Changes in the world's third largest luxury market

While some top international luxury brands are building bigger, flashier stores in China to fuel growth, others are focusing their marketing efforts online, according to caixin.com.

Louis Vuitton store in Chengdu, Sichuan, China. Photo: LOUIS VUITTON

Luxury spending in mainland China fell 15% in 2022 compared to the same period in 2021, hit hard by weak consumer confidence and restrictions to contain the spread of the Covid-19 pandemic, according to a report released by consulting firm Yaok Institute on January 18.

Last year, luxury spending grew 11%, but that was still significantly lower than the 37% increase in 2021. However, brands still have reasons to bet big on China and the super-rich.

Mainland China is the third largest market for personal luxury goods sales globally, with a market share of 15% in 2022, behind the Americas at 32% and Europe at 27%, according to a report by Bain & Company. This figure is expected to increase to 26% by 2030, making China the world's largest luxury market.

Against this backdrop, new buildings designed and built for Louis Vuitton, Dior and Hermès have sprung up in Taikoo Li Sanlitun – Beijing’s famous retail fashion landmark in the heart of Chaoyang District.

According to Zhu Jianhui, Europe's largest luxury retailers such as Chanel and Burberry have also stepped up efforts to upgrade existing retail stores - focusing on improving VIP rooms to enhance the shopping experience for super-rich customers...

Meanwhile, some affordable brands are accelerating their penetration into smaller cities in search of new growth, including Coach, an American fashion brand that has 241 retail and discount stores in mainland China, more than 60 of which are located in third- and fourth-tier cities such as Xingtai in Hebei province, Anshan in Liaoning province and Liaocheng in Shandong province.

Other brands in the same segment as Coach are also expanding their online presence. Michael Kors joined Douyin (China’s TikTok) in January 2023 and began selling products via livestream. Soon after, Versace launched its youth-oriented sub-brand Versace Jeans Couture into the livestream space. On Alibaba Group Holding Inc.’s Tmall Luxury Pavilion, more than 200 luxury brands had set up official accounts as of September 2022.

For low-end luxury shoppers, luxury items are not something they need to buy frequently and their purchasing motivations are diverse, said Zhu Jianhui, head of retail research at real estate services provider JLL China. For example, when incomes are low, luxury spending is cut first and they easily replace high-end goods with cheaper alternatives.

PEARL

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