While China’s personal luxury market has seen a slower path to recovery than hoped by leading conglomerates, a recent report by professional services firm PwC forecasts a three-year return to growth from the pandemic years, with the market expected to show signs of revitalisation by 2025, empowered by factors such as booming sub-segments, offline channel expansion, and Hainan’s high growth potential.
According to the report, China remains on track to overtake the US as the world’s largest luxury market with an estimated market size of USD148 billion in 2030.
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Top-tier luxury brands capable of providing their core customers with the most exquisite, highest quality, and personalised products and services, along with immersive interactive experiences, will emerge as leaders. Below, key trends to watch in mainland China and Hong Kong’s luxury landscape.
Catering to the ‘VIC,’ or Very Important Customer
Luxury brands should aspire to be the epitome of excellence in their offerings, management, and operations, focusing on very important clients (VICs) and the second generation of ultra-high-net-worth individuals (UHNWIs) and high-net-worth individuals (HNWIs) as their core customer base, according to PwC.
By offering ultra-premium and high-value preservation products, as well as highly tailored private healing items, and by creating a multi-sensory experience that embodies luxurious living, these brands can establish themselves as victors and secure the top position in the industry.
VICs seek scarcity and exclusivity in products, brands’ services should reflect that. Invitation-only access and private, dedicated VIP spaces in boutiques are attractive offerings, while after-sales services can include exclusive events and consumer outreach on occasions such as birthdays.
“The world’s wealthiest 1 percent control 43 percent of the world’s financial assets. These VICs are growing rapidly and have strong spending power. It is crucial for luxury groups to better meet their all-round needs,” says Michael Cheng, PwC Asia Pacific, Mainland China and Hong Kong consumer markets leader.
Sustainable luxury
Among global consumers, those surveyed in mainland China expressed a willingness to pay up to a 20 percent premium for products they deem ‘more trustworthy’ in terms of sustainability, made with eco-friendly, recycled or sustainable materials.
Twenty-eight percent of over 1,000 Chinese respondents aged 16 to 84 years old who were surveyed said they would buy as few fashion items as possible, and 32 percent said they would repair broken items before replacing them.
However, only 14 percent of Chinese respondents said they would purchase more secondhand goods, compared to 29 percent of respondents in the US and 28 percent in the UK.
Growth opportunities for luxury brands
Luxury groups have begun investing in expanding their offerings in prestige beauty and fragrance segments, and Chinese consumers appear to be buying.
According to the report, mainland China’s premium fragrance market has grown 22 percent from 2022 into a USD2.2 billion industry. Homegrown fragrance brands such as Melt Season, which saw investment from an Estée Lauder-backed venture fund, and Documents, in which L’Oréal China has a minority stake, have been particularly successful.
On the other end of the pricing spectrum, high jewellery and sustainable jewellery are boosting luxury houses’ offerings in China. China’s jewellery market has grown 17 percent from 2022 into a USD8.9 billion market, with Chinese consumers viewing the segment as highly investible, especially in light of uncertain economic conditions.
Also key to growth is brands’ capacity to capitalise on the ‘experience economy’ gaining ground. An increasing number of luxury brands are now embracing experiential products, incorporating elements of culture, entertainment, food, and lifestyle into their offerings.
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Beyond mainland China and Hong Kong, PwC’s Michael Cheng asserts Southeast Asian markets are emerging as new luxury hubs.
“Driven by the growth of ultra high-net-worth individuals, boom in luxury tourism and surge of foreign investment, Southeast Asia will become the next high potential destination, after traditional luxury markets – with countries such as Singapore, Thailand, Vietnam and Malaysia showing particularly strong growth. Major brands are actively deploying and promoting sales and branding to enhance their influence and highlight their advantages, especially targeting (ultra) high-net-worth individuals.”