China-a booming market for luxury

Like Japan 20 years ago, the consumption on luxury goods in China now is skyrocketing! Not only those super-rich, but also many common people are ravenous for luxury brands, especially western brands.

Chinese tourists and the luxury industry

The number of Chinese traveling abroad increased by 71% in 2012. Traveling abroad will probably keep the increase rate in the coming years. And they are likely to spend a big part of their expenses on luxury goods.
Although luxury brands continue to open stores across China, especially in Beijing and Shanghai, many Chinese still prefer to buy abroad, where they have access to a wider selection, lower price and sometimes in advance.
As consumers seeking for better products, luxury  shops on those luxury streets such as Savile Row, Bond Street or Avenue des Champs-Élysées are increasingly popular.
In terms of destinations, Hong Kong remains the first destination for Chinese consumers, followed by Europe and Japan. Differences in term of VAT (Value Added Taxes) can explain this.

 Figure 4 illustrates the demand for cosmetics and perfumes. Hong Kong, Macao and Taiwan are the first choice for luxury purchase. Mainland China is in second position while Europe arrived in third position but with a significant increase due to the growing number of Chinese travelers.

E-commerce in luxury

E-commerce is booming in China and offers new opportunities for luxury industry key players. Chinese consumers are more actives online and especially in social network services  and forums than their western counterparts. Approximately 70% of Chinese consumer search online about luxury brands and goods on a monthly basis.
The main motivation for purchasing of luxury goods online is the convenience of it. Cost saving is of merely no importance in such a market. The main concerns remains the question of the authenticity of the products, the safety of online payment and the lack of after-sales service. Online retailers must deal with this question of trust.

Figure 13 shows the importance of digital communication for the Chinese consumer. The impact of conventional communication channels (Display ad campaign, TV commercials and magazine advertisements) is facing a notable decline.
Luxury brands have explored various ways to get closer to their consumers via innovative digital communication plans.
Another important trend for luxury brands to notice is popularizing of mobile applications. Luxury brands are eager to establish their presence in the mobile world and some now offer the possibility to see their new collections from smartphones’ applications..

Evolutions of the Chinese consumer.

There are different perceptions of luxury brands, depending on the country. And in China, Luxury consumption is considered as a symbol of social status.

Figure 17 shows that luxury goods are highly valued for its emotionnal rewards.

Figure 18 shows that purchases of antique furniture, overseas travels and gyms subscriptions are rising fast. Consumers want experiences that make them feel pampered.
.
Chinese women tend to make purchasing decisions in the field of cosmetics, perfumes, spa, clothing, shoes, bags and jewelry when men decide when it comes to purchasing alcohols, watches and cars. Joint decisions are about hotels, nightclubs and restaurants.

Chinese women seem much more likely to buy luxury goods as a form of reward, while men are still traditionally driven by social status demands.

Women are an important target market for luxury players because they are taking more decisions in the purchase.

However, China is not a paradise without challenges for luxury brands. It’s important to keep the idea that many barriers still exist to penetrate the Chinese market in mind. For instance the increasing number of Chinese consumers who travel worldwide will increase their knowledge of brands and products and it will then increase their expectations in term of quality and service.

Source: KPMG Insight on the Luxury Market in China