Despite mounting global social and economic challenges, China’s luxury goods market finished 2021 with strong double-digit growth overall, with some brands exceeding a 70 percent increase. Chinese consumers have continued to shop mostly in the mainland, given limited international travel options. This has led to a 48 percent increase of China’s domestic sales of personal luxury goods in 2020, and another 36 percent in 2021 totalling nearly RMB 471 billion (US$74.4 billion), a near doubling in just 2 years. Domestic spending in the luxury market also continues to be strengthened due to duty-free opportunities, and digitalisation. These are among the findings of Bain & Company’s annual China Luxury Report 2021, released on 20th January.
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Following 2020 trends, market growth has varied significantly across brands, ranging from 10 percent to more than 70 percent, and categories. Leather goods was the fastest growing category at about a 60 percent growth rate, followed by fashion and lifestyle at about 40 percent. Jewelry spending increases were lower than in 2020, but still managed a growth of about 35 percent, while high-end watch purchases rose about 30 percent and luxury beauty spending increased about 20 percent.
“Globally, mainland China’s share of the luxury market grew from about 20 percent in 2020 to approximately 21 percent in 2021. We anticipate this growth to continue, putting the country on track to become the world’s largest luxury goods market by 2025—regardless of future international travel patterns,” said Bruno Lannes, partner at Bain & Company and report co-author.
However, 2021 was very contrasted: all categories saw strong year-on-year increases between 40 percent and 100 percent in the first half of the year, while growth throughout the second half of 2021 dipped to an estimated 0 percent to 25 percent year-on-year.
Bain’s research identified three major trends that are expected to shape the luxury market for years to come.
Hainan offshore duty-free shopping
Hainan’s duty-free stores emerged as a new sizable luxury hub last year, with sales there growing by more than 120 percent in 2020. In 2021, these sales increased about 90 percent, reaching nearly RMB 60 billion (US$9.4 billion) and contributing about 5 percent to China’s overall luxury goods market growth. Personal luxury makes up ~95 percent of Hainan sales, with luxury beauty accounting for more than 50 percent of that number. As more operators arrive, retail shopping opportunities on the island are expected to continue expanding. With more options for buyers, price competition is likely to become more intense. For example, Bain estimates Hainan to represent already about 25 percent of the luxury beauty official market. Hainan is just one pricing disruptor that has affected shopping habits in China, especially the beauty market. Daigou agents, fueled by other travel retail operators, also played an increasingly important role in luxury sales in 2021.
Digitalisation in China is high and increasing, and the trend has further accelerated due to the pandemic. As a result, much of marketing and consumer engagement activities have moved online, even as the offline store remain the primary channel for brand building and purchase conversion. Online luxury sales grew faster than offline across all categories, with online personal luxury sales growing almost 56 percent, while offline sales grew at 30 percent.
In 2021, luxury online penetration reached a total of about 19 percent, excluding duty-free shopping. With duty-free penetration included, total luxury online penetration in China accounted for approximately 26 percent of sales.
In 2020, Covid-19-related travel restrictions led mainland China’s portion of Chinese global luxury purchases to a peak of about 70 percent to 75 percent in 2020. In 2021, continued repatriation contributed to this share growing to more than 90 percent. Beyond 2022, brands should anticipate the progressive re-opening of international travel, with implications on pricing harmonisation across geographies. But in the short term, 2022 will produce low double-digit growth for personal luxury overall. This growth might be slow for the first half of the year with stronger increases in the latter half, factoring in 2021 comparables.
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“Overall, we expect Chinese consumers’ personal luxury purchases to recover to pre-Covid levels between the end of 2022 and the first half of 2023,” said Weiwei Xing, partner at Bain & Company, co-author of the report. “This will be supported by continuous repatriation of spending and boosted by the gradual reopening of international travel, first in Asia and then globally.”