The prolonged travel restrictions in China prompted global luxury brands to adjust their offerings as Chinese consumers spend more on luxury goods at home. Bluebell Group’s recently released ‘Asia Lifestyle Consumer Profile’ report highlighted that while Chinese product preferences are changing, the retail landscape and how shoppers are consuming is also on the move. Online luxury e-commerce sales and duty-free shopping have witnessed a robust growth since the beginning of the pandemic.
According to Bain & Company’s report released in January, Chinese consumers spent 471 billion yuan (the equivalent of US$74.3 billion) on personal luxury items in 2021, a 36 percent increase from the year prior. The country’s luxury spending has more than doubled since the beginning of the pandemic as it reached 234 billion yuan (US$36.7 billion) in 2019.
Strong sales on cross-border e-commerce platforms such as Tmall Global, JD Worldwide, Kaola, or VIP Global and booming duty-free shopping in Hainan province show that imported luxury goods are still in demand by Chinese consumers.
Based on a forecast report by Tmall Global, the South China Morning Post reported that China’s cross-border e-commerce consumers exceeded 200 million in 2020, with the market expected to be worth more than 300 billion yuan (US$47.1 billion) this year. According to Statista, as of the fourth quarter of 2021, the Alibaba-owned cross-border shopping platform Tmall Global possessed more than one-third of the entire import cross-border B2C e-commerce retailers.
As well as seeking premium quality, the motivation behind the Chinese consumers’ use of the cross-border e-commerce platforms are the savings made when purchasing luxury goods from Europe or the U.S. The travel restrictions due to the pandemic have further added to this tendency.
Another major driver for the local luxury market is the growth of duty-free stores in Hainan, an island province in southern China. In the last two years, new government policies have cut taxes and introduced other business-friendly measures aimed at turning the region into a free-trade port and international consumption center.
Sales of luxury goods at Hainan’s duty-free stores posted annual growth of 85 percent in 2021 — reaching 60 billion yuan (US$9.42 billion) — following a 122 percent year-on-year increase in 2020, according to Bain. The stores accounted for 13 percent of mainland China’s personal luxury goods market last year, up from 9 percent in 2020 and six percent in prior years.
The Bain analysts expect the growth of mainland China’s luxury market to moderate in 2022. However, the consulting firm forecast that China would become the world’s largest luxury goods market by 2025, regardless of future international travel patterns.
With the travel restrictions still in place and the rise of the “Guochao” trend or “china chic”, foreign luxury brands have to double down on the customer experience, product offering and localised content to appeal to the Chinese consumers.
“China’s luxury travellers are looking for an unforgettable experience, and brands are stepping up. This is an important part of the winning plan in Hainan, not just to help escape or mitigate the focus on discounts, but also to build the prestige and image of the brand nationwide,” said Rob Robertson, Beauty Director of Bluebell China.
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Foreign luxury brands also have to meet the customers where they shop and this will be more and more online or in duty-free shops meaning that they have to work with the right partners if they want to get a slice of the local market. However it is important to point out that by 2025 at the latest, Hainan is set to become a fully designated duty free zone, allowing brands to launch and operate their own stores without going through licensed operators. Brands’ success not only in Hainan but the broader China market in the long-run will be contingent on how brands make use of this future change.