China’s share of the global luxury market reaches new high in 2020

While Covid-19 lockdowns saw a slow start to luxury sales in China last year, spending on luxury “rebounded strongly,” with China’s market share of the global luxury market nearly doubling in 2020.

According to the first joint research report by Bain and Company and Tmall Luxury Division, growth for the mainland China luxury market is expected to climb by 48 percent to reach almost 346 billion Ren Min Bi in 2020. This growth has driven China to double its overall share of the global luxury market last year, with further growth expected through 2025.

Globally, the luxury market shrank by 23 percent in 2020, however, mainland China’s market share increased from about 11 percent last year to 20 percent. This growth is likely to continue, explains the report, putting the country on track to claim the biggest share of the global luxury market by 2025, even after the world economy returns to pre-pandemic levels.

Bruno Lannes, Bain and Company senior partner based in Shanghai and one of the report’s co-authors, said in a statement: “Through the Covid-19 pandemic, we have seen the global luxury goods market shrink, as economic and social considerations have limited access. However, the mainland China market has rebounded post-lockdowns due to four engines: further repatriation, Millennial and Gen Z shoppers, continuing digitalisation and the Hainan duty-free stores – a new factor with a key role in this year’s growth.”

Growth in China’s luxury goods market has been led by Millennials (born between 1980 and 1995) and Gen Z consumers (born after 1995), with many young consumers now making their first luxury purchase at age 20. There has also been an increase in digitalisation, with China’s luxury online sales increasing from about 13 percent in 2019 to 23 percent in 2020, and the pandemic drove up online luxury sales by about 150 percent.

The luxury fashion and lifestyle category, which started from a small base, has grown by more than 100 percent in the first 10 months of 2020, and online penetration will increase from about 5 percent in 2019 to about 7 percent in 2020, added the report.

Millennials also represent more than 70 percent of Tmall’s luxury fashion and lifestyle market, while Gen Z is the fastest-growing group.

Chris Tung, chief marketing officer of Alibaba Group, added: “One of the most exciting trends to come out of the luxury market in 2020 has been the ways that brands have actively developed and strengthened their connections to consumers both online and offline.

“Chinese luxury consumers are digitally native, highly sophisticated and expect an elevated shopping experience. Global luxury brands have embraced new digital tools such as livestreaming for consumer education or product presentation. During the 11.11 Global Shopping Festival, luxury brands attracted millions of views and interactions in a matter of hours as consumers looked for new, digitally-enabled ways to connect with their favourite brands.”

Millennials and online growth boosts China’s luxury spend

Another driver of growth last year was the increase in repatriation due to a reduction in import duties, stricter controls over grey markets and brands’ price harmonisation. This was in addition to Covid-19-related travel restrictions, mainland China’s portion of Chinese global luxury purchases this year reached a peak of about 70 percent to 75 percent.

Leather goods and jewellery led the way at a rate of about 70 percent to 80 percent, while ready-to-wear clothing and shoes grew about 40 percent to 50 percent and high-end watch purchases increased by about 20 percent.

The final growth area identified in the report was Hainan Island’s duty-free sales, which saw a boom in 2020, driven by Covid-19 travel restrictions and attractive shopping policy changes. Total Hainan duty-free sales reached 21 billion Ren Min Bi by the end of October 2020. Sales were up 98 percent, compared to 2019.

Looking ahead, the report reveals that global conditions are unlikely to return to normal before 2022 or even 2023, and it also feels that Chinese consumers will remain cautious about international travel even after borders reopen. As a result, most luxury brands believe that domestic growth will continue in 2021 at about a 30 percent level.

It is also felt that Chinese luxury consumers online shopping behaviour has been permanently changed. Nearly 40 percent of those surveyed said they plan to increase their share of online luxury shopping while another 40 percent said they plan to maintain their current share.

Carrie Zhang, Bain and Company partner based in Shanghai and one of the report’s co-authors, added: “Many brands are showing a stronger commitment to a comprehensive digital strategy, including a presence on all key digital channels. Moreover, luxury brands are now instilling sophistication, quality and attention to detail—core components of luxury players’ engagement strategies that did not fully transfer when brands first rushed to digital—into these new engagements.”

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