By Fflur Roberts, 18-08-2016+,Senatus, Luxury Society
There is much discussion about what a slowing economy in China means for the luxury industry. Euromonitor highlights the latest numbers and what it means for the industry.
Over the past decade, China and moreover the Chinese have led the world in luxury shopping. As a By 2015 China offered more luxury retail selling space than Japan and was fast catching up on the US, and the Chinese accounted for over a third of all global luxury spending.
According to Euromonitor International’s latest travel data, the Chinese made almost 3 million trips to the US in 2015, an increase of almost 8% on 2014 and a massive 206% increase in the last five years since 2010. During the same year they made 2 million trips to France, 5 million trips to Japan and 285 thousand trips to the UK.
Overview of the Economy
However in 2014 and 2015, mainland China posted its lowest growth in sales of luxury goods since our records began (a real decline of -3% and +1% respectively). Therefore, Beijing faces some serious challenges. The government wants to change strategy by reducing its reliance on debt-fuelled investment in construction and heavy industry and boosting consumption.
Individuals aged 45-49 are the largest group amongst top earners
Although individuals aged 30-34 commanded the highest average gross income in 2015, the age segment 45-49 represented the largest proportion amongst Chinese in the top income band (ie individuals with an annual gross income over US$150,000) in the same year. By 2030, the age group 40-44 will have become the most prominent amongst the country’s top income earners, representing opportunities for luxury services and high-end family orientated goods (especially given the relaxation of China’s one-child policy).
Between 2015 and 2030, China is expected to add in excess of 3.4 million additional individuals to this wealthy population, making it the fifth largest market in the world in terms of HNWI’s.
Income gap is expected to remain wide over the long term
One of the main determinants of income inequality in the country is the condition of urban/rural households, which also affects migrant individuals working in the city, but whose household registration (or “hukou”) is in a rural area.
Luxury brands need to re-think their growth strategies
The impact of a weakening economy is unlikely to stop wealthy Chinese consumers from travelling to buy their luxury goods, but it might change their destination of choice as well as total in-destination spend.
China’s grey luxury goods market
The main players in the grey market are professional shoppers, known in Chinese as daigou, who travel abroad to buy luxury goods in bulk (in effect, by filling their suitcases). They return home to sell their wares either directly or online, and it has developed into a business worth billions of US dollars.