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The Chinese luxury market has over the past 15 years developed a reputation of invincibility. Its continuing growth, many believe, is inevitable, irrespective of economic trends, health crises and their impacts, and crackdowns on political dissent. But there are signs that China’s impregnable shield may be cracking, or at the very least showing some wear and tear.
The problem, it appears, is one of age, and where China is concerned, one is not referring to the advanced age of luxury consumers, which often is the norm in Western markets, but rather the opposite. High-end consumers in China are on average 28 years of age, which is a full decade younger than the global average, which is 38.
This means that the dominant demographic in the Chinese market are not millennials, as is the case in most other developed markets today, but rather Gen Z, and for them the most crushing problem currently is unemployment.
According to government data, the number of out-of-work urban dwellers age 16 to 19 in China stood at 19.9 percent at the beginning of August 2022. This largely is a result of ongoing coronavirus lockdowns that are a result of the country’s zero-COVID infection policy, which has reduced both consumer spending and exports.
“This might be the first time that a lot of young adults are facing economic impact, so it will be a testing ground on how these consumers are going to spend on luxury items going forward,” said Kenneth Chow, a principal at Oliver Wyman consultancy, which has carefully been studying the role played by Gen Z in the Chinese market.
RECORD NUMBER OUT OF WORK
The almost 20 percent youth unemployment rate that was announced by the Chinese National Bureau of Statistics earlier this month was the highest rate ever reported since the agency began publishing the index in January 2018. Then, it stood at 9.6 percent.
As a result of the ongoing lockdowns in major Chinese cities between March and May, at a time that such policies had long since been abandoned by most other countries, despite their even higher COVID infection rates, the World Bank forecast that China’s economic growth will slow to 4.3 percent in 2022.
While that still would be considered a respectable rate of growth elsewhere, this is not the case in China, which for a long while expanded at a double-digit rate. Indeed it is even 0.8 percent lower than an estimate that was made in December.
And things could get worse. A record number of Chinese college and vocational school graduates —around 12 million people — will enter entering the job market at the end of the summer.
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According to a report by Time Magazine, the number of jobless Chinese under-25 equals at a 2 percent to 3 percent cut in the country’s workforce, and consequently a less than expected gross domestic product. Unemployment and underemployment impact salaries, and inevitably consumer spending as well.
GEN Z MAKES UP 40 PERCENT OF MARKET
The economic difficulties being experienced by younger Chinese will almost certainly impact the growth prospects of the country’s luxury sector, and consequently those of many of the luxury brands that consider it to be an economic anchor.
The Oliver Wyman study indicated that 50 percent of the Chinese shoppers of luxury accessories and fashion entered the market only 12 months ago, and they had been expected to drive more than 80 percent of market growth in 2022. Of them, 40 percent are under the age of 25.
According to Oliver Wyman, in the 12 months leading up to the survey, 18 percent of Gen Z buyers spent more than 20 percent of their disposable income on luxury goods, compared to only 3 percent of other shoppers.
The study showed that Gen Z luxury shoppers preferred niche brands more than well-known brands, and were more attracted to trending styles rather than the classic designs.
Almost 90 percent of Chinese Gen Z consumers are comfortable buying luxury both online and offline, and 43 percent made a fine jewelry purchase over the past 12 months.