Bain released the annual China Luxury Report 2021 at the beginning of 2022. Bain estimated that China’s personal luxury market to grow by 36% in 2021, reaching nearly 471 billion yuan, and the overall scale would almost double that of 2019. Globally, in 2021, the proportion of the Chinese market in the total global luxury consumption increased from about 20% in 2020 to about 21%. The report predicted that regardless of the recovery progress of outbound tourism in the future, China was expected to become the world’s largest luxury market in 2025.
Turning to the expectation of 2022, Bruno Lannes, senior global partner of Bain, believes that “the overall growth rate of personal luxury goods will maintain a low double-digit growth in 2022. It is expected that the growth rate will be slow in the first half of the year and the force will be concentrated in the second half of the year.”
High opening and low going in 2021
Bain report shows that despite the increasingly severe global social and economic challenges, the luxury goods market in China (excluding Hong Kong, Macao and Taiwan) continued to maintain double-digit rapid growth in 2021, and the growth rate of some brands exceeded 70%. Therefore, in just two years, the sales of luxury goods in China increased from 30 billion euros (about 233 billion yuan) in 2019 to 471 billion yuan in 2021. Equivalent to doubling.
The growth of luxury market in China has significant differences among different brands. Leather goods won the first place with a growth rate of about 60%, followed by fashion and lifestyle with a growth rate of about 40%, jewelry with a growth rate of less than 30%, high-end watches and luxury beauty makeup with a growth rate of 30% and 20% respectively.
The rapid growth of China’s luxury market is mainly due to the limited outbound travel, and most Chinese consumers still choose to buy luxury goods in China. In addition, the potential of duty-free shopping in Hainan has been released and the digital process has been gradually promoted, which has also further promoted the growth of luxury consumption in China.
However, the growth rate in the past year has not continued upward. Xing Weiwei, global partner of Bain, said that the growth rate of major categories was very rapid in the first half of 2021, with a year-on-year growth rate ranging from 40% to 100%. However, in the second half of the year, the year-on-year growth forecast fell to 0% to 25%.
Why will China’s luxury market open high and go low in 2021? Xing Weiwei explained that firstly, the comparison base of the same period in the second half of 2020 is very high. Second, since June, COVID-19 cases have been sporadic in many cities in China City, leading to frustration in brand performance. Moreover, the cooling of the stock market and real estate market in 2021 led to conservative consumer consumption. In addition, the new regulations for KOL and online product seeding have a certain impact on business.
“There is also an international student factor.” Xing Weiwei said that in the summer of 2020, due to the closure of a large number of overseas schools, many Chinese students returned to China, and these students successively returned to overseas universities in 2021, which had a negative impact on the overall growth rate of the Chinese market in 2021. Because China’s luxury market is very special. Compared with other countries, Chinese luxury consumers are very young, with an average age of less than 30, including many foreign students.
“The growth rate is expected to be slow in the first half of 2022, and the development force will be concentrated in the second half of 2022.” Bruno infers that the overall growth rate of luxury consumption will maintain a low double-digit growth in 2022, showing a trend of opening low and opening high. “Considering that the overall market has doubled in the past two years, this growth is still very significant for the overall market.”
Hainan duty free shop — a new opportunity
In China’s luxury consumption market, the most eye-catching region in the past year is probably the emerging holy land of luxury consumption – Hainan. Benefiting from the tax-free policy of Hainan outlying islands, the sales of duty-free stores in Hainan have developed rapidly at an amazing growth rate for two consecutive years. The growth rate exceeded 120% in 2020 and 85% in 2021. The total tax-free sales of the whole island in 2021 was nearly 60 billion yuan, accounting for 5% of the total sales growth of luxury goods market in China.
Bruno pointed out that personal luxury goods account for about 95% of the sales of duty-free stores in Hainan, of which more than 50% of the sales come from luxury beauty. Due to the price difference of 30% – 55% between the price of beauty luxury goods purchased in Hainan and the official price of the brand, it has a great attraction to many consumers.
The report points out that with the entry of more duty-free operators, the retail consumption potential of Hainan Island will be further released. The more tax-free operators consumers can choose, the more fierce the price competition will be. The report predicts that the sales of duty-free stores in Hainan have accounted for about 25% of the total sales of luxury and beauty products in China’s official channels.
In fact, for the beauty market, Hainan is only one of the subversive factors affecting the consumption habits of Chinese consumers. In fact, driven by other tourism retailers, a large number of beauty luxury goods flow into the Chinese market through purchasing channels (cross-border e-commerce), which has also attacked the price system of the beauty retail market to a certain extent.
Xing Weiwei suggested that this price difference may subvert the price system of China’s beauty and luxury goods and promote the slow growth of other channels. It will also lead to huge risks of category remodeling, and the brand image and brand assets may also be negatively affected.
But in the field of non-luxury beauty, the situation is different. Xing Weiwei pointed out that most brands still choose Hainan as an opportunity point to attract tourists to shop through tourism. “The whole policy is still very favorable, so the brand is also very willing to adjust its business layout to keep up with this new consumer trend.”
Under the opportunity, the overall retail environment in Hainan still needs to be greatly improved. Xing Weiwei said that the retail environment must match the experience of consumers and brands in China’s mainstream and leading cities, which is also the concern of some brands. “Overall, luxury brands still regard Hainan as a very big opportunity.”
Consumption return rose to 90%
In 2020, due to the obstruction of outbound travel caused by the epidemic, the Chinese market accounted for 70% to 75% of Chinese consumers’ global luxury consumption, a record high. In 2021, thanks to the continuation of the trend of consumption return, the proportion will further rise to more than 90%.
If the epidemic situation is greatly alleviated globally in 2022, will it reverse the trend of consumption return? Bruno believes that the probability of full liberalization of international tourism in 2022 is very small, so most brands still agree that the whole market pattern in 2022 is similar to that in 2021, and Chinese consumers will still consume in the domestic market.
“If international travel is resumed in 2023, it will indeed have a certain impact on the growth of luxury consumption in China.” Xing Weiwei believes that there are still other growth drivers, mainly focusing on product quality, including CRM and one-to-one communication and contact between salespeople and customers in these stores. At the same time, the convenience of shopping and the significant price difference represented by Hainan duty-free stores are the specific manifestations of domestic market competitiveness.
She also pointed out that in the future, more cities may open luxury brand stores or develop new formats, and the return of consumption may need to be further strengthened. Therefore, Xing Weiwei believes that consumers tend to shop in the domestic market rather than complete consumption on the way to travel abroad.
“In 2022, the strategy of luxury brands will not change greatly, but brands must be ready for 2023.” Bruno reminded brands to ensure that the price difference in different markets is reasonable. Chinese consumers cannot go abroad just because of the price difference between markets.
Asked about the extent to which domestic luxury consumption can drive the overall domestic consumption level, Bruno believes that personal luxury consumption accounts for a small proportion of the whole retail consumption in China, and the ability to drive the overall consumption is not obvious. However, the level of luxury consumption can indirectly reflect the optimism of consumers. If consumers feel more positive and optimistic about the overall market environment, they will spend more on luxury consumption. At the same time, such consumption will promote consumption in other retail areas accordingly.