China to account for over 60% of world luxury market in short term
The pandemic has drastically changed the geography of luxury. China has evolved from major market to essential outlet, one that has notably benefited from the country’s speed in overcoming the scourge of Covid-19. And China is set to continue to have a predominant influence in the future, once the situation will return to eagerly awaited normality in other regions of the world too, and the current crisis caused by the virus will only be a distant memory. This trend is an established fact, but it was portrayed in remarkably impressive fashion in the latest study published by U.S. financial services group Jefferies.
According to estimates by Jefferies’s research office, China’s share of global personal luxury goods expenditure has skyrocketed this year, right after the end of the pandemic’s first wave. The share grew from 38-39% of the global market in 2019 to 80-85% in 2020. The figures are explained by China’s rapid recovery once the lockdown was lifted - the country hasn’t been hit by a second epidemic wave, unlike the rest of the world - and by the travel restrictions that forced Chinese consumers to spend domestically rather than abroad.
“In the next five years, we expect a slight decrease in this 80% share, but it is evident that we won’t return to the 38% share of 2019. Luxury expenditure in China will continue to account for 55 to 60% of the global market,” said Flavio Cereda-Parini, managing director of luxury equity at Jefferies.
“Actually, this trend was previously forecast to take place in the next five years, but with Covid-19 this has happened in the course of just a few months,” he added.
These forecasts diverge slightly from those recently published in the 2020 annual luxury market report by consulting firm Bain & Co., which predicted that Chinese domestic consumption in 2025 will account for 26-28% of the global luxury market, compared to 11% in 2019 and 20% in 2020.
According to Bain & Co., mainland China is the only region recording growth this year, its luxury expenditure rising by 45% at current exchange rates to reach €44 billion. Local consumption has boomed in all sales channels, product categories, price segments and for all consumer age groups. The annual growth rate of luxury purchases in China was 18% in 2010, 37% in 2019 and 46-47% in 2020, as confirmed by Jefferies.
Chinese consumers, with purchases made domestically and outside China, accounted for 33% of worldwide luxury spending in 2019, according to Bain & Co. A share that is set to grow to 46-48% in 2025. For 2021, Bain & Co. is forecasting a 20% growth in luxury expenditure by Chinese consumers, “thanks to a partial return to foreign travel, but also thanks to new consumers entering this segment and to dynamic purchasing behaviour by women.”
According to Jefferies, luxury purchases by Chinese tourists, which used to account for 51% of the European luxury market and retained a 13% share in 2020 (thanks to the first two months of the year, when Chinese tourists were still travelling), are expected to rise again to a share of approximately 40% in five years. Chinese consumers spent nearly €1 billion in luxury goods in 1995, then €6.5 billion 10 years later, €78 billion in 2015, and are expected to fork out €165 billion in luxe products in 2025, according to Jefferies.
Analysts from both institutions have underlined once again that “growth will be more than ever China-driven in future.”
Jefferies and Bain & Co. also think that Asian consumers will account for 70% of luxury expenditure worldwide by 2025.
“In this kind of context, labels are either content to remain niche brands, or they are compelled to appeal to Chinese consumers,” said Cereda-Parini.
“Given that [luxury market] growth will chiefly be driven by the Chinese domestic market, it will be up to individual labels to boost their presence there, especially their digital presence, choosing the right local sites and media, and to do so with a degree of aggressiveness. Luxury labels need to seek out Chinese consumers. If they won’t do so, they won’t grow,” concluded Cereda-Parini.
Luxury giants are already active in this respect. Like Louis Vuitton, which picked the Chinese city of Wuhan as the first stage of a worldwide tour for its new ’See LV’ itinerant exhibition, which features an immersive journey across the label’s 160-year history. An interesting charm offensive in the symbolic city the Covid-19 pandemic originated from, to increase Louis Vuitton’s proximity to highly sought-after Chinese consumers.
Copyright © 2021 FashionNetwork.com All rights reserved.