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BCG, Tencent: China’s Luxury Sector on the Rebound Thanks to Young Shoppers

While luxury goods are often hit hard during periods of economic downturn, the impacts of 2020’s Covid crisis haven’t knocked the category out of commission—at least not with young Chinese shoppers.

Boston Consulting Group (BCG) and Tencent Marketing Insight, a subsidiary of the China-based technology holding company, Tencent Holdings Ltd., recently released their third annual consumer group insight study, and the results are largely favorable for luxury labels.

The report’s analysis revealed that the pandemic has actually spurred a rebound in China’s domestic luxury consumption, despite the fact that ready-to-wear, handbags, shoes, accessories, jewelry and watches have all faced global headwinds this year.

China is not only leading the luxury recovery—its sales are actually expected to grow by 20 percent to 30 percent, while the rest of the world is likely to see a 25 percent to 45 percent decrease. According to BCG and Tencent, emerging trends in the China market show that the country represents fertile ground for an upswing.

China’s luxury shoppers tend to be young—fully half are under 30, and that number is up 2 percent from 2019. These Gen Z and millennial shoppers account for 47 percent of the luxury spend in 2020, up from 42 percent a year prior.

Since the coronavirus began to spread, China’s top cities have contributed about 75 percent of overall luxury spending, a 10 percent increase year over year. What’s more, the penetration rates for specific items—jewelry, watches and handbags—have increased 6 percent during that time frame, likely as a result of shoppers looking for investment pieces that will retain their relevance long after the virus abates.

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“Consumers spent relatively less on ready to wear due to less frequent social occasions during the epidemic,” according to the report, which found that Covid “also affects the income expectation, explaining consumers’ preference of handbags which can hedge against cyclical risks.”

And as shoppers have been homebound for much of the year, many have developed an affinity for more localized products from their favorite labels. Almost all (90 percent) of respondents said they were receptive to China-specific items, while 60 percent expressed a liking for goods made for and marketed to a local audience. “A majority of consumers prefer classic items integrated with Chinese elements,” the report said, citing chinoiserie patterning and different cultural motifs.

Domestic consumption of luxury goods of all kinds has increased from 32 percent to 59 percent from 2019, while overseas spending has taken a hit during the same period, likely due to travel restrictions. In July, a new offshore duty-free policy in Hainan was implemented, which further relaxed the quota on duty-free purchases, category lists and purchasing limits. BCG and Tencent believe this action undoubtedly boosted consumer demand, with average daily sales of luxury goods surging above 100 million RMB ($14.9 million) it took effect. “The heated dynamics are expected to continue when Hainan enters the peak traveling season in the second half of the year,” the report said.

Unsurprisingly, luxury e-commerce has also seen a massive increase, with 33 percent of this year’s luxury sales taking place online, up from just 12 percent in 2019. Stores across China and the globe shut down for months earlier this spring, and many luxury labels ramped up marketing through online channels during this time.

However, omnichannel purchase journeys have also become more common, with 62 percent of all luxury shopping experiences in China expected to be researched online and then purchased offline this year. After brick-and-mortar retail began to open up again, the industry saw a “retaliatory rebound in consumption,” the report said, with multiple stores in Shanghai, Guangzhou and other large seeing record highs in daily sales. In April, the Hermès flagship in Guangzhou generated $2.7 million in single-day sales upon reopening.

The luxury consumer journey has evolved into a multi-dimensional—and multi-step—process, and purchasing is just one point of interaction between brands and consumers.

Most of China’s luxury shoppers (85 percent) make purchases within one month of beginning the exploratory phase. Different touch points include recommendations from sales associates, following the brand in question on social media, attending a brand event, making a repeat purchase from a known brand, and learning more about a coveted product, style or design.

Luxury purchases tend to be investments, rather than splurges. Just 13 percent of China’s luxury shoppers reported buying on the spot, while 34 percent were able to come to a decision after one week. And because these purchases are often thoughtfully considered, shoppers tend to engage more heavily with luxury brands than other labels even after they have slapped down their credit cards.

After making a costly purchase, 55 percent of shoppers try to enhance their knowledge through research on the brand and designer (18 percent), research about the product they’ve purchased (16 percent), advice in the form of styling tips (11 percent) and guidance from a sales associate on how to wear their new item (9 percent).

Meanwhile, research from Euromonitor also highlighted the growing impact of China’s urban millennial and Gen Z shoppers, with statistics showing ever-increasing interest in the convenience posed by digitization.

Young shoppers in China are living on their smartphones, spurring an increase in “m-commerce,” or mobile commerce, according to Euromonitor, whose data revealed that between 2014-2019, the contingent of Gen Z and millennial shoppers using their phones to make purchases grew by 64 percent. Last year alone, China’s share of mobile retail purchases accounted for 45 percent of phone-based buys worldwide, and $118 billion in sales.

The seamless integration of videos created by fashion and lifestyle influencers into online platforms has undoubtedly contributed to this piqued interest, Euromonitor noted. Viral video sensation TikTok boasts 320 million active users each day, while China’s video-sharing app, Kuaishou, sees 200 million users daily, making these platforms ripe for brand-based content like unboxing videos, product recommendations and fashion try-ons.

While teens and young shoppers across the globe have become addicted to perpetually scrolling through their mobile apps, China has also seen a growing number of single-person households, making loneliness a factor in turning to technology. From 2018-2023, the number of people living alone in China will see a 3.5 percent increase, the group’s data showed, compared to less than 1 percent growth in the U.S. and Japan. With more time alone, both because of their living arrangements and the desire to social distance, many are looking to connect with others through the devices at their fingertips.

“Chinese urban millennials and Gen Z are spending more time on mobile devices for their daily routine and entertainment,” Kelly Tang, senior analyst at Euromonitor International, said in a statement. “The growing focus on digital convenience, especially in the height of Covid-19, provided great opportunities for brands to engage with consumers in new ways.”

Livestreaming and social media campaigns with key opinion leaders, like influencers, are two of the most popular tactics brands are adopting to tap into the mobile market, she added.

The Covid crisis has accelerated consumer adoption of m-commerce, Euromonitor said, as physical retail hasn’t returned at capacity in China. Not only are shoppers using their phones for retail purchases, but they’re also buying into new services that make life more convenient. Now, they can order food and groceries, request housekeeping, buy personal care services like pedicures, and use telemedicine straight from their phones, solidifying the reliance on these devices and a more digitized way of life.