For many in the luxury product industries, the Chinese consumer remains the knight on the white horse, spending more on luxury goods at home, even while he or she is restricted from traveling abroad because of COVID-related restrictions. But analysts are warning that the Chinese juggernaut may be faltering, or at the very least struggling to maintain the type of growth that it has become used to.
What this means, is that alternative strategies will need to be considered over the long term.
Right now, however, it’s full steam ahead. According to Bain & Company, sales of personal luxury goods in mainland China in 2021 rose by 36 percent to 471 billion yuan, or $73.59 billion, which was more than double the 234 billion yuan in luxury goods spending on the mainland in 2019, before the pandemic.
The growth in luxury goods sales in 2021 occurred despite an overall slump in Chinese retail sales, as a result of the pandemic that began in 2020.
According to Bain, mainland China’s share of the global luxury market rose to around 21 percent in 2021, 1 percentage point than in 2020.
“We anticipate this growth to continue, putting the country on track to become the world’s largest luxury goods market by 2025 — regardless of future international travel patterns,” the consultancy form said in its 2021 report.
“China remains the best consumer story in the world. The average increase of disposable income remains higher than inflation, it added.
After two years of COVID-imposed isolation, Chinese consumders are more inclined to buy local brands.
CONSUMERS WARM TO CHINA-CHIC
But Bain tempered expectations when it looked ahead, stating that the domestic luxury market would grow at a more moderate pace in 2022.
“Sporadic localized COVID-19 outbreaks will likely continue throughout the year,” Bain stated. “We expect a corresponding negative impact on shopping-mall traffic in affected cities.”
Jing Daily, a leading digital publication covering luxury consumer trends in China, listed a number of factors that may make the country less attractive that it has in recent years for foreign brands.
Younger Chinese consumers are more inclined today to by domestic brands, Jing Daily said. A recent report released by Baidu showed that interest in domestic goods increased by 528 percent over a decade ago, with “China-chic” said to be a dominant trend.
The COVID-19 lockdowns caused by the spread of the Omicron variant has definitely played a role, with the country struggling with shipping disruptions, supply chain problems, a property crisis, and power shortages and power blackouts.
Chinese consumers are also increasingly environmentally conscious, increasingly embracing
embraced “re-commerce” and circular economy practices.
ALTERNATIVE STRATEGIES AND MARKETS REQUIRED
Speaking to Miss Tweed, a Paris-based publisher specializing in the fashion and luxury sectors, Hubert Védrine, a former French foreign minister and a member of LVMH’s board of directors, suggested that luxury brands would be wise to avoid increasing their exposure to China and even reduce it.
In his opinion, China’s rising nationalism and protectionism are likely to permanent features for the foreseeable future, meaning that the West’s relations with it will remain tense.
“I would suggest they prospect middle classes in other countries such as Indonesia or in Africa, which is a free-trade zone,” he stated.
This will be a bitter pill to swallow. For many luxury brands, a large number of them French, China today represents between 30 percent to 40 percent of their revenue.
COVID lockdown are impact 140 million Chinese, mainly living in major urban cnters, who collectively represent 40 percent of the country’s GDP.
But, with the COVID lockdowns now affecting an estimated 140 million people in mainly large cities, which collectively generate more than 40 percent of the country’s GDP, luxury brands expect their sales in China this year could fall as much as 25 percent this year.
And it not only sales in China that are being impacted, for it is Chinese consumers that have driving business outside the country as well. And when they begin traveling, which is unlikely before 2023, things most probably will not return to where they were before the pandemic.
“For a long time, we thought that Chinese tourists bought more luxury goods when going abroad as they would bring back gifts,” Erwan Rambourg, luxury goods analyst at HSBC, according to Miss Tweed. “The reality, however, is that instead of purchasing only the iconic items when abroad, when staying at home, they have gotten to know sales associates and brands better and there is likely more selling going on.”