China—the only major economy to register economic growth last year—accounted for two-thirds of luxury spending growth in 2020, according to data from the NPD Group.
International travel restrictions naturally led to a significant pivot toward domestic spending. Of Chinese luxury consumers’ $12.29 billion in direct retail spending, $9.83 billion occurred in mainland China.
This represented a major shift from past years. Whereas Chinese luxury transaction value in mainland China amounted to 43 percent of the global total in 2019, this figure soared to 80 percent last year. Chinese consumers’ spending on personal luxury goods dropped 26 percent internationally.
According to NPD, the coronavirus pandemic’s greatest impact on mainland China occurred in February last year, when transaction value fell 79 percent. By April, however, the metric had recovered, with the market posting double-digit growth through the end of the year.
Luxury conglomerates are leading the growth within China. According to NPD, the top five brands recorded $5.1 billion in sales last year as they took 52 percent of the total value of sales in mainland China.
NPD noted that duty-free shopping has been an “essential” part of Chinese travelers’ shopping experience abroad. Due to travel limitations, however, consumer spending in Hong Kong, Macau and Taiwan was limited. China’s Hainan Island—with its policy support for duty-free development—appears to have benefitted from this turn of events. Sales at Haitang Bay in Hainan, the largest standalone duty-free shopping complex in the world, according to NPD, surged 66 percent compared to the prior year.
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Stanley Kee, NPD’s managing director, APAC, noted that China’s gross domestic product per capita surpassed $10,000 in 2019 and that 2020’s data release “confirmed its steadiness.”
“These numbers indicate great potential for a total consumer spending increase in a society where consumers demand more, better and newer goods in general,” Kee said in a statement. “There has never been a year when luxury companies have placed such a focus on China’s market as they did in 2020. The world is predicting this focus will increase and strengthen.”
Retailers are already making moves to cash in on the growing market. High-end e-tailer Farfetch, Chinese retail giant Alibaba and luxury goods holding company Richemont unveiled plans to team up in November. The agreement saw Farfetch launch its own channel on Alibaba’s Tmall Luxury Pavilion in March. Alibaba and Richemont are separately investing $300 million each in private convertible notes issued by the London-based company. Each will also front $250 million for a combined 25 percent stake in Farfetch’s new joint venture, Farfetch China. The two businesses will have the opportunity to purchase another 24 percent combined stake after its third year in business.
The March backlash against Western brands over their statements on China’s Xinjiang region has not left the luxury segment unscathed. The London-based fashion company Burberry was drawn into the controversy early on. The fallout led the Chinese gaming company Tencent to scrap its partnership with the brand to create “skins” for its popular multiplayer game “Honor of Kings.”