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Overseas shopping and evolution of ‘daigou’ set to impact Chinese luxury consumption

China’s luxury market is set to experience mid-single-digit growth in 2024, following a 12 percent increase in 2023, according to Bain & Company’s China Luxury Report.

China’s luxury market witnessed an impressive threefold expansion between 2017 and 2021, a growth streak halted by the pandemic in 2022. A much-anticipated rebound in 2023 was driven by a strong first half, although weaker growth in the second half was influenced by declining consumer sentiment, particularly among middle- and high-income individuals.

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Bruno Lannes, a Shanghai-based senior partner at Bain & Company, emphasises that while the double-digit rebound was commendable, the market had not fully recovered to its pre-pandemic levels due to economic challenges and increased overseas shopping. “As the market transitions to a post-Covid growth phase, uncertainties remain regarding the speed at which consumer confidence will resume and how overseas luxury shopping will evolve,” Lannes says.

All categories within China’s luxury market contributed to the rebound in 2023: fashion, lifestyle, and jewellery saw growth rates between 15 percent and 20 percent, while leather goods grew at 10 percent to 15 percent, with a focus on lower-priced bags.

The beauty category experienced solid growth of approximately 8 percent, driven by fragrances and makeup, while watches had a softer rebound with growth rates ranging from 5 percent to 10 percent.

Source: Bain & Company

Although not reaching its 2021 peak, duty-free sales in Hainan expanded by about 25 percent in 2023, attributed to the recovery in domestic travel and government stimulus measures. But the average spending per shopper decreased by over 25 percent, likely due to reduced discounts, fewer daigou activities, and a lower willingness to spend.

Tourism and ‘daigou’ business to shape luxury market in China

As Chinese luxury consumption continues to evolve, two significant factors are poised to shape its trajectory: overseas shopping and the evolution of the ‘daigou’ phenomenon. These forces are playing a pivotal role in influencing the preferences and behaviours of Chinese luxury consumers.

With the reopening of borders, Chinese tourists’ luxury spending has significantly increased in Europe and Asia, accounting for around 40 percent and 65 percent of their 2019 spending levels, respectively.

Source: Bain & Company

Price gaps between luxury goods in mainland China and other markets have contributed to the resurgence of overseas shopping.

A study of leading products in mainland China, Europe, and Asian markets revealed significant price gaps across fashion and leather products, in particular, adding to the appeal of luxury shopping abroad.

Source: Bain & Company

Additionally, while daigou activities in the beauty sector faced restrictions, the fashion and leather goods sector saw the emergence of more professional daigou models embracing a platformised approach. It’s unlikely that daigou business will cool down in the near future, according to Bain.

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“The extent of this recovery in 2024 will primarily depend on the speed of economic recovery and changes in travel and lodging costs. Another year of recovery for Chinese overseas luxury consumption, particularly in Asian destinations, is expected. It remains crucial for brands tom implement harmonised global pricing strategies to maintain consumption in the mainland market,” says Weiwei Xing, a Hong Kong-based partner at Bain & Company.

Despite a global economic slowdown, Chinese luxury consumption is estimated to account for approximately 22 percent to 24 percent percent of the world’s total in 2023, with mainland China comprising about 16 percent. By 2030, Chinese luxury consumption is projected to reach 35 percent to 40 percent of the global total, solidifying its position as a leading luxury market worldwide.