Changes in spending on luxury goods by mainland Chinese consumers might dictate a revamp in how luxury retailers do business in that market. More shoppers than ever are buying overseas because items are more expensive in China, according to Bain’s 2015 China Luxury Market Study.
Overall luxury spending by Chinese consumers in 2015 fell 2% to 113 billion yuan ($17.2 billion), driven by falling sales of watches, men's wear and leather goods. Overseas luxury purchases grew 10%, especially in Japan, where their spending increased more than 200%, but also in South Korea, Europe and Australia, thanks to favorable exchange rates and competitive pricing. Meanwhile, luxury spending of mainland Chinese in Hong Kong and Macau fell 25%.
Because of crackdowns by the Chinese government designed to tighten imports and bring spending back, including new rules discouraging the use of personal shoppers, or “Daigou" who make duty-free purchases overseas for their Chinese customers, more Chinese are buying their luxury goods via websites and mobile sites instead. “Buying overseas has been a trend for years, but destinations have changed,” Bain partner and report author Bruno Lannes said in a statement.
In 2014 and 2015, brands with strong fashion heritage and track record of original designs did better in the Chinese market. And, while transitions in China’s economy are causing some turmoil in markets and worry among investors, the general environment for luxury retailers will remain more or less the same—though the still-rising middle class will continue to become more sophisticated about luxury brands, Bain says. Global pricing will become more important, the report notes.
Luxury brands should strengthen digital platform building and digital content creation, with an emphasis on localization to reflect local market preferences, Bain says. Nearly 80% of survey respondents said they get their luxury brand information from the internet or apps, and 60% said social media sites Weibo and WeChat are their source for that information. That’s why brands on average spend 35%—and growing—of their marketing budget on digital.
Luxury brands must also emphasize youth and fashion to turn the heads of the next generation of luxury customers in China, Bain said. This year and forward, there will be even more of a focus on "exclusivity" in product design and store footprint, according to the report.
Some changes are already underway. Luxury retailers in China, for example, have begun streamlining their approach to brick-and-mortar in the country, with a greater focus on fewer, larger and better located stores. Many brands have realized the need to regain a sense of exclusivity, which was marred by too many stores, according to the report.
"Despite persistent macro, economic and industry challenges in China, all hope is not lost for luxury brands," said Lannes. "There are plenty of growth opportunities for those with more exclusive and fashion collections, digital platform engagement and digital content creation, as well as with pricing that encourages Chinese consumers to spend locally."