Luxury a Magnet for China Sales

An Expert's View about DIY, Housewares, Appliances and Electronics in China

Last updated: 19 Feb 2011

A market survey released by US consulting firm Bain and Company showed Chinese mainland sales of luxury goods last year increased 23% compared to 2009 (and by as much as 30%, if calculated in Euro).

Wall Street banker Goldman Sachs was equally as upbeat on 2010 luxury sales - which it estimated at US$6.5 billion - putting China on top of the world for major brand sales, after three consecutive years of double digit growth.

Zhu Mingxia, Director of the Research Centre for Luxury Goods at Beijing's University of International Business and Economics, went still further. He declared at last December's Summit on Luxury Market Trends that the country had overtaken the US as the world's second largest consumer of luxury goods and has hopes of overtaking Japan as the world number one in three years.

More leading brands are tailoring their goods and services to suit the needs of Chinese consumers.

Hermès launched its Mainland brand Shang Xia and opened a dedicated flagship store in Shanghai last September. The French fashion house also marketed 100 limited edition mini Birkin bags. This 14 cm cuckoo red handbag was designed specially for Chinese women going to parties and receptions.

Porsche also designed a limited edition car with a price tag of US$225,000 for the China market. The luxury car maker believes China is its fastest growing market and has overtaken Germany as its second largest market.

Top Porsche executives believe China is set to become the company's largest market by 2015.

Competitor BMW announced recently that its volume sales in China in the first 11 months of 2010 were double those of 2009.

Meanwhile, Audi registered a 50% increase in China sales in the corresponding period. Audi already has the largest Mainland market share, but its Marketing Director is still optimistic that real prosperity in the China market has yet to come.

The study by Bain and Company shows compound growth rate of individual categories in China's luxury goods market reached double digit in 2010.

In the watch category, mid-range timepieces priced at between Rmb25,000 and Rmb50,000 registered the fastest growth, with sales soaring 35% last year.

This was closely followed by handbags and other leather goods, with sales hitting growth rates of 25%, year-on-year. Sales of cosmetics, men's and women's wear, jewellery and shoes increased 20%.

What merited attention was the lower average age of luxury goods consumers, enhanced by gift giving.

The World Luxury Association's 2010-2011 report showed the age of China's youngest luxury consumers dropping to 25 in 2010 from 35 in 2007.

In the next three to five years, people in the 25 to 30 age group are expected to form the mainstay of the country's luxury consumers.

However, luxury spending is only partly on gift giving, especially for political and business purposes.

More and more people are using cash vouchers instead of directly offering expensive watches and bags as gifts these days, which means the recipients decide what gifts to buy. This increases the incentive for major brands to boost their brand appeal.

Consumers in the luxury market include well-heeled families with assets worth millions of US dollars, but also the expanding middle class as well as increasingly significant young adults.

Although people are still worried about inflation and a property bubble, the survey shows that only 10% of the consumers interviewed said they planned to cut down on luxury consumption.

Bain's index is the highest of recent years. Consumers with monthly disposable incomes of over Rmb50,000 spend the largest amount on luxury goods and are more confident in their consumption pattern.

 

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Posted: 18 February 2011, last updated 19 February 2011

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