COVID kept Chinese luxury consumers at home
A classic Hong Kong stereotype of a Chinese Mainland tourist in 2019 was of someone walking around Hong Kong shopping malls with high-end suitcases and luxury-branded bags around their arm — all full of luxury purchases.
Pre-COVID, most Chinese luxury consumers went to Hong Kong or Europe to do their spending. Lower prices and the appeal of buying European luxury in Europe (or abroad) were the main drivers. Prices are 25-45% lower abroad relative to the Chinese Mainland, due to import taxes. Before COVID, that amount could often be as much as the flight ticket and hotels themselves.
In January 2020, the pandemic brought overseas shopping trips to a halt, but luxury consumption in 2020 and 2021 in Mainland China was above and beyond all expectations. Upon its reopening in April 2021, Hermès’ flagship Guangzhou store made $2.7 million in sales. That’s equivalent to a ninth of the luxury house’s average daily global sales that year in just one store.
This trend continued in 2021, with brief pauses in activity in certain cities when there were lockdowns or reported COVID cases. Gucci’s Chengdu store achieved the highest revenue worldwide in 2021.
According to the regional head of a French luxury brand who declined to be named, these results were a mixture of Chinese consumers being unable to leave Mainland China, and COVID lockdowns in the West leading to slower sales and more merchandise being freed up for Chinese consumers. What it did, however, was prove the power and the potential of the Chinese consumer in an unprecedented manner.
Chinese luxury consumers are significantly younger than their American or European counterparts. Picture an ambitious Gen Z woman (younger than 25 years old) who is ready to spend big bucks to look the part. Her luxury handbag and designer shoes are tools to help her get ahead, which is why the logo on the product is important.
Pushed by this new generation of customers and COVID, luxury brands in China need highly integrated ecommerce and social media strategies. A fashion luxury house’s Chengdu city manager told us that whereas previously, Chinese luxury consumers could be convinced to buy something in store, now they’ve usually already formed their own opinion and judgment of the brand before entering the store. PR and influencer marketing are becoming more and more important.
The Chinese luxury consumer is more assured than before, not just about their own opinion, but also about China’s place in the world. “The guócháo (国朝) trend means young consumers are confident and lean towards national, Chinese brands. This is compelling brands to localize more, and work much harder developing experiences for the customer,” said Harriet Sheffer, Outform’s Marketing and Strategy Director for the Asia-Pacific region.
However, COVID also bred a lot of uncertainty in China. Three tough years have made the average Chinese consumer more price conscious and reluctant to travel abroad in the short-term.
The rise of “rational spending”
Chinese luxury consumption is moving away from impulse spending towards more “rational” spending (理智消费). Purchases are becoming more calculated and intentional — whether that be for packaged foods or luxury goods.
According to the consultancy Oliver Wyman, 52% of Chinese consumers are more conscious of value-for-money than a year ago. However, this seems to primarily impact lower tier rather than top tier luxury brands. According to Morgane Nopper, Senior Merchandiser at Louis Vuitton, China remains the least price sensitive luxury consumer market for their brand.
As we spoke to Yeung San (王江洋森 Wáng Jiāng Yángsēn), a 21-year-old VIC (Very Important Customer) at Hermès, who purchases around 30,000 yuan ($4,366) in luxury goods per month, he described how he evaluated different brands and products. For him, Chanel and Hermès products are long-lasting and worthy investments. The haute couture and refined craftsmanship mean that he’s more easily able to re-sell them second hand afterwards.
The return of the Chinese tourist?
A more value-for-money conscious Chinese population of consumers would suggest that they’re also more likely to calculate the price benefit of spending abroad. However, Chinese tourists are likely to take much longer than their Western counterparts to resume international travel.
To encourage more domestic tourist shopping, the Chinese government has invested heavily in Hainan’s Duty Free Zone since 2020. China Duty Free Group (CDFG) and its affiliates, which are the main investors in this zone, have led aggressive promotional campaigns, and while traffic was down in 2022 due to COVID policies, per shopper spending increased by 8%.
Duty free, especially that of South Korea which has kept steadfast through COVID, is an important channel for “dàigòu” (代购), which refers to individuals buying goods abroad and personally bringing them back to China in their luggage to avoid import taxes. The daigou sector was valued at 400 billion yuan ($57 billion) in 2020 by Re-hub. During COVID, a lower volume of flights and more stringent Chinese customs regulations slowed daigou down. Now, with Hainan’s more accessible Duty Free and continued strict Chinese customs, perhaps a new form of daigou will emerge between Hainan and the rest of China.
Although Oliver Wyman’s report suggests that the Hong Kong experience in the last five years was better than that of Hainan, a lot has changed in five years. While the border reopening led to a stream of Mainland Chinese shoppers, it’s a far cry from pre-pandemic times. According to one luxury brand’s regional head who declined to be named, the assortment of products in Hong Kong is of similar quality to that of Mainland China now, and luxury customers would rather go to Europe or Japan than Hong Kong.
Industry consensus seems to be that Chinese tourists will return to Europe and other foreign destinations, if not Hong Kong, but slowly, over the coming two years. Luxury brands are preparing themselves for this, according to Morgane Napper, Senior Merchandiser at Louis Vuitton, with Louis Vuitton Japan starting to stock products preferred by Chinese consumers.
Chinese consumers got used to spending at home, and are conscious of the rise of airfares, hospitality, and other prices abroad. Yeung San, the 21-year-old Hermes VIC, for instance, doesn’t intend to leave China anytime soon. Even if he were to do so, it wouldn’t be often, so his main spending will stay in his hometown Chengdu, and maybe online for the more classic products.
China is still the land of luxury opportunity
Although price sensitive customers will travel to buy products cheaper abroad, the top spenders will continue to spend in China. A few thousand yuan does not matter to these top spenders. Furthermore, with the rise of exclusive collections in certain cities and China, some products can only be bought in China.
Top luxury spenders make up a very important proportion of luxury spending. Globally, 40% of luxury sales come from 2% of consumers, according to Bain, with an even higher concentration in China. Tailored events, spaces, services, and products are directed at these VICs (Very Important Customers). If this segment continues to increase as is predicted, and they keep spending locally (even if they do so abroad as well), Chinese luxury sales will likely stay robust.
Luxury brands’ confidence in the Chinese market is shown by their investments moving into new cities, and creating more unique spaces. Louis Vuitton opened its first restaurant and museum space in Chengdu last year. Meanwhile, others are investing heavily in destination pop-ups, such as Dior’s ice sculpture building in Lake Songhua Resort in Jinlin province.
Although China’s post-COVID opening will make the Chinese market even more competitive, it remains a land of opportunity for leading luxury houses who continue to innovate, localize, and stay on top of the trends.
Companies:
- Chanel
- Dior
- Hermès
- Gucci
- Louis Vuitton
- Lancôme
- Estée Lauder
- China Duty Free Group (CDFG)
Sources and additional data:
- Chinese buyers to boost luxury goods sector / Morgan Stanley
- Who’s top of the Agility Luxury Brand Affinity Rankings for 2021 / Luxurious Magazine Hermès hauled in $2.7 million in one China store on Saturday: sources / WMD
- Louis Vuitton debuts first China restaurant in Chengdu as luxury brands target spending power in lower-tier cities / SCMP
- Chinese luxury consumers — trends and challenges for luxury brands / Martin Roll
- Setting a new pace for personal luxury growth in China / Bain
- What is the impact of the China daigou market on luxury handbag brands? / Re-hub
- China’s consumption outlook / Oliver Wyman
- The daigou dilemma: LVMH pushes back against China’s ‘personal shoppers’ / Jing Daily
- Leap of luxury: Figures, trends and, actions / Bain
FAQs
Why do Chinese people love luxury brands? ›
These Chinese consumers use these items as a way to reflect their personality and express their individuality. These trendsetters who mix and match different luxury brands are very fashion-forward, young, knowledgeable and work as white-collars.
How old are China's luxury buyers? ›Market characteristics
Chinese luxury goods consumers are younger than their European counterparts, belonging to the 18-50 age group, compared to Europe's consumers who are generally in the over 40 age group. For this reason, China's luxury goods market is expected to grow faster than that of Europe's.
In a just-completed global analysis of the top 100 largest luxury goods companies by Deloitte for 2021, China is now the headquarters to 11 of the leading luxury companies, including new entrants Lanvin Group and ICCF Group.
Why do Chinese people buy luxury? ›According to the survey, Chinese consumers were found to have the confidence to spend, with increased income and economic development allowing for greater purchasing power and thus a growing appetite for luxury goods.
Why do Chinese buy Louis Vuitton? ›These consumers buy mainly Luxe to affirm their social status and success, which is called in China: the Face “mianzi” in Chinese. Willing to spend more than a month to pay it, a young Chinese will buy a Louis Vuitton bag not to be different but to integrate.
What is the most popular luxury brand in China? ›Dior remains the most successful luxury brand on the Chinese short video app Douyin.
Who is the biggest online seller in China? ›JD: JD Worldwide
Founded in 1998, JD.com is the largest B2C online retailer in China and one of the biggest competitors to Alibaba. It provides about 400,000 new products including cell phones, home appliances, apparel, electronics, and more.
Gen Y and Z accounted for all of the luxury market's growth in 2022, per a Bain & Company report. Younger generations are set to become the largest buyers of luxury goods by 2030, the report says.
Are Chinese investors still buying houses? ›Chinese investors are among the top foreign purchasers of residential real estate, along with Canadians, according to the National Association of Realtors. Other states have had concerns over foreign ownership of land and have made efforts to regulate it.
What is the number 1 brand in China? ›What is a popular American brand in China? ›
Companies such as Starbucks, Apple, Nike, and Coca-Cola have thrived in the country — just as they do all over the world. Whether the companies can continue to leverage that value against up-and-coming Chinese brands remains to be seen. These are the most popular American brands in China.
What is the fastest growing brand in China? ›TikTok/Douyin achieves explosive growth, leading the nation and world in brand value growth. More than tripling in brand value over the past year, TikTok/Douyin (brand value up 215% to US$59.0 billion) is the world's fastest-growing brand.
Why do the poor buy luxury items? ›And people living in low-income neighborhoods–the ones who are relatively well-off compared to their neighbors–are nevertheless worried that they'll be misperceived as resource-poor. So they purchase expensive and conspicuous goods, to make sure their resources are visible to outsiders.
What are the affordable luxury brands in China? ›Undoubtedly, some “affordable luxury” brands like Longchamp and Coach have performed exceptionally well in China. And competitors like Michael Kors, Kate Spade, and Tory Burch are also gaining traction.
Why do so many knockoffs come from China? ›It is because Chinese markets have access to all the resources required to produce counterfeits due to their high production rate, low-cost labour, and adaptive technologies setup by significant brands since the reform of China's economy in 1978.
Does China make Gucci bags? ›Gucci prides itself on being 100% made in Italy.
What race buys the most Louis Vuitton? ›| Race | Percentages |
|---|---|
| White | 50.4% |
| Hispanic or Latino | 21.8% |
| Asian | 12.9% |
| Black or African American | 10.5% |
The Louis Vuitton leather goods collections are exclusively produced in our workshops located in France, Spain, Italy and the United States. Manufacturing our footwear and ready-to-wear collections takes place in France and Italy.
What is the most successful luxury brand in the world? ›...
The top 15 most popular luxury brands online.
| Rank | Brand | Industry |
|---|---|---|
| 1 | Gucci | Fashion |
| 2 | Dior | Fashion |
| 3 | Chanel | Fashion |
| 4 | Louis Vuitton | Fashion |
Shanghai, China's biggest city and a global financial hub, has topped the list of the world's most expensive cities to live for the rich people. The increase in prices of luxury items and growing inflation have impacted the overall purchasing power of the ultra-rich living.
What is the best selling luxury brand in the world? ›
| 2022 | 2021 | Name |
|---|---|---|
| 1 | 1 | Porsche |
| 2 | 3 | Louis Vuitton |
| 3 | 2 | GUCCI |
| 4 | 4 | Chanel |
alibaba.com's top 5 competitors in March 2023 are: aliexpress.com, made-in-china.com, dhgate.com, globalsources.com, and more.
What Chinese company is like Amazon? ›While Alibaba dominates ecommerce and cloud computing services in China, Amazon dominates those industries in most other growing markets around the world.
What is most selling item from China? ›- Cosmetic Items. Cosmetic items are the most selling items in China. ...
- Gym Wear for men and women. ...
- Semi-precious jewelry. ...
- Traditional Chinese clothes. ...
- Men's fashion accessories. ...
- Women's fashion bags. ...
- LED Lighting. ...
- Home decor items.
...
Fastest growing luxury brands worldwide between 2018 and 2021, based on CAGR.
| Characteristic | Compound annual growth rate |
|---|---|
| Farfetch Limited | 104.7% |
| Richard Mille SA | 55.6% |
The Trinity or 'big three' is a nickname given to the most luxurious watchmaking brands in the world. At the top of their game, the three watchmaking companies are Audemars Piguet, Vacheron Constantin and Patek Philippe.
What country sells the most Louis Vuitton? ›...
Revenue share of the LVMH Group worldwide in 2022, by geographic region.
| Characteristic | Revenue share |
|---|---|
| United States | 37% |
| Japan | 6% |
| Rest of Asia | 20% |
| Other markets | 13% |
Foreign investors are not allowed to buy land in China. The land in China belongs to the state and the collectives.
How many US homes does China own? ›Chinese buyers comprise one of the largest groups of foreign buyers of residential property in the United States. Historically, between 20,000 and 40,000 residential properties were bought by Chinese nationals, but in 2022, both the sales volume and percentage of all foreign-bought properties declined.
Are Chinese buying American homes? ›Between 2010 and 2021, Chinese buyers of US real estate have purchased an average $18 billion per year of US property, with a total of 27,000 units purchased each year.
Are American brands popular in China? ›
Understandably, this burgeoning upper middle-income population with deep disposable income pockets offers a lucrative 1.4 billion strong consumer base to American brands in China.
What are the most sustainable brands in China? ›Indeed, China's most prominent sustainable fashion brands, such as Icicle, Klee Klee, Krop, and Ziran, largely cater to a higher-end market. Other companies, like Bastine, focus on sustainable textile production.
What are the top 3 products in China? ›China ranks among world-leading nations for exporting cell phones, electronic circuit components and automotive parts or accessories.
Which US companies sell the most to China? ›| Company | Industry | Revenue share from China |
|---|---|---|
| Wynn Resorts | Casino | 70% |
| Las Vegas Sands | Casino | 63% |
| Qualcomm | Semiconductor | 60% |
| Texas Instruments | Semiconductor | 55% |
- AMC. Popular cinema company AMC, short for American Multi-Cinema, has been around for over a century and is headquartered in Leawood, KS. ...
- General Motors. ...
- Spotify. ...
- Snapchat. ...
- Hilton Hotels. ...
- General Electric Appliance Division. ...
- 49 Comments.
In 2021, of $151.1 billion in the U.S. exports to China, the top commodity were Machinery and Mechanical Appliances (23.9% of the total U.S. exports), Agriculture (20.9%), and Chemicals, Plastics, Rubber and Leather Goods (16.6%).
Which industry is booming in China? ›China's economic growth in 2023 will be led by several key industries that are forecast to flourish due to the lifting of COVID restrictions, as well as government support and incentives. These include tourism, new energy vehicles, online shopping, software development, and healthcare.
What product is in high demand in China? ›Products with high demand: according to Diario COMEX, products profiting most in the Chinese market are meat, dairy product, fresh and processed fruits, oil, fish preserves, sugars and liquors. The market grew from US$ 77 million to over US$ 1 billion dollars in the past decade, in other words, 13 times.
What is China most valuable startup? ›As of the first half of 2022, the tech company Douyin was not only the highest valued unicorn in China but also worldwide. In the Asia Pacific region, China was home to the majority of unicorns followed by India and South Korea.
Who waste his money on luxury? ›A spendthrift (also profligate or prodigal) is someone who is extravagant and recklessly wasteful with money, often to a point where the spending climbs well beyond his or her means.
What is the problem with luxury brands? ›
Luxury brands intentionally keep supply lower than demand, but many are easily accessed by people who can afford them. Ultra luxury: At this top tier of luxury, prices are so high that very few people in the world can afford them.
Why do rich people buy luxury goods? ›For some consumers, a luxury good can go a long way in increasing self-esteem or providing a sense of belonging. A sense of accomplishment is another reason why some people buy luxury goods.
Does China have a luxury tax? ›Jun. 7 – Luxury tax in China has long been a source of significant revenues for the Chinese government, as anyone who has been able to compare the prices in China for luxury items to those in Hong Kong, for example, will be well aware. Yet the amount of money generated by China's taxing such items is staggering.
What is the most luxurious part of China? ›Not surprisingly, Shanghai, long known as the “Paris of the East”, has come out on top. There are not only many luxurious shopping centers, but also many luxurious districts in Shanghai. The luxurious district in Waitan, a famous site in Shanghai, is a global first class site.
What is the most expensive company in China? ›“China produces 80% of the world's counterfeits and we're supporting China," Crosby explained. "Whether or not it's their intention to completely undermine and destroy the U.S. economy, we [in the United States] buy about 60% to 80% of the products.
Is it illegal to buy fake purses from China? ›It is illegal to purchase counterfeit goods. Bringing them into the United States may result in civil or criminal penalties and purchasing counterfeit goods often supports criminal activities, such as forced labor or human trafficking.
Why you shouldn't buy products made in China? ›Chinese businesses often produce goods tailored to market expectations; therefore, Chinese products generally may lack quality when consumers prefer to pay a low price. Many companies and businesses also lack capital, industry expertise, and marketing power, leading to their manufacturing of counterfeit products.
What luxury brands do Asians love? ›Asian Women reaffirm their love of European fashion houses by associating 'luxury' with the brand names of Chanel, Prada and Dior. These luxury brands have certainly been able to inspire great loyalty from their Affluent Asian customers. Quality again is the overriding differentiator for these top ranking brands.
Why are luxury brands more expensive in China? ›Luxury brands have also borrowed a pricing and distribution strategy from the streetwear culture: the drop model. This means they release a limited number of items over a short time period, which creates scarcity and allows them to charge high prices. “The drop model in streetwear is similar to what luxury does.
Why is Gucci so popular in China? ›
Gucci China is known for its extravagant, rebellious and luxurious designs. Its customers are mostly affluent members of generation Z who can afford to spend more and want to show their social status. China has been one of Gucci's most important markets since 2006.
Why is Gucci popular in China? ›Known for its extravagant, rebellious, and opulent characteristics, Gucci in China mainly targets the wealthy Gen Z customers who have extra money to splurge and enjoys showing off their prestigious social status.
What does Gen Z want from luxury brands? ›According to a research conducted by Accenture, “Generation Z” shoppers care less about brand loyalty, are much more influenced by social media and open to new concepts, and buy impulsively. They want a quick and convenient shopping experience.
What brands do crazy rich Asians wear? ›The costume designer, Mary Vogt, expected two or three dresses: the company sent more than thirty outfits. Other designers also lent clothing: the cast wears outfits from Dior, Missoni, Marchesa, Elie Saab, Diane von Furstenberg as well as Asian designers Shiatzy Chen, Lisa Von Tang, and Carven Ong.
What country buys the most luxury brands? ›14, 2021. Whether it's calf-leather Italian Prada bags or classic, checkered British Burberry trench coats, South Koreans are the world's biggest spenders on personal luxury goods per capita, Morgan Stanley said.
Is LV cheaper in China? ›Prices are now closer than they have ever been, with a Louis Vuitton Speedy bag only 12 per cent more expensive in China than in the US.
Can Gucci bags I be made in China? ›No, Gucci handbags are not made in China — according to Gucci, their purses are 100 percent made in Italy. If you see Gucci purses stamped “Made in China,” they're not authentic.
Why is Chanel popular in China? ›1.Rich Cultural Connotation within the Brand “Chanel”
The brand “Chanel” is endowed with rich cultural connotation. Instead of simply representing a hallmark of beauty products and luxury couture, Chanel has her unique brand impression among Chinese shoppers – ladylike, graceful, yet not overly parading.
The price gap is mainly the result of Chinese taxes and duties, with added yuan coming from exchange rates and the distribution costs for the individual brands in China, according to the Fortune Character Institute, which researches China's elite. European stores have become heavily reliant on their Chinese customers.
What is the Gucci controversy in China? ›For the 2022 Year of the Tiger, the Italian luxury house incorporated real-life tigers in its advertising campaign, met by uproar from animal welfare organizations. The imagery ultimately portrayed the exotic mammal as a pet or luxury item, and was slammed for glorifying captive wild animals.
Why do Millennials love Gucci? ›
Narrator: But why do millennials and teens love Gucci so much? Gucci's founder, Guccio Gucci, originally designed leather goods for the aristocratic upper classes, specializing in horseback-riding gear. As Gucci grew in popularity, it became synonymous with high-class elegance and glamour.