China almost doubles luxury share in 2020, says Bain and Tmall report
This year has increased the importance of Chinese consumers to the luxury sector as the overall market has shrunk while China’s purchases have surged. New research from Bain & Company and Alibaba’s Tmall Luxury Division has found that China’s share of the global luxury market has almost doubled this year. That’s despite 2020 having got off to a slow start because of the country going into lockdown in Q1.
The report said spending on luxury in the country has rebounded strongly since China reopened for business. Sales within China itself have surged due to restrictions on global travel with the luxury market on the mainland expected to rise 48% to reach close to CNY346 billion (€43bn/£39bn/$53bn) by year-end. And more growth is expected until at least 2025.
It’s unlikely China would have quite been able to double its share under normal circumstances and that share growth has to be seen in the context of a worldwide pandemic. The China’s Unstoppable 2020 Luxury Market report said that the overall luxury market globally has shrunk by 23% this year. That’s the situation in which China has grown its share from 11% in 2019 to 20%.
Nevertheless, even in a smaller market, it's still an impressive achievement and highlights the increasing importance of Chinese consumers to luxury brands.
Bain/Tmall believe that China will claim leadership, size-wise, in the luxury market by 2025. And given that the world economy should have returned to or to have surpassed pre-pandemic levels at that point, it’s clear that nothing can stop China’s love of luxury. The report said luxury brands expect growth of around 30% in China next year alone.
Bruno Lannes, a Bain & Company senior partner based in Shanghai and one of the report’s co-authors, said: “Through the Covid-19 pandemic, we have seen the global luxury goods market shrink, as economic and social considerations have limited access. However, the mainland China market has rebounded post-lockdowns due to four engines: further repatriation, Millennial and Gen Z shoppers, continuing digitalisation and the Hainan duty-free stores – a new factor with a key role in this year’s growth.”
And Chris Tung, Chief Marketing Officer of Alibaba Group, added:“One of the most exciting trends to come out of the luxury market in 2020 has been the ways that brands have actively developed and strengthened their connections to consumers both online and offline. Chinese luxury consumers are digitally native, highly sophisticated and expect an elevated shopping experience. Global luxury brands have embraced new digital tools such as live-streaming for consumer education or product presentation. During this year’s 11.11 Global Shopping Festival, luxury brands attracted millions of views and interactions in a matter of hours as consumers looked for new, digitally-enabled ways to connect with their favourite brands.”
SALES MOVING BACK TO CHINA
Looking in detail at what’s been happening in China’s luxury market this year, the report said the ‘repatriation’ trend, in which more sales are made within China itself, has actually been going on for five years but has accelerated. The long-term trend is due to a reduction in import duties, stricter controls over grey markets and brands’ price harmonisation. But the pandemic impact in 2020 drove the trend even more and meant that mainland China’s portion of Chinese global luxury purchases this year reached a peak of about 70% to 75% at some points.
Leather goods and jewellery led the way at a rate of about 70% to 80%, with ready-to-wear and shoes growing about 40% to 50% and high-end watches about 20%.
Many of the people buying these products are Millennials and Gen Z and they will continue to spend on luxury in the years ahead. Nearly three-quarters of existing consumers in those cohorts have said they would increase or maintain their luxury spending in 2021.
The report also said that in terms of e-commerce, China’s annual luxury online penetration increased from about 13% in 2019 to 23% in 2020, as the pandemic drove up online luxury sales by about 150%.
The luxury fashion and lifestyle category, which started from a small base, grew by more than 100% up to October, and online penetration will increase from about 5% in 2019 to about 7% by year-end.
Bain and Tmall also predicted that Chinese luxury consumers’ online shopping behaviour has permanently changed. Nearly 40% of those surveyed said they plan to increase their share of online luxury shopping while another 40% said they plan to maintain their current share.
And then there's the Hainan effect to take into account. As Bruno Lannes said, sales on Hainan Island have also been key. Hainan has allowed duty-free purchases for a decade and has boomed this year due to Covid-19 travel restrictions and attractive shopping policy changes. Total Hainan duty-free sales reached CNY21 billion by the end of October, almost double last year’s sales. And the location is likely to benefit for the next few years too as normality takes some time to return.
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