Many execs from the world’s luxury brands are likely to be toasting the resilient Chinese consumers who are the bright spot in otherwise abysmal sales. As LMVH’s global sales contracted 38% between April to June, consumers in China shelled out 65% more on their fashion and leather goods than a year earlier. Similarly, Kering’s worldwide revenue declined 29%, whereas sales in China grew 40%. Tiffany’s China sales were up 90% in May from 2019 while they fell 45% in the US in the first half of the year. The list goes on…
On the surface it may seem that Chinese consumers are out storming luxury stores, yet the reality looks a little different. Whilst the pandemic has seen Chinese consumers spending more on many products from milk to motorcars, they’re actually spending less on luxury than pre-Covid. In 2018, just 27% of Chinese luxury purchases took place in Mainland China according to Bain. Although the portion of luxury sales in China was increasing, domestic turnover still accounted for less than a third when the pandemic hit. So luxury sales in China would need to grow well over 200% just to match 2019 sales, particularly given the daigou luxury sales have slowed to a trickle. Many daigou have been unable to travel, international shipping is slower and less certain, and consumers can be worried about overseas packages being infected, on top of higher import taxes and more customs inspections than ever.
Back before the pandemic, when Chinese travellers could still go abroad, shopping was becoming a less dominant pastime on trips, yet many would still bring home suitcases stuffed full of handbags and watches from Paris, London, New York, Tokyo and Hong Kong. Prices of luxury goods overseas were as much as 30-50% lower, there were more ‘unique’ products to choose from, and you’d get solid street-cred taking selfies with purchases in the world’s fashion capitals.
We should be commending luxury brands that consumers are spending more in their stores and online in China than ever before, but we should also take stock that, overall, Chinese are buying less luxury goods than they have for a long time. That isn’t just because they can’t jump on the next Airbus to France or buy from their daigou agent on WeChat. There is an element of global uncertainty influencing purchase decisions, but above all, the shock of the pandemic has seen many consumers recalibrate their spending.
China Skinny has spoken to thousands of consumers since the outbreak, in addition to tracking online conversations and trending preferences and behaviour. During the lockdown consumers had a chance to reflect on what is important to them, their purpose and, subsequently, what they buy. From our analysis, things such as the value of family and self improvement have dialled up much more than rushing out to buy beautifully-made bags or shoes.
With that aside, there is no disputing the good work that luxury brands have done in the Mainland. There are many best practice examples that marketers in most industries could learn from including their digital and o2o initiatives, pop-up stores and their overall adaptiveness, which has helped drive their strong domestic sales during these challenging Covid-era times.
The future for luxury brands in China is bright. Chinese consumers continue to define themselves by consumption more than consumers in most other countries and many are driven by the status that accompanies luxury purchases. Luxury brands – and any brand for that matter – could further dial into the shifted sense of purpose and priorities of Chinese consumers to grow even more. Get in touch with China Skinny to discuss how we could help you do just that.
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