Chinese luxury shopping
China’s luxury market to grow at +4% to +6% in 2024, says Bain & Company
The latest insights into the China luxury market, compiled by Bain & Company.
China’s luxury market is expected to grow at mid-single-digits year-on-year in 2024, according to Bain & Company’s latest China Luxury Report.
This follows a robust +12% year-on-year increase in 2023, as the market recoverede from the previous year’s decline due to the pandemic.
2023 started off with high demand levels, but the second half delivered weaker growth, driven by a decline in consumer sentiment among middle- and high-income individuals and a high comparable base in the third quarter.
Bain & Company Shanghai-based Senior Partner Bruno Lannes said: “The solid double-digit rebound is commendable, but China’s luxury market has not fully recovered to its 2021 levels. The recovery was tempered by the challenging economic climate and increased overseas shopping. As the market transitions to a post-Covid growth phase, uncertainties remain regarding the speed at which consumer confidence will resume and how overseas luxury shopping will evolve.”
In 2023, fashion, lifestyle and jewellery led the strong recovery with growth rates ranging from +15% to 20%. Leathergoods grew at +10% to +15% as consumers focused more on the lower-price bag segment. The beauty category saw solid growth of approximately +8%, driven by fragrances and makeup, while watches saw a softer rebound, with growth rates ranging from +5% to +10%, driven by contrasted performance across brands.
As reported, Hainan offshore duty free sales climbed by +25.4% year-on-year, though did not reach the highs of 2021. That rebound can be attributed to the recovery in domestic travel and stimulus measures implemented by the Hainan government. By contrast with overall sales growth, spend softened, as reported.
Bain highlighted two trends that has shaped China’s luxury market in 2023 and will continue to do so in the future.
A showcase for luxury at Shenzhen Airport Terminal 3 with Lagardère Travel Retail
Return of luxury shopping overseas
Over 90% of luxury shopping happened domestically during the pandemic years as borders closed, noted the analyst. As Chinese overseas tourism has resumed, Bain expects domestic luxury spending to decrease. The recovery of Chinese tourist luxury spending in Europe and Asia has been significant. Chinese luxury spending in Europe and Asia made up around 40% and 65% of their 2019 spending levels in those markets, respectively, according to Bain & Company.
It said: “The pricing gaps between luxury goods in Mainland China and other markets have played a critical role in the resurgence of overseas shopping. A sample check of leading products in mainland China, Europe, and Asian markets has revealed significant price gaps across categories such as fashion and leather products, making luxury shopping abroad more attractive. Importantly, these price gaps have remained unchanged compared to 2022.”
Evolution of daigou
South Korea’s duty free market has historically been a significant source for the daigou reseller business, particularly in the luxury beauty sector. However, Korean duty free sales to international travellers are estimated to experience a -30% decline to approximately RMB60–65 billion (US$8.5-9 billion) this year. This is due to restriction in daigou commission fees to travel agencies, and brands limiting supply of popular beauty products in the Chinese market.
The analyst noted: “Despite higher restrictions on daigou activities in the beauty sector, new and more professional daigou models are emerging, particularly in the fashion and leathergoods sector. By embracing a more platformised approach, daigou operators provide consumers with an aggregated and authenticated avenue for shopping and by accessing overseas goods from wholesalers at lower prices.”
The daigou market is unlikely to cool off, said Bain, and its future trends “will depend on brands” global control over their wholesale market overseas”.
“The extent of this recovery in 2024 will primarily depend on the speed of economic recovery and changes in travel and lodging costs. Another year of recovery for Chinese overseas luxury consumption, particularly in Asian destinations, is expected. It remains crucial for brands to implement harmonised global pricing strategies to maintain consumption in the mainland market,” said Bain & Company Hong Kong-based Partner Weiwei Xing.
Once 2023 numbers are finalised, Chinese luxury consumption is estimated to account for 22%-24% of the world’s total, with consumption in Mainland China comprising about 16% (both excluding daigou).
By 2030, Chinese luxury consumption is expected to reach 35%-40% of the world’s total, with consumption in Mainland China reaching 24%-26%.
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The Moodie Davitt eZine Issue 331 | 12 February 2024
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