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China’s luxury market share almost doubles in 2020

Katie Nichol

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China’s luxury market share almost doubles in 2020

The luxury-goods market in mainland China is forecast to grow 48% to almost $53.6bn in 2020 with leather goods and jewelry the most in-demand categories, according to a report from Bain & Company and Tmall. Boosted by an increase in domestic spending resulting from the drop in international travel, China, which now accounts for 20% of global luxury sales (up from 11% in 2019) is forecast to claim the biggest market share globally by 2025.

After covid-19 lockdowns in early 2020, China’s luxury-goods market began to grow in April last year as Chinese consumers made purchases inside the country. This repatriation of consumption is one of four factors driving growth.

Thanks to a reduction in import duties, price harmonization and stricter gray market controls, China’s luxury consumers have been shopping more at home since 2015, notes Bain. In light of travel restrictions linked to the health pandemic, mainland China accounted for 70-75% of Chinese global luxury purchases in 2020, a peak figure that is expected to decline as travel comes back.

Positive consumer sentiment and increased wealth also helped to drive luxury consumption, as did government measures designed to encourage spending.

Chinese millennials may be Tmall Luxury Pavilion’s core consumers, making up more than 70% of the platform’s luxury fashion and lifestyle consumers, notes the report, but Gen Z shoppers are an emerging source of growth. Gen Z puts greater emphasis on “the pursuit of fashion”, and their purchase of luxury collaborations and limited editions increased 300% to 400% between January and October 2020, according to Tmall.

Online purchases account for 35% of Gen Z’s monthly expenditure on FMCG (fast moving consumer goods), against 27% for other age brackets.

Indeed, digitalization is another factor driving luxury in China, with Covid-19 resulting in online channels increasing their luxury sales by around 150% in 2020.

Much more than just a sales channel, e-commerce is increasingly seen by luxury brands as a marketing tool, with product customization and livestreaming just two areas of focus. China’s annual luxury online penetration increased to 23% in 2020, up from 13% in 2019, driven by beauty products and domestic duty-free sales. Online luxury beauty sales increased around 60% year-to-date as of October 2020, while online penetration is forecast to rise from 28% in 2019 to 38% in 2020, boosted by skincare and fragrance. 

Unique to 2020 was the online growth of the domestic duty-free channel, including sales from the Hainan duty-free zone, where 55% of merchandise was sold online. Hainan duty-free shopping was in robust health in 2020, boosted by increased duty-free allowances and Covid-19-related travel restrictions. Indeed, Hainan duty-free sales increased 98% to RMB 21bn ($3.25bn).

When it comes to categories, leather goods and jewelry saw growth of 70-80%, followed by ready-to-wear clothing and shoes at around 40-50%, luxury beauty increased by 25% and high-end watch purchases were up by approximately 20%.

Despite the booming domestic luxury market, Bain notes that the growth in mainland China failed to compensate for the loss of Chinese spend overseas – the drop in travel saw these consumers’ total luxury spend fall around 35%.

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