Chinese luxury customer market to hit $1 trillion RMB by 2025
Wealthy Chinese customers are set to add considerably to the global luxury spend over the coming decades, projected to hit $150 billion annually by 2025, which constitutes nearly 44% of the projected $400 billion global figure.
China continues to see the number of consumers in its most wealthy segment grow; the region is projected to boast the largest wealthy household segment in the world by 2021, with around $450,000 in investable assets. The growth of wealth has included a focus on luxury goods acquisition, a relatively valuable sector for a range of developed economies.
In a new report from McKinsey & Company, titled ‘Chinese luxury consumers: More global, more demanding, still spending’, the consulting firm explores changes in the effect of Chinese consumers on the wider global luxury goods market. The report is based on a survey of wealthy Chinese consumers.
Wealthy Chinese consumers remain a key market for luxury goods producers. spending an average of around $10,000 on luxury goods annually, with around 38% of the segment spending more than 15,000 annually. The global luxury goods market has grown steadily since the financial crisis. Spending on luxury goods has increased by around $400 billion since 2008, topping $240 billion in 2016. The proportion of Chinese consumers amongst those who spend on luxury goods has increased steadily, starting out at 12% in 2008 and hitting 21% in 2012 before reaching 32% in 2016.
The market share of Chinese consumer spending on luxury goods is set to continue growing in the coming year, projected to hit 36% in 2020 before reaching almost half (44%) by 2025, with total wealthy households in China topping 7.5 million – around the same number of households as the Netherlands. The Chinese consumer market has a total value of around $315 billion at current exchange rates.
The amount projected to be spent by Chinese consumers in 2025, around $150 billion, is more than the current spend of French, Italian, Japanese, UK, and US markets combined in 2016.
Brand choice
The study notes that wealthy consumers are relatively impulsive in their purchasing behaviour compared to cost sensitive consumers, with overall impulsiveness on the rise. As it stands, around one in two consumers in the segment makes a purchasing decision within a single day, up from one in four in 2010. The wealthy are also less likely to evaluate a large number of brands compared to average customers, at 2.1 and 3.7 respectively. When it comes to the actual buying decision, the brands initially considered result in a purchase in 93% of cases amongst the wealthy segment, compared to 70% for the average customer.
In terms of factors affecting brand choice, consumers have swapped quality for appearances as brand pre-eminence appears to be more important than the quality of materials or craftsmanship. Finally, “Timeless styles” have become more important to Chinese customers than “innovative designs”.
The research notes that wealthy Chinese consumers are taking increasingly large numbers of overseas trips –5.9 per year on average. Shopping overseas remains a key reason to travel, as Hong Kong remains the most prominent destination, followed by South Korea. Consumers have become considerably less keen to pay the mark-up on luxury goods sold in China – Only 20% say that they will accept a mark-up of 20%, compared to 60% in 2012.
The prospect of counterfeit or poorly produced luxury goods means that wealthy Chinese consumers continue to seek out more trusted channels that are likely to provide them with the genuine article when overseas. Consumers thus look to down-town department stores (41%), airport duty-free stores (26%), and department stores (15%). While a large segment in China itself, E-commerce hardly features as a channel (0.5%), brand-exclusive stores tend not to attract Chinese customers either (1%).
These figures follow a report from OC&C Consultants earlier in the year. That research found that the online market of China’s fast moving consumer goods industry was booming. Driven by convenience and lower prices, reliance on online channels to access goods is expected to increase across all age demographics in the coming years.
