While many of the Western luxury markets have been hit hard by the fallout from the COVID-19 pandemic, and are expected to decline between 25 percent to 45 percent in 2020 compared to the previous year, and indeed are unlikely to return to pre-coronavirus levels before 2023 or 2024, the situation is very different in China, according to a recently released report by the Boston Consulting Group (BCG), together with Tencent Marketing Insight.
According to the report, the Chinese luxury market, which has benefitted from successful domestic control of the pandemic and has taken the lead in recovery against a depressed global market environment, is forecast to grow from 20 percent to 30 percent over the course of the of 2020. Indeed, thanks to its performance, China has become the main battleground of most major luxury brands.
“The luxury market in China was the first to recover from the impact of COVID-19 and is seeing an increasing rebound in local consumption and online channel adoption,” explained Crystal Hao, a BCG partner.
Bain and Co. estimates that Asia’s luxury market share will be about 54 percent of the global market by 2025, while Europe and the Americas will both decrease from around 30 percent to 22 to 24 percent.
CHINESE RECOVERY STRONG BUT UNEVEN
But the Chinese recovery is unbalanced, and remains very reliant on luxury goods, with poorer Chinese still cautious and the higher sales total concentrated major in the larger, tier 1 cities.
The BCG report noted that growth came mainly in the country’s 50 largest and richest cities, where as people in the other 2,206 cities bought only a quarter of all luxury goods in the four-month period of April through July this year, and their spending was down 4 percent compared to the same period in 2019, according to the report.
Indeed, consumption in general only began to catch up to the much stronger rebound in industrial output in August and September, with spending on luxury goods, cars and electronics leading the way. About 39 percent of China’s GDP comes from private consumption.
“Higher-income households have probably built up savings, because of the forced reduction in consumption during lockdown, and could now be ready for a spending spree. It is lower-income households that face a longer slog of normalizing their finances,” He Wei, an analyst at Gavekal Dragonomics, wrote in a report that was quoted by Bloomberg.
CHINESE CONCENTRATE MORE SPENDING AT HOME
According to BCG, about 73 per cent of Chinese luxury consumers planning to convert half of their annual abroad luxury spend back to China in the next year, which will see the current growth extend well beyond December.
Growth in the Chinese luxury markets remains unbalanced, with recovery clearly more evident in the larger Tier 1 cities, like Shanghai.
With less outbound tourism, spending on luxury products on the Chinese mainland is expected to rise.
China is bound to see an uptick in retail luxury investment at the expense of Europe and the US.
“We are going to see a relocation of investment away from some of the more mature markets and see a reinvestment in the Chinese market because of the surging consumption there,” said Joëlle de Montgolfier, executive vice president of global consumer products, retail and luxury practices at Bain, speaking to Vogue magazine. ““The store footprint will have to rebalance from the mature markets into the Asian region.”
This has been happening for 10 years already. Asia now accounts for more than 30 percent of the retail footprint of LVMH, the world leading luxury conglomerate, up from 19 percent in 2009.