Revitalization of China’s Luxury Market

Mainland China luxury goods market has seen a 4 percent growth in 2016 at constant exchange rates, indicating a sign of revitalization for the first time in three years. Yet sales volume slipped slightly in 2016 if we took exchange rates into account.

It should be noted that in 2016 the growth rate for China’s local luxury sales exceeded that of overseas purchases by Chinese tourists by 5 percentage points, which has never occurred before since 2001.

Due to China’s anticorruption campaign and weak consumer sentiment, luxury spending in China didn’t see a rise until recent years; sales reports from international brands such as Coach, Swatch Group and LVMH suggest that luxury spending in China is beginning to recover. Luxury brands in China become popular again. Sharply improved revenues are seen in China luxury market in the second half of 2016. Data shows foot traffic rose in opulent Shanghai malls, Swiss watch sales shot up and top European luxury brands from Burberry to LVMH sold well.

Here are some trends in China’s luxury market, which is set to bring both opportunities and challenges for luxury brands.

1. More repatriation of Chinese luxury spending. Shopping abroad is still favored by many Chinese luxury travelers, but there has been more domestic consumption in mainland China luxury market in 2016. Several key trends: the Chinese government’s crackdown on gray-market smugglers, changes in tariff policies for travelers, importers, and cross-border online sellers, luxury brands’ decisions to harmonize China prices with those globally, and duty-free shopping supported by the government. It is predicted that these trends will continue, because Chinese government intend to earn tax revenue and luxury brands want to cut down on the gray market.

2. Chinese luxury buyers will follow the exchange rate to purchase luxury goods. Purchasing luxury goods in local market is not always the best choice for Chinese luxury buyers especially for outbound Chinese travelers. Despite new tariff policies, some brands lowering their China prices, and a devalued yuan, many goods still cost more in China than they do elsewhere. That’s why Chinese shoppers pay close attention on the prices and global currency fluctuations. For instance, when the pound plunged because of the Brexit vote in 2016, Chinese tourists flocked to the UK to scoop up goods of lower prices compared with those in China’s market; when the yen rose in value, Chinese people’s “explosive shopping” in Japan calmed.

3. The booming of e-commerce will show influence on the luxury market. E-commerce enjoys a worldwide booming and shows great influence on the luxury industry, with no exception of China market. Around 80 percent of luxury brands are now available online in China, no matter it is a direct-to-consumer site or presented on a third-party e-commerce platform. Only 14 percent of fashion brands and 25 percent of watch and jewelry brands didn’t expose themselves online in China market.

4. Anti-corruption campaign and luxury industry. When China’s anti-corruption campaign began in 2012, it was coincided with a plunging luxury sales growth rate. Now the anti-corruption campaign has gained crushing momentum, and in 2017 existing corruption should be reduced, and any rise in corruption contained with a “high-voltage” crackdown on “undesirable work styles and corruption.” For the luxury industry, this simply means that brands that didn’t rely on official “gifting” will continue to soar with the consumption brought by regular consumers.