Millennials and Gen Z shoppers have helped China double its total share of the global luxury market by 2020, with the market on track to become the largest in the world by 2025, even after the global economy returns to pre-pandemic levels.
The Chinese luxury market is set to grow 48% to 346 billion yuan this year, despite the COVID-19 pandemic, according to a report by Tmall, retail platform Alibaba BABA,
and consulting firm Bain & Company, published December 16.
The global luxury market shrank by 23% in 2020, according to the report entitled “China’s Unstoppable 2020 Luxury Market.” However, China’s market share has nearly doubled, from around 11% last year to 20% in 2020.
Bruno Lannes, senior partner in Shanghai at Bain, identified four factors driving the recovery in the mainland China market: further repatriation, millennial and Gen Z shoppers, ongoing digitalization and the duty-free stores in Hainan. Sales of the latter increased by 98% compared to 2019, reaching RMB 21 billion at the end of October 2020.
Several international luxury goods groups have highlighted the growing importance of sales in China to offset its reliance on tourism amid an unprecedented collapse in global travel.
Gucci, the fashion label of the French group Kering KER,
announced last week that it will open two flagship stores on Alibaba’s online luxury shopping platform, which has more than 750 million Chinese consumers.
The first store, selling fashion goods, will open on December 21, while a second store dedicated to beauty products will be launched in February 2021 and will be operated by Gucci’s licensing partner Coty COTY.
“Gucci has strategically invested in and cultivated a global ‘digital first’ approach, including the creation of a dedicated Chinese digital ecosystem in recent years,” Marco Bizzarri, Gucci president and CEO, said in a statement Friday.
Shares in Kering, which are down nearly 7% so far this year, were more than 2% lower in early European trading on Monday.
Read: Burberry sales are returning to growth, but the luxury goods recovery may stagnate
American jeweler Tiffany & Co TIF,
which is bought by the French luxury giant LVMH MC,
for $ 15.8 billion, Wall Street exceeded quarterly earnings expectations in November as it benefited from more than 70% sales growth in China.
“One of the most exciting trends to emerge from the luxury market in 2020 is the ways brands have actively developed and strengthened their connections with consumers both online and offline,” said Chris Tung, Alibaba Group’s chief marketing officer.
“Global luxury brands have embraced new digital tools such as live streaming for consumer education or product presentations,” Tung added.
Further growth of the Chinese market is expected through 2025 as Gen Z – those born after 1995 – and millennials – those born between 1980 and 1995 – continue to spend on luxury.
Nearly three-quarters of existing consumers in those cohorts said they would increase or maintain their luxury spending by 2021.
However, global conditions are unlikely to return to normal before 2022 or even 2023. “Chinese consumers are also likely to remain cautious about international travel even after the borders reopen,” the report noted, adding that as a result, most luxury brands believe domestic growth will continue at around 30% in 2021.