Despite rumors to the contrary, China is likely to remain a powerhouse for a long time to come. According to research conducted by Bain & Company, middle-class consumers will represent an estimated 65 percent of all Chinese households by 2027, producing an ongoing pool of first-time buyers of luxury goods.
Indeed, according to Bain, during the second half of 2018 the Chinese luxury goods market showed 20 percent growth for the second straight year, driven mainly by millennials and women consumers.
Furthermore, more Chinese luxury consumers were making their purchases at home. The Chinese government’s reduction in import duties and stricter controls over gray markets, coupled with leading brands’ efforts, encouraged more Chinese consumers to put off buying sprees in popular travel destinations like as Hong Kong, Seoul, Tokyo, london and Paris.
According to Bain, although spending by Chinese shoppers represents about 33 percent of the global market, the Chinese made 27 percent of their luxury purchases at home in 2018, up from 23 in 2015.
MILLENNIALS REIGN SUPREME, AND ONLINE SALE GROW
Millennials reign supreme as China’s most affluent generation, Bain states, with consumers aged 23 to 38 both willing to spend on luxury brands, and financially able to do so. Even then, some 57 get help from their parents for luxury purchases, compared to 38 percent who do it by themselves.
According to HSBC’s Beyond the Bricks study, some 70 percent of China’s millennials own their own homes, which is twice the rate of millennials in the United States, and even more than the percentage of millennial homeowners in other Western economies, such as the United Kingdom, where the rate is 31 percent, and Australia, where it stands at only 28 percent.
Online luxury sales increased by 27 percent in 2018 to reach 10 percent of total luxury sales, but growth was driven predominantly by cosmetics, while the online penetration of other categories remained relatively low.
Last year, reported Bain, more Chinese brands looked for ways to expand their online presence through collaborations with leading e-commerce platforms, such as Alibaba or JD.com, while others a focus on their own Internet presence.
WHILE GROWTH WILL SLOW, THE FUTURE IS ROSY
Looking ahead, Bain noted that, while China’s economic growth is slowing, it is doing so in a controlled manner. Luxury brands can expect healthy increases in sales, but it is unreasonable to believe that growth will remain at 20 percent per annum. A more probable rate for 2019 is in the low-to-mid teens, the organization said.
Expansion during the year ahead will result from the same positive forces that made 2017 and 2018 so strong, Bain added The Chinese government will likely continue with its policy of reducing import duties, so as to encourage domestic consumption, and it also in likelihood will reduce the VAT rate.
China’s millennials are also likely to remain enthusiastic about luxury goods, as well as their willingness to buy. A survey carried out recently by UBS indicated that 71 percent of millennials expect that their financial futures will be positive, and 81 percent expect a rise in personal income. And what is certain, the middle class in China will continue growing.
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