The latest insight into the habits and profile of China’s heavyweight luxury market reveal that the overwhelming bulk of China’s luxury shoppers are now those born after 1980, while they are also becoming increasingly discerning in their purchasing decisions.
The biennial report, by American worldwide management consulting firm McKinsey, looks at how the Chinese market is interacting with luxury brands. Its new findings show that brands need to now take the initiative and adapt to meet the demands of the ever-changing demographic of Chinese consumers.
Shoppers in the Middle Kingdom are well renowned for being the most active in today’s market, but in recent years, luxury consumption in China has been slowing. Brands are therefore having to work harder than ever before to get Chinese people to part with their money.
In 2018, Chinese consumption of luxury goods at home and abroad reached ¥770 billion, accounting for one third of the total global consumption of luxury goods. The average Chinese household expenditure on luxury goods was nearly ¥80,000 and by 2025, the total consumption of luxury goods in China is expected to increase to ¥120 billion. Between 2012 and 2018, more than half of the growth in the global luxury market came from China, with this proportion expected to reach 65 percent by 2025.
In China, luxury goods are solid social capital; much like the West, Chinese consumers also judge people by what they buy and what they wear; as fueled by the prevalence of social media, this perpetuates a phenomenon known as “trade-up”; whereby consumers’ thirst to improve themselves fuels new purchases. This is very influential on those born in the 80s and 90s, also known as the Millennials and Generation Z, who account for 43 percent and 28 percent of total luxury buyers, contributing 56 percent and 23 percent, respectively, of total luxury consumption in China.
However, attitudes towards buying are changing; with the decrease of indiscriminate spending, so purchases are becoming more calculated and thought out. Despite the revolution in delivery, 90 percent of luxury purchases are made in store, showing that in China, the buying of luxury goods is not alone about purchasing the product, but also about the experience itself. This is, in part, mainly due to the emergence of the middle class, which by 2020, will account for around 50 percent of the urban population, with an annual disposable income of between ¥110,000 and ¥240,000. China also has an emerging senior market, where brand value and quality play the largest roles in influencing purchases.
In light of this, the Chinese consumer market continues to be one of the most powerful in the world, being the place where mass consumers and the Internet meet. We have seen this power first hand in the form of the Zara and Dolce&Gabanna fallouts as a result of culturally insensitive advertisements. 5 months on, the effects are still seen, as Chinese media outlets boycott their fashions shows and with the co founders of Dolce&Gabanna still pleading for forgiveness.
Nevertheless, for the brands that take note of the dynamics in the Chinese luxury market and change to suit the new needs of Chinese consumers, the spoils in the high-end shopping wars are still there to be had.
