Steady growth in income and a healthy household balance sheet translates to a Chinese consumer that’s willing to trade up to better quality brands and merchandise.
HSBC conducted a survey of more than 2,000 wealthy Chinese consumers for the Lunar New Year earlier this month, asking them 50 questions that centered upon their appetite for luxury goods, tech, sportswear, luggage, cosmetics and travel, among other categories. Those surveyed were optimistic about their outlook for future income and consumption. Specifically, seventy-two percent said they expect their income to improve. That includes a subset of 18 percent who said they expect income to improve “substantially,” according to the HSBC report “China Deluxe: Checking in on luxury consumption in China.”
Fifty-seven percent of respondents were between ages 18 and 34, the Millennial cohort expected to drive luxury consumption in the future. A little more than half of the respondents, also at 57 percent, were women. Annual income for 28 percent of respondents exceeded 150,000 renminbi ($22,400), while 33 percent were over 200,000 renminbi ($29,900) and 39 percent over 240,000 renminbi ($35,900). Forty-six percent reported they are from Tier 1 cities, with the balance indicating a presence in other tier cities.
“We are seeing a lot of evidence of premiumization, not just for handbags and beauty products,” analyst Erwan Rambourg, one of the report’s authors, said in a phone interview. “The Chinese consumer is trading up and moving away from accessible price points.”
The analyst said consumers who are in the very early stages of consumption will likely still be targeting the accessible brands and their price points, but those who are slightly older or have higher incomes are reaching for the better, European luxury brands.
“Wealthy individuals are overlooking the [accessible] brands and even waiting [until they can afford] to buy [the premium brand] to enable them to have social status. They want to be seen with a [Louis] Vuitton or Gucci bag [more] than a Coach,” he explained.
Highlights from the survey include: The No. 1 preferred watch brand is Rolex, the same as in the U.S.; global brands Adidas and Nike are still widely favored over local Chinese sportswear brands; Huawei is favored over Apple for smartphone purchases; Samsonite is now the preferred luggage brand, and Coach is the favorite affordable luxury brand in China ahead of Michael Kors. Other data points indicated that 78 percent of those surveyed were willing to pay a premium for a glass bottle over a plastic bottle (the younger Chinese Millennial consumer is big on environmental issues); 69 percent said they are planning to travel abroad, but no more than two times this year; 66 percent are spending more time on WeChat than they did last year and 65 percent are open to shopping for luxury online on Tmall.
And then there were some surprises compared to the year-ago report from March 2018, such as consumers indicating they want to make their luxury purchases this year in Hong Kong, France and Japan, versus their 2018 preferences for Hong Kong, France and China. And while the appetite to spend more on luxury appears to be slightly less than last year, it wasn’t as much as expected given recent headlines of a possible slowdown in spending. In handbags and leather goods, the brand Burberry slipped, while Michael Kors “gained steam.” And in watches and jewelry, Tiffany and Bulgari passed Chanel–second last year–to hit the second and third spots. In luggage, consumers went up a notch, now preferring the more premium brand Samsonite than its lower cost sibling American Tourister. For skincare and makeup, Korean beauty brands moved up the ladder from a year ago, with U.S. brands edging down in ranking.
Over the past decade, the report noted that growth in labor compensation has always corresponded with growth in nominal gross domestic product. And despite some concerns last year from headlines about a possible economic slowdown, the survey suggests that China’s consumption growth is resilient. That’s good for the country’s GDP, since consumption would likely keep it at the government’s targeted 6 percent rate.
The survey results showed that 30 percent of respondents said they plan to spend the same amount in higher-end brands this year despite the economic risks. For spending in general, also against a backdrop of economic risks, 23 percent said they don’t plan to change their spending habits, while 15 percent said they plan to spend more money. Only 17 percent said they plan to spend less money overall, while 14 percent said they plan to spend the same amount, but in lower-end brands.
As for actual intent to spend, 77 percent who had bought a luxury item in the past said they were looking to buy another one this year, while 90 percent of those who had purchased more than one luxury item in the past were planning to buy again. According to the report, that implied that “customer satisfaction is high and the customers are sticky.”
High on the list for coveted luxury items were cosmetics, perfume and skincare, apparel and jewelry. Next were shoes and accessories, while the categories they were less enthusiastic about were watches, handbags, briefcases and luggage.
Respondents also said they prefer to buy their luxury products in person, and directly from the company. About 33 percent said they like to buy luxury items on the company website, although Tmall has grown in popularity. Still the 33 percent is a decline from the 54 percent last year who said they preferred to buy on the company website, suggesting that brands’ efforts to improve their store experience and increase foot traffic appears to be working.
The survey also showed that French brands were the most popular, at 37 percent, with Italian brands at 23 percent in second place, followed by a tie at 11 percent each for American and Chinese brands.
A drill down on the apparel component of the survey indicated that Prada was the outerwear favorite in this year’s survey, which edged out last year’s favorite, Burberry. Also popular was Canada Goose, which came in ahead of the higher-priced Moncler brand. In suits, Armani and Givenchy retained their top two positions, while Prada fell to fourth place. The older respondents had a preference for Prada and Dior over Givenchy, while millennials preferred Armani, Givenchy and Dior. More women preferred Prada than men, while Ralph Lauren and Zegna more popular with men than women.
In footwear, it was Louis Vuitton, Gucci and Chanel, with the latter edging out Hermès for the third place spot. Burberry ranked ninth, same as last year. HSBC said brand equity provided a halo to the generalist brands, which did better than the specialty footwear brands–Salvatore Ferragamo, Jimmy Choo and Tod’s.
The high-end luxury favorite overall for both genders for handbags and leather goods was Hermès, followed by Louis Vuitton, Chanel and Gucci. The majority of respondents preferred to buy a bag that would last through multiple fashion seasons, although the younger cohorts were more likely to be excited about a bag that would be more fashionable now.
In the watch and jewelry group, Rolex, Omega and Longines were the top three watch brands. Cartier was most popular among women, and the second-most preferred brand in the 18 to 34 age group behind Rolex. Rolex was most preferred by men, but Omega was the most popular among respondents between the ages of 35 to 65. Cartier, at 51 percent, was the most preferred jewelry brand, although Tiffany rose in preference to second place this year. Chow Tai Fook was the preferred brand among the local jewelry brands.
In beauty and skincare, the ranking of U.S. brands fell in this year’s survey to fourth place, although Estée Lauder ranked as the favorite for both skincare and makeup–the analysts concluded that it was due to the French-sounding brand name. The authors also speculated that the decline to fourth place of American brands might be partially explained by the current political tension between the U.S. and China on trade.
In sporting goods, men favored both Adidas and then Nike more than women, while more women preferred New Balance—which placed third—than men. In the overall rankings, Puma was fourth, followed by Jordan and then Under Armour. By category, Nike (68 percent) was ahead of Adidas (63 percent) for running shoes. Nike was also ahead of Adidas for athleisure apparel.