luxury goods in these markets. At the same time, luxury spending of mainland Chinese in Hong Kong and Macau dropped by one-quarter.
Chinese consumers are feeling much better about their place in the world and more confident as they travel around it. Bain’s report said that, as overseas travel among Chinese shoppers increased around 32% from 2014, consumer reliance on Daigou, or overseas personal shoppers who buy and send luxury goods to customers in China fell. Daigou was the growing channel choice in 2014, but fell to around a CNY43bn market last year.
Bain cites price adjustments by key brands that reduced Daigou margins, government efforts to tighten control over imports, a weakened Chinese currency, and an increased reliance on other purchase channels (ie cross-border websites and overseas websites), which accounted for CNY48bn of the CNY293bn (£31bn/€40bn/$45bn) luxury spend overseas. The report highlights the increasing popularity of cross-border and overseas websites as luxury shopping channels with nearly half of those surveyed saying they purchased luxury goods via these sites last year.
The digital challenge
The survey reveals that nearly 80% of respondents said they normally get information on luxury brands from the internet or apps, and a full 60% identified social media channels Weibo and WeChat as their online source for information on luxury goods. As a result, brands spend, on average, 35% of their marketing budget on digital, and it’s growing.
But that spending needs to be carefully focused and some luxury players are still lagging their peers online as three key reports, from KPMG and Contact Lab and L2, have shown in recent months.
Adapting to change
So, as sales drop within China, what are luxury retailers doing? Bain said it’s seeing a reduction of the store footprint of most brands, with a greater focus on fewer, larger and better located stores. Many brands realise that they need to regain their exclusive image, which has been somewhat blurred by over-expansion.
As in 2014, the research also shows the greater importance of fashion and exclusive designs to win domestically. Brands with a strong fashion heritage and stronger emphasis on original design did well in 2015.
And the future?
Looking ahead, Bain expects these and other 2015 trends to continue this year, prompting further challenges, opportunities and requirements for brands.
- The macro environment is expected to remain similar while the rising middle class becomes more sophisticated and knowledgeable about luxury.
- Overseas channels will stabilise (Daigou will decline).
- Global pricing by leading brands and government efforts to localise consumption will spur domestic growth.
- Global pricing will likely spread further to other brands.
- Luxury brands should strengthen both digital platform-building (Weibo WeChat, apps) and digital content creation, with an emphasis on localisation to reflect local market preferences.
- Luxury brands must place greater emphasis on making their brand “younger” and more fashionable to capture the next generation of on-trend customers. There will also be an increased focus on “exclusivity,” both in product design and store footprint.