Affluent Chinese consumers are projected to make up to 44 percent of the global luxury goods market by 2025, according to McKinsey & Company. This would double their current level of spending to one trillion yuan (US$147 billion).
The consulting company, which issued a Chinese-language industry report on June 13, also expects the total market share of the global luxury market to reach 2.7 trillion yuan (US$397 billion) by 2025, which will be driven mainly by China.
In 2016, Chinese buyers from rich households (7.6 million) spent over 500 billion yuan to purchase nearly one-third of luxury goods in the world. The average spending by these buyers on luxury products was 71,000 yuan, double that of a household in France or Italy.
Since 2008, the number of Chinese households that can afford luxury products has doubled, thanks to increased disposable income and the variety of shopping channels.
With Chinese shoppers maturing, it’s imperative that luxury brands shift their focus from attracting new clients to adopting strategies to build and retain the loyalty of their existing ones
McKinsey noted that, in recent years, these customers have become established luxury consumers. With Chinese shoppers maturing, it’s imperative that luxury brands shift their focus from attracting new clients to adopting strategies to build and retain the loyalty of their existing ones.
The report highlights the importance of “word of mouth” in the purchasing decisions of Chinese consumers. Receiving positive reviews from friends and family is the most important factor influencing the choices of luxury shoppers.
The practice of “impulse buying,” however, is still prevalent among Chinese consumers, making it necessary for luxury brands to keep their labels at the “top-of-the-mind” when consumers look for information on what to buy.
Regarding digital strategy, McKinsey reported that official online stores of luxury brands currently account for only 7% of sales. The low conversion rate is not likely to be improved in the short term. However, the development of online-to-offline (O2O) channels in China might help brands attract more sales on their online platforms.
When it comes to factors that Chinese consumers look for when purchasing luxury goods, “quality,” “authenticity” and “price” continue to matter. Chinese consumers are in pursuit of high-quality, authentic products, and they’re sensitive about price.
Duty-free stores (both within the free trade zone and in airports), where products are offered tax-free, are the top channels for purchasing luxury goods. Department stores and the brands’ specialty boutiques — places where authenticity is guaranteed — come next.
In terms of recommendations to luxury brands, McKinsey advises them to focus on improving the quality of their service and reducing the price difference between domestic and overseas purchases. Luxury brands also need to ensure that consumers can find their core products in stores while also offering special editions, personalized service, and local events.
This article was originally published on Jing Daily.